Morgan Stanley is optimistic about the growth of Vale S.A. Sponsored ADR (VALE.US) in 2026: driven by both iron ore and copper mining businesses.

Morgan Stanley recently released a research report on Vale S.A. Sponsored ADR(VALE.US), and held a meeting with the company's Chief Financial Officer, Mr. Marcelo Bacci, to discuss topics such as shareholder returns, current status of railway operations, development of a flexible portfolio of iron ore products, growth strategies for the copper business, and challenges faced by the nickel business sector. The report stated that Mr. Bacci mentioned that if the company's net debt falls below $15 billion, it may issue a special dividend. The management team expects to continue focusing on railway concession matters in Brazil in the short term, but remains confident in the agreements signed in 2020. Considering the tightening market for iron ore expected by 2026, Vale S.A Sponsored ADR is focusing on enhancing the flexibility of its iron ore product portfolio. Mr. Bacci believes that increasing copper production to 700 thousand tons per year (ktpy) is profitable, but pending engineering design work needs to be completed before project advancement. Although the nickel business sector has achieved cost reductions, it has not yet reached breakeven, and the company currently has no plans to expand its pure nickel assets in Canada. The report mentioned the possibility of a special dividend distribution, but it is unlikely to be implemented by 2025. Mr. Bacci believes that if iron ore prices remain high and the company continues to operate well, by December 2025, the company's net debt may fall below $15 billion, creating conditions for a special dividend to be issued in early 2026. In addition, if the company can reach the lower limit of its 2025 capital expenditure (capex) guidance, stock buybacks may resume in the fourth quarter. The management team is optimistic about railway concession matters in Brazil. Although previous renegotiations of railway concession terms with the Brazilian government were unsuccessful, the management team stated that they will continue to focus on this issue in the short term, especially paying attention to rumors that the government intends to re-tender related assets. Meanwhile, the management team is confident in the legality of the early renewal agreement signed in 2020 - this agreement ensures the company's control of railway assets will continue until 2057, and the company is currently working to achieve a peaceful resolution with the government through communication. It is expected that the iron ore market will tighten by 2026, and the market will be balanced over the next five years, with iron ore prices expected to remain above $90 per ton. In this context, the management team is investing in creating a flexible product portfolio with an annual capacity of 360 million tons (mtpy), and adjusting the product structure to meet customer demand. The strategic plans of Vale S.A. Sponsored ADR include concentrating on supplying high silica ore in the Chinese market, launching new products with medium ore grades, and gradually exiting the high silica ore market - these initiatives may generate additional revenue of several hundred million dollars for the company. Increasing copper production is still a key focus for the company. The management team pointed out that the Manara project, with the goal of increasing copper production to 700,000 tons per year (compared to 3.48 million tons in 2024), aligns with the strategic growth of Vale S.A. Sponsored ADR, mainly relying on internal resources for production growth rather than mergers and acquisitions. The company believes that this growth will be profitable, but detailed engineering design work has yet to be completed before approving any projects. The nickel business sector has shown some improvement, but has not yet achieved breakeven. Although overall costs in the nickel business have decreased, the management team believes that there is still potential to reduce capital expenditures, especially in assets with lower long-term potential. In the current challenging situation, the management team does not have plans to expand pure nickel assets in Canada, and instead prefers to develop its multi-metal mine, as by-products are more attractive.