NEW YORK (TheStreet) -- You've heard the warning about being "a day late and a dollar short," and half of it applies to me.On Monday, I began to write this article about Vale ( VALE), the Brazilian "rock"-star mining company. "It can wait until tomorrow," I told myself. Well, when "tomorrow" hit, VALE shares soared over 5% on heavier-than-normal volume. The analyst and investment communities are finally beginning to wake up to what a compelling opportunity VALE offers. I'm not a "dollar short" because I was already long shares of VALE. Vale engages in the research, production and marketing of iron ore and pellets, nickel, fertilizers, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals in Brazil and abroad.
On Monday, a group of analysts at Canaccord apparently scanned the base-metals companies they cover and adjusted their pricing models downward. When they completed their analysis of global base-metals companies, only VALE was awarded an upgrade to "buy." The main reason they lifted VALE's rating was because it offers "... low-cost growth at a reasonable valuation," which is a good criterion for any promising investment. Back in March, the team of analysts at Merrill Lynch that cover the company praised VALE's decision to suspend investing in its Rio Colorado potash mining in Argentina. The team had some insightful comments to share about this prescient decision: "In the short term, the suspension of Rio Colorado should have a negative impact on Vale. Project's pending cash commitments should total U.S. $600 million-$1 billion, and the company could have U.S. $2.5 billion-$3 billion in write downs (non cash). However, we think this should have significant long-term savings." The Merrill analysts went on to explain: "Press reports suggest the capex for the project jumped to U.S. $11 billion from $6 billion (last budget). We think Vale still wants to keep the option open, if market conditions dramatically change, but it's clear the company will only resume the project if it has high returns." Translation: The cost of the Rio Colorado project was too expensive and VALE said, "Enough, and we will revisit this opportunity later."
Our own Research Director Stephanie Link and Jim Cramer wrote to those of us who subscribe to ActionAlertsPlus on Monday (they were not a day late): "Vale shares are below our cost basis, the dividend yield is now at 4.7% and the valuation is cheap at 5 times earnings before interest, taxes, depreciation and amortization.
They went on to write: "Last week we wrote that a preliminary ruling from Brazil's Supreme Court was favorable for the company, with the tax law implications less onerous than what had been expected. The final ruling will likely come this week, and we believe the news will trigger a re-rating on the stock, as well a narrowing in its discount vs. its peers. "While iron ore prices are expected to come down this year, given slower global growth, Vale continues to do internal restructuring with asset sales and a focus on profitability. We like the risk-reward scenario here." Today, a report emerged that a Brazilian newspaper said the government is "... working to change how it taxes its companies' foreign subsidiaries." The report cited the same Merrill Lynch analysts mentioned above. The analysts are in essence saying that Brazil's government is considering ways to "reduce past tax liabilities," including allowing them to postpone tax payments five years, "with less interest and fewer penalties." This is extremely beneficial for Vale because it "creates a more coherent and stable taxation," the analysts say. To be specific, the Merrill analysts wrote: "Out of the $30.5 billion real liability for Vale, $18.7 billion real is from interest and penalties. If Vale has to pay only the $11.9 billion real (U.S. $5.9 billion) balance in five years, the NPV would decline to just U.S. $4.5 billion." To add to the stream of good news Vale received an operating permit to expand its capacity for its maritime terminal in Carajas. The above referenced analysts noted: "The announcement is positive, as it is another sign that the company is delivering on its promises, but expected. In the short term, the most important license is the construction permit at Serra Sul (90mt project in Carajas), which should be received in the next few months." So more good news is forthcoming and this could boost shares. These Merrill Lynch analysts maintained their "buy" rating on VALE and have a $23 one-year price target. I'm looking for the stock to retest its $23.98 52-week high and break through above $24 before the end of the year. Even at $18.28 per share, the dividend yield-to-price is still a plump 4.27%, and if the rest of 2013 is profitable with reasonable sales growth, it wouldn't surprise me to eventually see VALE raise the dividend so it can be closer to 5%. So don't ever be "a day late and a dollar short" if you can help it. With VALE's forward price-to-earnings ratio less than 8, consider "nibbling" on some shares soon and then buy more if the stock has a temporary correction back below $18. The future looks bright for Brazil (home of the 2014 Olympics) and for VALE. Disclosure: As of the time of publication, the author was long shares of VALE. Follow @m8a2r1 This article was written by an independent contributor, separate from TheStreet's regular news coverage.