Vale

Water Cooler Investing
#21

i am not a fan of gold but commodities in general scare me. where is the demand going to come from.

iron ore went from 120 to 70 YIKES

#22

^ Commodities is all about the quality of the firm. The lowest cost producer will be the most profitable. Its actually a fairly straightforward game compared to retail or tech or autos. The lowest cost guy wins, end of story. If you pick the lowest cost producer, you’ll always be making money as the price can’t fall below his marginal cost.

#23

This one has been ugly since I bought in. Rose a little and downhill from there, lost a fair amount so far. Haven’t gotten around to doing any more research.

#24

hey thanks for the trade advice a$$hole

#25

Go baby go!

#26

Nice work dvictr, any other hot tips?

Geo, there are other factors besides just cost of production as people are learning throughout the sector. Additionally, being the lowest cost producer can maybe help you out in a relative valuation among industry peers, but it doesn’t mean you want to be in a sector that’s getting punished for the next 5 years.

  1. Government subsidies often come in to play as China has fueled price declines in iron ore and coal by propping up key producers.

  2. There is book value of assets. Producers that bought their mines at cyclical peaks as you see with a couple key gold names often get strapped with overvalued assets and can see their equity evaporate in a trough through rightdowns.

  3. There are customer contracts. Contracted deliveries and take or pay contracts with transportation and service providers can add a lot of pain in a trough.

  4. Geographical proximity matters. You see CAPP met coal providers cater to and are exposed to the European steel market for better or worse whereas Australian met coal typically feeds into China.

  5. Currency plays a role.

  6. Basic things like debt play a role. Arch coal is a one of the lowest cost producers, but acquisitions made in the peak (#2) left them with a debt to ebitda around 20x from which they are unlikely to escape without restructuring by 2018.

  7. Geopolitical risk matters. If Kinross has about half its revenue coming from two gold mines in Russia. That’s not great for them right now.

  8. New supply matters.

#27

Go VALE go! I still haven’t look deeply into it since I’ve bought it but will try to after I finish up some projects at work.

Any good or bad thoughts?

#28

If it were me, I’d start thinking about taking gains. Most of the outperformance in the bulk metals has been from cost outperformance while price expectations have been revised downward. I’m somewhat bearish on the demand outlook worldwide and in China, so that drives my view. For me, there may be a time to buy Vale and some of these names, but it is still early for that.

For the most part, focus on that demand picture and that will form your particular view.

#29

^ Yah, I’m thinking about exiting out of this one. In addition to iron ore demand, there’s currency risk to think about as well.

Here’s another opinion for anyone following it:

http://aswathdamodaran.blogspot.com/2015/04/the-search-for-investment-serenity-look.html

4/15/2015, he’s saying $10.71 valuation, down from $19.40 in november.

#30

Sold! Nice gain over a 3 mo hold, not including a dividend coming. Sold because there wasn’t enough margin of safety, and other risk factors for a stock I don’t know enough about.

I was basing my original speculation on Damodoran’s initial valuation of $19.40 which is now around $13.60. If it goes down, I’ll pick it up again.