Why these Iron Ore Miners Could Offer Valuation Upside


Nov. 20 2020, Updated 1:47 p.m. ET

EV-to-EBITDA multiples in mining

Vale’s (VALE) is trading at a forward EV-to-EBITDA (earnings before, interest, tax, depreciation, and amortization) multiple of 6.4x, which reflects a discount of 5% to its last-five-year average multiple. Investors should, however, note that its multiple has improved 57% since the end of July 2017. As we’ve seen in the previous part of this series, analysts are turning around for Vale. Better prospects for Vale have also led analysts to improve their earnings estimates the longer term, which is driving up the valuation multiple. A faster reduction in debt could help alleviate investor concerns about the stock and lead to further re-rating.

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BHP and Rio Tinto

Rio Tinto (RIO) and BHP (BHP) are trading at forward multiples of 5.9x and 6.0x, respectively. Their current multiples imply discounts of 3.6% and 4.0% to their respective last-five-year average multiples. There hasn’t been much movement in these miners’ valuation multiples year-to-date.


Cleveland-Cliffs (CLF) is a US-focused player with small direct exposure to the seaborne iron ore market. It’s not directly comparable to seaborne peers due to its small seaborne exposure and exposure to the domestic US market, which has a different set of drivers. CLF’s stock is trading at a forward multiple of 7.1x. This multiple reflects a 22% discount to its last-five-year average multiple. Weakness in the US market due to rising US steel imports and a delay to the decision on the Section 232 probe into the steel imports have led to overall weakness in the US steel sector. To reflect the weaker outlook, Cleveland-Cliffs downgraded its 2017 volumes guidance in its 3Q17 results. Analysts have also downgraded their estimates to reflect these changes. A favorable outcome for the Section 232 probe would be a positive catalyst for Cleveland-Cliffs and its US peers (SPY)(SPX).

Keep checking in with Market Realist’s Iron Ore page for the latest updates on iron ore prices and iron ore mining companies.


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