Company Reports

Commodity prices generally fell in the September-ending quarter, except for gold. Concerns about weak China end-user steel demand affected iron ore and other steelmaking commodities, while base metals prices fell on worries over slower economic growth in China and elsewhere.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

No-moat Vale’s 2024 second-quarter result was similar to our expectations. Iron ore sales volumes, the main driver of earnings, were 7% up on the second quarter of 2023 and 25% higher than the prior quarter. Sales volumes of 144 million metric tons for the first half are 10% higher than last year, but Vale reiterated guidance for 2024 production of between 310 million and 320 million metric tons. Despite the strong first half and sales typically being seasonally higher in the second half, we think 2024 sales volumes are likely to be lower than production, as has typically been the case in recent years. As such, we continue to forecast 2024 iron ore sales of 305 million metric tons, similar to 2023. Average iron ore fines prices of about USD 98 per metric ton for the quarter and USD 99 for the half are consistent with our full-year assumption of about USD 101. However, unit cash costs were modestly disappointing, at about USD 25 per metric ton for the quarter and USD 24 for the half, above Vale’s unchanged guidance of USD 21.50 to USD 23. However, likely higher sales volumes in the second half should see unit cash costs fall, and we maintain our full-year estimate of around USD 22.50, which is similar to last year.

Shares of most of our global mining coverage fell during the quarter, and the average price/fair value estimate has fallen modestly to 1.05 at July 8, 2024 from 1.07 last quarter. While our coverage is close to fairly valued on average, there is a wide dispersion, with no-moat mineral sands miner Iluka the cheapest, trading 30% below fair value at that date. Mineral sands prices are lower, on reduced demand from China’s property sector. Rising interest rates and slowing housing markets in the West are also a near-term headwind. However, longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. Its proposed rare earths refinery in Eneabba is an option, on elevated rare earths prices and potential Western tariffs on Chinese production.

Base metals prices surged earlier in the June quarter of 2024 before partially reversing due to concerns over China’s economy. Iron ore prices are broadly stable despite China's struggling property market and weak infrastructure spending, leading to questions over China's steel demand. After updating our commodity price assumptions, no-moat Iluka is the cheapest miner we cover, trading 31% below its unchanged fair value estimate of AUD 9.50.

We retain our fair value estimate for no-moat Vale of USD 14.20 per share after its first-quarter 2024 result was in line with our expectations. Iron ore sales, the main driver of its earnings, rose 15% on the same quarter of 2023 to 64 million metric tons. Sales are typically lowest in the first quarter due to the Brazilian wet season and are likely to increase over the remainder of 2024, consistent with prior years. However, despite its solid start to the year, guidance was maintained, and the heavy weighting of sales to the remainder of the year means we make no change to our forecast for 305 million metric tons in 2024, similar to 2023. All things being equal, higher sales over the rest of 2024 will likely see unit cash costs decline from USD 23.50 per metric ton in the first quarter of 2024—modestly above Vale’s guidance—to within our unchanged forecast of USD 22-USD 23 per metric ton. We forecast 2024 dividends of USD 0.86 per share for a 7% forward yield. Vale also continues to buy back up to 150 million shares, which we think is value-accretive at current prices.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

We modestly lower our fair value estimate for no-moat Vale by 3% to USD 15, driven by increased costs for the Samarco dam failure. Vale added USD 1.2 billion in provisions for compensation payments on top of USD 3.2 billion at the end of September 2023. No-moat BHP, Vale’s 50/50 joint venture partner in Samarco, recently recognized an additional provision of USD 3.2 billion. The difference is mainly due to differing assumptions around Samarco’s ability to contribute to compensation, with Vale taking the more optimistic view of the partners. While Samarco will likely return to full capacity of roughly 30 million metric tons (100% basis) toward the end of the decade, we incorporate an additional USD 2 billion provision to be consistent with our BHP fair value estimate. Otherwise, our long-term forecasts are broadly unchanged, and shares in Vale look undervalued.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

We make no change to our fair value estimate for no-moat-rated Vale of USD 14.50 per share after its 2023 third-quarter result was modestly lower than our expectations. Adjusted EBITDA of USD 4.5 billion rose 12% on the same quarter of 2022, with higher iron ore prices and sales volumes more than offsetting increased unit cash costs and foreign-exchange headwinds. The company reiterated 2023 iron ore production and cost guidance but we modestly reduce our forecast iron ore sales by 3% to around 300 million metric tons, similar to 2022. With iron ore sales lagging production by 9% so far this year, we don’t think the gap will be fully made up in the fourth quarter despite sales more likely to track production in the quarter. We retain our forecast for unit cash costs to be at the top end of Vale’s unchanged guidance of between USD 21.50 to USD 22.50 per metric ton given inflation and likely soft volumes. Iron ore dominates Vale’s earnings, accounting for about 90% of our 2023 forecast EBITDA of USD 19.5 billion.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

Strong China steel production is supporting prices for steel inputs despite recession concerns. Otherwise, changes to our commodity price assumptions are mixed, led by higher near-term iron ore prices and lower near-term thermal coal prices. We think thermal coal miner Whitehaven Coal and minerals sands miner Iluka are the cheapest we cover. Both trade at 29% discounts to our AUD 9.50 and AUD 10.50 per share fair value estimates, respectively, with Whitehaven’s down 3% on lower near-term thermal coal prices, partially offset by a weaker Australian dollar. Peer New Hope is also down 3% to AUD 6.10 per share. Iluka’s estimate is unchanged, with a weaker Australian dollar offsetting lower synthetic rutile prices.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.