How Vale’s Valuation Multiples Look



Relative valuation

Currently, Vale (VALE) is trading at a forward EV-to-EBITDA multiple of 4.9x, which is a discount of 23% to its past five-year average multiple. Diversified miners (GNR) Rio Tinto (RIO) and BHP Billiton (BHP) are trading at similar multiples of 5.5x and 6.1x, respectively.

Cleveland-Cliffs (CLF) is trading at a forward multiple of 5.6x. 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.


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Valuation catalysts

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 improved the transparency of its 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 turnaround in the base metals division should set it up to take advantage of the big opportunity in the electric vehicles market, which should act as a significant catalyst for the stock.

The increase of base metals earnings should also 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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