Vale tipped to outperform BHP and Rio

Vale has fallen 26% so far this year in Sao Paulo, heading for the first annual decline since 2000. Now analysts say the world's largest iron-ore producer is poised for its best performance in a decade. Vale may double in the next year, three times the expected gains for the world's biggest mining companies, BHP Billiton and Rio Tinto, according to the median of six analysts' forecasts compiled by Bloomberg. While Deutsche Bank, Credit Suisse and Goldman Sachs predict iron-ore prices will rally 20% in 2009, Rio de Janeiro-based Vale will benefit more than its competitors as demand from Chinese steelmakers rises and freight rates fall. BHP and Rio won bigger price increases from China this year than Vale because they ship most of their ore from Australia, not Brazil. "Vale is set to outperform its peers,'' Credit Suisse's Roger Downey, the top-ranked metals and mining analyst in Latin America last year by Institutional Investor magazine, said. "Iron ore is the metal that's most likely to surprise the market.'' Vale will jump 98% to 74.17 reais in 12 months from its closing price of 37.50 reais yesterday on the Sao Paulo stock exchange. The company's shares rose more than 80% on an annual basis three times - last year, in 2002 and in 1999, when they surged 222%. Rio Tinto's shares will increase 34%, and BHP will rally 29%, estimates show. Rio Tinto has dropped 5.8% in London trading this year, while BHP has advanced 2.3% in Sydney. Higher iron prices would help Vale more than other producers, said Tony Robson, an analyst at Toronto-based BMO Capital Markets. The metal will account for 67% of Vale's sales next year, compared with 35% for Rio and 22% for BHP, he said. In the first half, Vale sold $US9.89 billion of iron ore, or 54% of revenue, company filings show. Rio Tinto generated $US3.74 billion from iron ore, or 31% of its total, and BHP had $US3.58 billion, or 14%. Vale, owned by the government until it sold shares to the public in 1997, trades at a discount to its peers. Vale's American depositary receipts sell for 6.8 times forecast 2009 per-share profit, compared with at least 7.3 for BHP and Rio. "Now is the time'' to buy, said Deutsche Bank analyst Jorge Beristain in New York, who was second in the Institutional Investor ranking. Moody's Investors Service cited the "strength of the iron-ore market over the next year'' when it raised the rating on Vale's debt to Baa2, the second-lowest investment grade, from Baa3, last week. －－business day