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Feb 15, 2011

Pursuing a global IR program

Vale’s IR director reveals the hard work behind efforts to expand the company’s investor base globally

Vale, the Brazilian mining powerhouse known for its global acquisitions and far-flung shareholder base, views growth as central to its strategy. Its priorities are the development of internal growth options and the pursuit of organic  growth, according to Roberto Castello Branco, Vale’s director of investor relations.

Vale takes an opportunistic approach to acquisitions: if the firm identifies a high-quality asset that fits with the  company’s asset portfolio and makes sense from a risk/return point of view, the asset might eventually become an acquisition target. Being open to opportunities, wherever they might arise, has contributed to the company’s success. Currently, Vale is the second-largest mining company in the world, the greatest producer of iron ore and the second-largest producer of nickel.

What’s more, its recent acquisitions have extended its global imprint dramatically. In 2006 Vale acquired Inco, Canada’s second-largest mining company, for $17.7 bn; in 2007 it bought the Australian coal mining company AMCI Holdings for $656 mn. Vale also has coal operations in China and Colombia, in addition to coal mining projects in the Tete province of Mozambique.

Transforming a traditional Brazilian export company into a major global concern is one of the most monumental challenges Vale has faced. ‘In 2001 we were a company with a $10 bn market cap; now our market cap is above $170 bn,’ says Castello Branco. ‘We used to go to conferences and make presentations for 10 people in the audience.  Today, my agenda is very, very busy and our presentations are always crowded.’

Trading 20 hours a day
Vale’s IR department realized it needed a stronghold in the Asia-Pacific region in addition to its listings on the Bovespa, the NYSE in New York and NYSE Euronext in Paris. Thus began the company’s search for another stock exchange on which to list its stock.

After studying the various Asian exchanges, Vale concluded that Hong Kong would best suit the company. Hong Kong is an international financial center with one of the larger exchanges in the region. More importantly, Castello Branco describes Hong Kong as ‘the gateway to China’. He observes that many mainland Chinese companies are listing in Hong Kong, boosting the exchange’s strong growth prospects. ‘Hong Kong may be an intermediate step to a listing in Shanghai in the long term,’ he adds.

Vale spent four years laying the groundwork for the company’s Asia-Pacific debut by increasing its profile among investors in the region. The IR team attended numerous Asian investment conferences, as well as arranging non-deal roadshows in Shanghai, Beijing, Singapore, Hong Kong and Tokyo. ‘[The Hong Kong listing] has definitely been a long-term effort,’ explains Castello Branco.

With Vale’s arrival on the Hong Kong Stock Exchange in December 2010, the firm’s equities now trade for 20 hours a day. In addition, Vale’s American depositary receipt (ADR), for which JPMorgan is the depositary bank, has the distinction of being the most traded DR in the world.

Global trading is central to Vale’s success. Thanks to the NYSE being such ‘a liquidity center’, almost 70 percent of the stock’s trading occurs there, says Castello Branco. Some 40 percent-45 percent of Vale’s investors are based in North America, primarily in the US, but with some Canadian participation, too – unsurprisingly, given the company’s large operations north of the border.

About 35 percent of Vale’s investors come from South America, with the lion’s share of those – more than 95 percent – located in and a much smaller subset in Argentina and Chile. Finally, 15 percent-20 percent of investors are Europe-based.

Today, just 5 percent of Vale’s shareholders come from the Asia-Pacific region, but Castello Branco is convinced this number will increase with time. He notes that Hong Kong has many retail investors, with a full third of that country’s citizens owning their own equity portfolios.

‘Hong Kong is a place with a very strong culture of investing in capital markets,’ he observes. ‘It has a long tradition of equity investing, inherited from the UK.’

Bigger is better
Vale’s IR team is unusually large, with a total of 18 individual members, including interns. The size of the team is particularly noteworthy given that Vale was state-owned for 54 years, from its inception in 1942 until privatization in May 1997, making its IR effort just 13 years old.

After the company went public, one of the first and most daunting challenges the management faced was transforming it into a truly private sector concern. ‘Privatization of a state-owned firm does not end when the government sells the shares to private sector investors,’ notes Castello Branco, who assumed leadership of the IR department 10 years ago. ‘You still have to change the mind-set of people. You have to eliminate the traits of being a state-owned company.’

The size of Vale’s IR group also owes much to the company’s unique mandate for the department. In addition to handling ‘plain-vanilla IR’, the investor relations team acts as an in-house economics department for the whole company, says Castello Branco. Specifically, IR develops macro-economic projections for the budgeting and strategic planning processes, helps the corporate finance group, and conducts studies on commodity markets.

What’s more, Vale’s global focus keeps the IR team busy scheduling travel plans. In any given year, the company’s IR professionals will visit the Americas, Europe, Australia, Asia and even South Africa. Among their responsibilities is dealing with almost 500,000 shareholders and equity and debt analysts, as well as the various rating agencies.

Long-distance labors
Being headquartered in Rio de Janeiro poses a logistical challenge for the company, says Castello Branco, who notes that ‘geographically, we are far away from everything.’ A trip to Hong Kong takes more than 20 hours of flight time and many of the company’s IR professionals travel for several months of the year. Castello Branco personally spends four months of the year outside Brazil. ‘To work with us, the first requirement is to be very physically fit,’ he jokes.

For Vale’s IR team, an extensive global itinerary is just part of the job description and everyone winds up well traveled. The IR group pays the greatest number of annual visits to North America, followed by London (six to eight visits), Asia and Australia (five to six visits), and continental Europe (three visits). Because the trips to Asia are so  time-consuming, Vale is planning to open an IR office in Singapore staffed by one individual in the not-too-distant future.

When Vale was less well known, the IR team led a greater number of global roadshows each year. That is now changing. ‘We seem to have entered a phase of diminishing returns from roadshows,’ observes Castello Branco. Instead, he and his team believe the top priority is attending investor conferences.

On average, each year Vale’s IR group participates in 25 conferences for institutional investors and five events for retail investors. Naturally, these large investor conferences are located throughout the world. Vale also holds investor days in major cities. To date, the company has organized an annual investor day in New York, London and Hong Kong.

Managing a global investor base
Having a truly global investor base takes considerable time and effort. Vale produces all its investor materials in three languages: Portuguese, English and Mandarin. Recently, the company launched a Chinese website for its Asia-Pacific investors. Vale has also amassed an email list of 20,000 individuals, many of whom come from such far-flung places as Slovenia, Kazakhstan, Pakistan and the Pacific territory of New Caledonia.

Although Vale’s audience is diverse, the IR team doesn’t necessarily tailor the firm’s story to investors based on geography. Instead, Castello Branco is convinced a strong IR strategy speaks for itself. ‘First, our approach is to be transparent,’ he says. ‘Second, we need to make people understand our company’s value drivers, the risks it faces, and how we plan to execute our strategy.’

In this regard, Castello Branco believes his skillful IR team provides enormous value. ‘We are not just marketing to people,’ he says. ‘Our team has a strong financial background to deal with more sophisticated investors. We have people who understand the business and can help investors understand it, too.’

Vale’s corporate strategy can be difficult to explain, precisely because the company is so nimble and so open to diverse opportunities. For 2011 it has a $24 bn budget dedicated to covering maintenance, R&D and a large pipeline of projects awaiting execution.

‘We have many options,’ notes Castello Branco. ‘We are developing new mines, building new plants and enlarging the infrastructure to support the expansion of our business.’ For instance, Vale is constructing railroads and maritime terminals in Africa to support its coal and iron ore projects.

Although the IR team can’t always tell investors precisely what Vale’s new ventures will be, Castello Branco says they must explain new projects and acquisitions in very concrete terms. ‘We show investors the potential for gain, the risks involved, the synergies and the expected shareholder value creation stemming from growth initiatives,’ he says.

Nothing new under the sun
Beyond that strategy, the mining business is ‘quite basic and simple,’ Castello Branco maintains. ‘Metals are the backbone of a modern economy. Although metals are very old, you still find them in the newest products. Even in the screen of a BlackBerry, there is platinum, and inside a BlackBerry is nickel.’

Vale’s IR efforts may span the globe, but the company is committed to ensuring retail investors always get the attention they deserve. Since 2004 the company has attended retail investor conferences in the US, and today has investors in all 50 states.

‘It is our belief that you must respect all investors, regardless of their size,’ says Castello Branco. ‘We treat retail investors with the same dedication we allocate to large shareholders. We believe excellence is doing ordinary things extraordinarily well. That means we have to excel in everything – we have to truly know our business, our industry and our value drivers so that we can make investors aware of these things, too.

‘The IR team members can’t just act as middlemen. We need to excel to help our company achieve its goal of becoming the largest and best mining company in the world.’