Mining giant Vale S.A. (VALE) recently announced that its management has approved a capital expenditure budget of $14.8 billion for 2014. The budget signifies a year-over-year decline for the third time in a row after reaching its highest of $18.0 billion in 2011. The reduction reflects the company’s plans to focus on its core competencies and thereby increase shareholders’ returns.
Of the allocated amount, $9.3 billion or 63.0% is marked for project execution expenditure, $4.5 billion or 30.8% for sustaining existing operations and the remaining $0.9 billion or roughly 6.2% for research and development.
Expenditure on bulk materials represents a major chunk of the total budget. In the project execution segment bulk materials accounts for 86.2% of the total budget, while expenditure on base metals, fertilizers, power generation and steel represent 8.5%, 0.6%, 1.9% and 2.8%, respectively.
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The sustainment budget includes five dimensions: building and expanding waste dumps and tailings dams ($706 million); corporate social responsibility ($402 million); operations, mainly equipment replacement ($2.5 billion); health & safety ($433 million) and administrative and others ($542 million).
The company has been attempting to narrow its diverse geographical presence, which leads to a reduction in the research and development expenditure. Vale executes strategies to expand its large scale production facilities along with reducing costs. With respect to planned expenditure, the company intends to spend $356 million for conceptual, pre-feasibility and feasibility studies; $384 million for mineral exploration and $163 million in new processes, technological innovation and adaptation.
With such planned expenditure, we expect the company to perform well over the coming quarters. This Zacks Rank #2 (Buy) company currently has an expected earnings per share growth rate of 28.5% (over the next five years). Vale has a market capitalization of $76.7 billion. Other stocks worth considering in the industry include Alderon Iron Ore Corp. (AXX), Cliffs Natural Resources Inc. (CLF) and United States Steel Corp. (X), each with a Zacks Rank #2.