Valuation multiple rerating?
Vale’s CFO, Luciano Siani Pires, said during Vale Day on December 6 that the company deserves a rerating of its valuation. He listed more predictability, transparency, and better governance as the catalysts for a higher valuation.
Currently, Vale (VALE) is trading at a forward EV-to-EBITDA multiple of 5.6x, which is a discount of 11.4% to its past five-year average multiple.
Cleveland-Cliffs (CLF) is trading at a forward multiple of 5.9x. However, it’s not directly comparable to these miners due to its smaller seaborne iron ore footprint and the nature of its contracts and products.
Vale’s S11D project is proceeding as scheduled, which is a big catalyst for its production growth and cost improvement. The project could reduce its iron ore unit costs below $10, along with a significant increase in volumes. The company has also adopted transparent governance policies, which have been a big investor concern. It’s also working to diversify its earnings away from too much reliance on iron ore. The increase of base metals earnings should lead to this diversification and help the company, as it would remain a nearly pure play on iron ore but derive earnings from other commodities. These factors could help Vale stock.
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