Vale SA (ADR) (NYSE:VALE) inked another gold purchase deal with Silver Wheaton

Vale SA (ADR) (NYSE:VALE) inked another gold purchase deal with Silver Wheaton in its Salobo Mine in Brazil. The latest deal means that Silver Wheaton will have 50% stake in Salobo mine for its entire lifetime. Silver Wheaton announced stock offering to raise funds for the additional acquisition of a stake in Salobo mine. Vale is expected to benefit from guaranteed sale of significant amount of gold produced from the mine.

Vale SA (ADR) (NYSE:VALE) agreed to cede another 25% in Salobo mine to Silver Wheaton. In a separate deal signed in 2013, Silver Wheaton acquired 25% in the mine, which means its total stake following the latest deal is 50%.

The acquisition will add 70,000 ounces of gold to Silver Wheaton a year for the first 10 years and 60,000 ounces of gold a year for the first 30 years. Silver Wheaton announced plans to sell stock worth $800 million to finance the latest acquisition.

The earlier acquisition cost Silver Wheaton $1.33 billion. In the latest one, Vale SA (ADR) (NYSE:VALE) will receive $900 million in cash consideration for ceding 25% in Salobo mine. The new deal with Silver Wheaton means that Vale will be able to sell gold in Salobo mine at a fair market price.

Vale Equity Analysis

Vale SA (ADR) (NYSE:VALE) opened trading today as $6.21 and is trading in the range of 6.13-6.30 today. Vale’s current market cap stands at $32.00 billion.

Compared to other peers in the Industrial Metals & Minerals sector, Vale hasn’t performed in terms of quarterly revenue growth year over year at -0.23 vs. the industry average of 0.34.

Vale is currently covered by 27 Wall Street analysts. The mean target price is $10.00 according to First Call. This presents a solid upside to the current price of the equity. The Mean Recommendation sits at 2.9 which is based on 3 Strong Buy, 7 Buy and 12 Hold ratings.

The current quarter EPS consensus estimate is .09 with revenue estimates of 7.81B. Sales are expected to drop at a 17.80% rate. Vale reported actual earnings last quarter of -0.05 which fails to beat the .19 consensus estimate, a -126.30% surprise.

Corporate Profile

Vale S.A. is engaged in the research, production, and sale of iron ore and pellets, nickel, fertilizer, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals. Its Bulk Material segment extracts iron ore and pellet production, as well as operates transport systems, including railroads, ports, and terminals related to bulk material mining operations. This segment is also involved in producing manganese and ferroalloys; and mining coal. The company’s Base Metals segment produces non-ferrous minerals, including nickel and copper. Its Fertilizers segment provides a group of nutrients: potash, phosphates, and nitrogen. It also focuses on generating energy through hydroelectric plants and centers in Brazil, Canada, and Indonesia, as well as producing steel. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009.