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Vale (VALE) Might Stream $700M Voisey's Bay's Cobalt Output

Zacks Equity Research logoZacks Equity Research 6/11/2018 Zacks Equity Research

Per media reports, Vale S.A. VALE will sell about $700-million cobalt produced in its Canada Voisey’s Bay open-pit mine to meet rising demand from vehicle battery makers.

Of late, Vale has been trying to gather funds to transform the open-pit operations of this mine to an underground one. Notably, prior to this, the company had expressed interest in streaming the arrangement of the mine.

Under the streaming approach, an investor offers upfront finances to miners against a share of their output. Conventionally, precious metals like silver and gold are exchanged, but cobalt will be counted in the group, on account of its noteworthy price upswing.

Prices of cobalt has inflated almost three times over the last two years, as giant companies like Tesla, Inc. TSLA are manufacturing electric cars. The lithium-ion batteries of these vehicles are primarily made of cobalt. However, on the supply side, the market is still heavily dependent on the Democratic Republic of Congo.

Vale’s Canadian mine Voisey’s Bay is located in provinces of Newfoundland and Labrador. The government authorities of these regions will likely declare a “significant mining initiative” with Vale on Jun 11.

Over the last three months, Vale’s shares have rallied 5.8%, slightly outperforming 5.7% growth recorded by the industry.

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This Zacks Rank #3 (Hold) stock is poised to grow on the back its robust supply-chain model, increased free cash flow generation and higher global steel production. However, issues like input cost inflation, increased pelletizing plants' leasing expenses and higher royalties might continue to escalate the company’s aggregate cost of sales, going forward. Also, certain industry-specific headwinds like stiff competition from other mining behemoths like BHP Billiton Ltd. BHP and Rio Tinto plc RIO pose concerns for the company.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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