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8/6/08

Do the samba pump!

The last time I posted on very strong rumours flying around that Vale (RIO) was going to use the U$12Bn or so it raised to launch a bid for Freeport McMoRan (FCX), a reader commented:
Anonymous said...

And just coincidently*, I take it, this rumor happens to come out on options expiration date?

I replied that I was just calling the rumour and had no position (totally true), but on reflection s/he did have a fair point. Fast forward and here we are, no RIO bid and one large sell-off later. FCX has dropped from $100 to $79 (it was under $76 at one point yesterday). And.......well, lookee here!! Bloomberg is running a story that can easily be classed as "PUMP JOB".

It starts with the headline............

Vale Profit Slowdown Prompts Mining Takeovers as Nickel Drops

..........which is intriguing in itself, but the intro paragraph hits you straight with a....

Aug. 6 (Bloomberg) -- Cia. Vale do Rio Doce, the world's biggest iron-ore exporter, is looking for copper and coal acquisitions as profit growth slows following the steepest drop in nickel prices in two decades.

.....and before you can say 'self-fulfilling prophecy' Freeport's name is neatly inserted into the text. "Wowsers", thought Otto, "Bloomie has cracked a revealing interview with CEO Agnelli or some major name inside RIO."

Except Bloomberg hasn't. It takes a while to realize due to the set of the report, but after you read through, check back and read again you get to realize that Vale is not quoted as "looking for copper and coal acquisitions" but in fact the analysts with their own vested interests that hover around these stocks are calling for RIO to move into those sectors.

It turns out that Brazil Bloomie staff Diana Kinch and Jessica Brice have cobbled together a story from information already known to the market, phoned a few analysts for some opinion, whacked a totally misleading headline and top paragraph on the note and sent it out as something fresh'n'new to draw attention to either RIO or (most probably) FCX in the midst of heavy sector selling.

What the hell kind of stunt is Bloomberg Brazil trying to pull here? There's enough bullshit info in this market without supposedly reliable newswires pulling the wool over investors' eyes like this. Whether or not Vale finally decides to bid for FCX, or Anglo, or Antofagasta, Xstrata, or a copper asset, or coal, or another iron ore asset is beside the point here. This kind of note is at best on the very edges of acceptability and at worst a crockashit. All this and the timing as well.....all these analysts coming out and calling bull things and dropping all FCX buyout hints at the same time, to the same pair of reporters, right at the moment FCX stock is taking a right royal tanking. As anonymous mentioned last time, the timing has to make you wonder.

Bottom line:
Question: What kind of journalistic licence allows you to leap from the quote from the Goldman dude saying "A coal or copper acquisition would help Vale reduce volatility in its results,'' buried in paragraph eleven to "(RIO) is looking for copper and coal acquisitions" on paragraph one?

Answer: A licence with an expiry date in the very near future.

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Addendum: Here's the full bloomie story (just in case they start editing it)

Vale Profit Slowdown Prompts Mining Takeovers as Nickel Drops

By Diana Kinch and Jessica Brice

Aug. 6 (Bloomberg) -- Cia. Vale do Rio Doce, the world's biggest iron-ore exporter, is looking for copper and coal acquisitions as profit growth slows following the steepest drop in nickel prices in two decades.

Vale raised $12.06 billion last month in a stock sale that Chief Executive Officer Roger Agnelli said will be used for takeovers and expansion. JPMorgan Chase & Co. said in June that Vale's ``most likely'' target is Freeport-McMoran Copper & Gold Inc., a U.S. mining company valued at $30 billion.

Agnelli needs new assets because profit growth slowed to 14 percent in the second quarter, down from a 69 percent average during the past four years, based on estimates of three analysts in a Bloomberg survey. Nickel makes up 27 percent of Vale's sales since it purchased Inco Inc. last year.

``For Vale to gain a comparable level of diversification to mining rivals, including Rio Tinto Group, it must add a third leg of major commodities exposure to its existing legs of iron ore and nickel,'' Nomura Securities analyst Paul Cliff said in a telephone interview from London on July 31.

Any new deal would be in addition to the $59 billion that Rio de Janeiro-based Vale is spending over five years to boost output of iron ore, nickel and other commodities to overtake BHP Billiton Ltd. as the world's biggest mining company. In May, Agnelli told business leaders in Rio de Janeiro that ``if Vale doesn't grow, it will be swallowed.''

Freeport spokesman Bill Collier declined to comment yesterday when asked whether Vale has made any approach about a takeover of the Phoenix-based company. Vale said July 18 that it wasn't in talks with Freeport and hasn't made an offer.

Seeking Takeovers

The share sale in July was the biggest ever by a Brazilian company, fueling speculation Vale is preparing a takeover offer after it walked away from talks to acquire Xstrata Plc in March. Agnelli said in May the company was ``very well positioned'' to grow in coal and copper.

Vale said July 1 that it was studying a bid for copper smelter Caraiba Metais SA and phosphate-fertilizer maker Cia. Brasileira de Fertilizantes, subsidiaries of Brazil's Paranapanema SA.

``Vale can achieve growth to the adequate size in copper only by acquisitions,'' said Bernardo Lobao, a steel and mining analyst at ARX Capital Management in Rio.

Second-quarter profit probably climbed to a record $4.67 billion from $4.1 billion a year earlier, according to the average estimate of three analysts in a Bloomberg survey. Excluding some items, analysts expected per-share profit of 91 cents, up from about 85 cents. Vale is scheduled to report results after the close of trading today.

Nickel Eroded Growth

``Nickel may have restricted Vale's profit and revenue growth,'' Marcelo Aguiar, a Goldman Sachs Group Inc. analyst, said by telephone from Sao Paulo. A coal or copper acquisition ``would help Vale reduce volatility in its results,'' he said.

Aguiar forecast profit of $5.2 billion, or $1 a share. Sales probably climbed 36 percent to $11.8 billion, the average of four estimates in a Bloomberg survey.

Profit growth was fueled by iron ore, which accounted for about 46 percent of Vale's sales in the year through March 31. In February, the company won a contract price increase of at least 65 percent for its iron ore, an ingredient in steel.

In the first quarter, nickel led to an 8.8 percent profit decline, the first drop since the final three months of 2003. Vale acquired Canada's Inco in January 2007 for $16.7 billion to become the world's second-biggest nickel-mining company. Nickel prices fell 26 percent in the quarter, the most since 1988.

Nickel Outlook

A rising surplus of nickel may hurt Vale's earnings in coming years. Production will outpace consumption by 15,000 metric tons next year and widen to 74,000 tons by 2013, Goldman Sachs said in a report on July 17, citing a forecast by metals consultant Brook Hunt & Associates Ltd. Copper supplies will fall short of demand by 1.35 million tons by 2013.

Vale will open a copper mine next year in Chile, the world's biggest producer of the metal. The company aims to more than double output to 592,000 tons a year by 2012 from last year's 284,000 tons. Copper equals about 6.4 percent of total revenue.

Nickel for delivery in three months averaged $25,919.69 a metric ton on the London Metal Exchange during the quarter, down 43 percent from a year earlier. The metal closed at $17,600 yesterday. Copper averaged $8,324.52 a ton on the LME in the quarter, up 9.8 percent from a year earlier, after touching a record $8,940 on July 2. The metal closed yesterday at $7,625.

Vale rose 34 centavos, or 1 percent, to 36.04 reais yesterday in Sao Paulo trading. Before today, the stock declined 5.2 percent in the past year, compared with a 6.9 percent gain for Brazil's benchmark Bovespa index.

To contact the reporters on this story: Diana Kinch in Rio de Janeiro dkinch1@bloomberg.net; Jessica Brice in Sao Paulo at jbrice1@bloomberg.net.

Last Updated: August 5, 2008 23:04 EDT

* sic