Vale's (VALE) Buy Rating Maintained at Deutsche Bank

Deutsche Bank maintained a Buy rating on Vale S.A. (NYSE: VALE) with a price target of $6.50. Analyst Rene Kleyweg commented on implications for Vale after the IMF suspended financial assistance to Mozambique. The UK government also suspended aid.

"These developments are all the more disappointing given the world forgave Mozambique’s tainted historic debt as recently as 2000," said Kleyweg. "The undisclosed guarantees were taken out by Pro-Indicus and Mozambique Asset Management, both of which are involved in the maritime industry. The undisclosed guarantees follow on from another controversial US$850m loan issued to set up a tuna fishing company. The CEO of the first two entities is Chairman of the third. The interior ministry borrowed additional funds from an undisclosed country."

Commenting on implications for Vale, the analyst said, "Vale is in the process of finalizing a $2.0-2.7bn project finance facility for the Nacala Infrastructure corridor which supports the Moatize coal operations as well as other coal producers, the agricultural industry in Mozambique and Malawi and other economic activity. The main participants in the facility are the African Development Bank, JBIC (Japan Bank for Int. Cooperation) and the IFC, which is the private sector arm of the World Bank. It may be viewed as unacceptable for the IFC to move forward with a private sector transaction in a country where its parent has withdrawn support. However, at this stage the IMF has not suspended its project finance activities in Mozambique."

Kleyweg added, "Whilst $44bn lawsuits may be grabbing the headlines, of much more relevance for the fundamental investment case in our view is the ability to deliver on the Mozambique transaction and monetizing a portion of its Northern System iron ore assets to meet the US$15bn net debt target in 14 months time. Recent news out of Mozambique has not been helpful in this regard. An imminent meeting of the Council of Ministers will be significant in the approval process, but concluding a deal may now be more politically sensitive and dependent on normalizing World Bank relationships with Mozambique. After much huffing and puffing we would still expect a deal to be concluded this year."

For an analyst ratings summary and ratings history on Vale S.A. click here. For more ratings news on Vale S.A. click here.

Shares of Vale S.A. closed at $4.78 yesterday.

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