OREANDA-NEWS. July 21, 2011. Vale SA, the world's largest iron- ore producer, will only make "opportunistic" acquisitions as it seeks to control expenditures amid record profit, Chief Executive Officer Murilo Ferreira said.

The company will be disciplined in pursuing acquisitions, Ferreira said yesterday in an interview at Vale's headquarters in Rio de Janeiro, a week after he decided against entering into a bidding war for South African copper producer Metorex Ltd. Vale has an "aggressive" organic growth strategy, he said.

Ferreira, 58, replaced Roger Agnelli as CEO of Vale on May 22 after the Brazilian government criticized the company in the past two years for not spending more on domestic steel projects and for buying ships in China when the country was setting up its own yards. Since taking over, Ferreira scrapped a plan to sell shares of Vale's fertilizers business in an initial public offering, cut its long-term iron-ore output forecast by 10 percent and announced a share buyback of as much as USD 3 billion.

"We have discipline in the capital allocation," Ferreira said. "I want to do good deals that generate return for shareholders."

Vale, which aims to boost copper output almost fivefold by 2015, on July 11 dropped out of bidding for Johannesburg-based Metorex after China's Jinchuan Group Co. trumped its USD 1.13 billion offer with a USD 1.36 billion bid. Last year, Vale produced about 207,000 tons of copper.

Amazing Results

"The last thing that investors want to see is Vale going out and paying any price and overpaying just because they can," Jonathan Brandt, an HSBC Holdings Plc equity analyst in New York, said in a telephone interview. "They are being cautious with the capital and certainly returning a lot more capital than some of their peers."

Brandt said he expects Vale to announce as much as USD 3 billion in additional special dividends later in the year, based on HSBC's net income forecast for the company. Vale is scheduled to pay at least USD 5 billion in dividends this year, two-thirds more than the amount distributed last year. The company said June 30 that it will also spend as much as USD 3 billion to repurchase stock, joining BHP Billiton Ltd. and Rio Tinto Group in returning capital to shareholders.

Vale, which will invest a record USD 24 billion this year, embarked on a plan to expand its iron-ore production capacity about 50 percent by 2015 and diversify into other markets, including base metals and potash, to take advantage of increasing demand from emerging markets.

Any Asset

Vale is interested in "any asset" in the iron-ore, fertilizer, nickel, coal and copper markets as long as it creates growth and return for its shareholders, Ferreira said. Energy assets aren't "on its radar," even as rival BHP has made such acquisitions, he said.

Africa is the "priority" for efforts to expand in copper output, he said.

Vale scrapped its planned IPO of its fertilizers unit because it has low debt levels and doesn't need additional resources to develop the assets, Ferreira said. Selling shares now would lead to discounts of as much as 45 percent in the value of the assets, he said.

China is nearing the end of the monetary policy tightening cycle and conditions are set to improve as of the fourth quarter, Ferreira said.

"We will start to see from next month a change in the direction of inflation," he said.

Chinese Demand

Vale sees no slowdown in demand from China as the country seeks to build 36 million low-income houses in the next five years, Chief Financial Officer Guilherme Cavalcanti said in an interview July 5. Vale shipped about 41 percent of its total iron-ore and pellets sales to China in the first quarter.

Vale, which is due to report its results for the second quarter on July 28, expects to finish an internal review of all its projects in the next 60 days, Ferreira said. The company will have "more clarity" on its long-term nickel and copper output forecasts after the review, he said.

The company may report second-quarter profit before interest, taxes, depreciation and amortization of USD 10.1 billion, a record for the company, thanks to higher iron-ore prices and an increase in sales volumes, Leonardo Correa, an equity analyst at Barclays Capital in Sao Paulo, said in a note to clients July 18. Profit may rise further during the third quarter "as iron ore volumes should increase and prices remain at very high levels," he said.

Vale gained 10 centavos, or 0.2 percent, to 46.15 in Sao Paulo trading yesterday. The stock lost about 4.9 percent this year, compared with a 15 percent decline in the benchmark Bovespa Index.