OREANDA-NEWS. February 07, 2011. A look at a shortlist of metals and miners players in Brazil, India and China with the potential for deal-making outside their home base yields a weak list of contenders. The ones with substantial cash holdings boil down to NMDC Ltd. and Steel Authority of India Ltd., both of India, and Gerdau SA and Vale SA, of Brazil.

Vale SA stands head and shoulders above the rest. As floods continue to pound Australia's Queensland and seaboard coal shipments become constrained, Vale's Brazilian base and multiplicity of global hard-asset holdings position it well for future deal growth.

While NMDC has been touted as a potential contender in foreign markets, the reality is that this Indian staterun iron ore miner prefers operating close to home, as evidenced by the recent announcement of its joint venture with OJSC Severstal of Russia to build an integrated steel plant in India.

Similarly, Steel Authority of India Ltd. is internally focused, operating Indian steel and iron ore mines for

domestic consumption. In its most recent earnings call, Gerdau too confirmed its focus on domestic growth rather than making more deals overseas.

Only Vale has the heft and global presence to capitalize on mineral resource development outside its home base. It has budgeted USD 24 billion for investment in 2011, up 125% over the previous year ended September 2010.

More than 80% of this budget is allocated to organic growth. But much of the 68% increase the company projects in iron ore production through 2015 and the more than doubling in copper and coal production will occur overseas.

Moreover, Vale has declared that the "easy" mineral discoveries are over and that for new world-class deposits it will have to turn increasingly to Africa, where Vale is already building a sizable coal position in Mozambique (USD 1.1 billion) with potential to attain 42 million metric tons of annual production by 2015, and

iron ore assets in Guinea (another USD 1.1 billion) with potential for 15 million metric tons per year in 2014.

But any banker proposing deals to Vale needs to be mindful of its desire to retain solid investment grade bond ratings (Baa2, Moody's, and BBBplus, S&P). With current net debt of 0.8x trailing 12-month Ebitda, there is significant headroom for more debt, but for a knockout acquisition additional means of financing M&A,

such as equity issues, might be needed to safeguard its credit ratings.

Headroom for debt is likely to constrain several of Vale's peers, including the acquisition-hungry Tata Steel Ltd. of India, which is burdened by a USD 12.4 billion net debt pile -- 2.9x Ebitda for the 12 months ended last September.

While Vale is based in a BRIC country, it compares well with other world-class miners like BHP Billiton Ltd., Rio Tinto Ltd., Anglo American PLC and Xstrata PLC. Its enterprise value of more than USD 191 billion is on the same scale as that of the first two competitors.

While Vale should employ discipline to guard its credit metrics, it also has the resources to make the right. When it comes to identifying scarce natural resources, the early bird gets the worm, and despite having made its 2011 budget Vale can be persuaded to play for the right worm.