Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<ul>
<li>We like <a href="https://www.smartkarma.com/entities/vale-sa" target="_blank" data-smartkarma-citation="entities:23731:1" rel="noopener">Vale (VALE US)</a> for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA. </li>
<li>The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio. </li>
<li>The key risk remains the overhang from the Mariana Dam disaster being settled for  ~25.7 billion USD (vs. the current market cap of 50 billion USD). </li>
</ul>


We like Vale (VALE US) for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA. 
The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio. 
The key risk remains the overhang from the Mariana Dam disaster being settled for  ~25.7 billion USD (vs. the current market cap of 50 billion USD). 


VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield

<ul>
<li>We initiated on the iron ore space recently with a short-term bullish call (see: <a href="https://www.smartkarma.com/insights/iron-ore-primer-understanding-the-drivers-of-the-market-ways-to-play-the-sector" target="_blank" data-smartkarma-citation="insights:136452" rel="noopener">Iron Ore Primer: Understanding The Drivers Of the Market, Ways To Play The Sector</a>). </li>
<li>Check out our initiation on  <a href="https://www.smartkarma.com/insights/mount-gibson-mgx-au-iron-ore-pure-play-77-of-the-mkt-cap-in-cash-0-5x-ev-ebitda-with-catalysts" target="_blank" data-smartkarma-citation="insights:136941" rel="noopener">Mount Gibson (MGX AU): Iron Ore Pure Play, 77% of the Mkt Cap in Cash, 0.5x EV-EBITDA With Catalysts</a> ).</li>
<li>Iron ore has a more short-term upside as it bounces off the cost curve in its three-year band (95-130 USD/ton), while China has demonstrated an abundant appetite for restocking. </li>
</ul>


We initiated on the iron ore space recently with a short-term bullish call (see: Iron Ore Primer: Understanding The Drivers Of the Market, Ways To Play The Sector). 
Check out our initiation on  Mount Gibson (MGX AU): Iron Ore Pure Play, 77% of the Mkt Cap in Cash, 0.5x EV-EBITDA With Catalysts ).
Iron ore has a more short-term upside as it bounces off the cost curve in its three-year band (95-130 USD/ton), while China has demonstrated an abundant appetite for restocking. 


Iron Ore Comes Roaring Back! BHP-Anglo, VALE, FMG: What's Hot In the Space

<ul>
<li>Investics Research will initiate coverage of the materials sector in April 2024, starting with iron ore and then gold, coal, and steel in subsequent months (in that order).</li>
<li>The areas of coverage on asset classes will encompass the underlying commodity and the associated equities. </li>
<li>Areas of differentiation would include in-depth coverage of all equities (small/mid and large cap) and actionable tactical ideas on the commodity.</li>
</ul>


Investics Research will initiate coverage of the materials sector in April 2024, starting with iron ore and then gold, coal, and steel in subsequent months (in that order).
The areas of coverage on asset classes will encompass the underlying commodity and the associated equities. 
Areas of differentiation would include in-depth coverage of all equities (small/mid and large cap) and actionable tactical ideas on the commodity.


Introduction: Initiation of Coverage in the Materials Sector

<ul>
<li>The <strong>Singapore gasoil 10 ppm benchmark</strong>, which is commonly used to calculate diesel costs for iron ore players like <a target="_blank" rel="noopener">Fortescue Metals (FMG AU)</a>, has declined 45% from its April peak.</li>
<li>The <strong>BDIY has also corrected from its peak levels of 3000 to the low 2000's</strong>. While some cost pressures have eased, iron ore prices have also pulled back.</li>
<li>From a margin perspective, on the higher end of the cost curve, like <a target="_blank" rel="noopener">Fenix Resources (FEX AU)</a>, will experience a bit of margin pressure, although long-term, we like the name.</li>
</ul>


The Singapore gasoil 10 ppm benchmark, which is commonly used to calculate diesel costs for iron ore players like Fortescue Metals (FMG AU), has declined 45% from its April peak.
The BDIY has also corrected from its peak levels of 3000 to the low 2000's. While some cost pressures have eased, iron ore prices have also pulled back.
From a margin perspective, on the higher end of the cost curve, like Fenix Resources (FEX AU), will experience a bit of margin pressure, although long-term, we like the name.


Iron Ore: Temporary Relief With The Correction in Diesel And Shipping Costs

<ul>
<li>With ongoing <a href="https://www.afr.com/world/asia/no-credible-exit-china-takes-on-bhp-to-reorder-a-276b-market-20260402-p5zl0f" target="_blank" rel="noopener">restrictions on BHP products by the CMRG,</a> China continues to stockpile iron ore, with port inventories exceeding 47 days (~165 million tons). </li>
<li>As a result, imports from China are up 10% YoY to 210 million tons for Jan-Feb, and are likely to remain strong with ramp-ups by <a href="https://www.smartkarma.com/entities/rio-tinto-ltd" target="_blank" data-smartkarma-citation="entities:13:1" rel="noopener">(RIO AU)</a> and <a href="https://www.smartkarma.com/entities/vale-sa" target="_blank" data-smartkarma-citation="entities:23731:1" rel="noopener">(VALE US)</a>. </li>
<li>With steel production stabilizing and apparent demand at -5.6% YoY (coupled with restocking), it is likely that iron ore prices will hold up in the 100-110 USD/ton range till Q3.</li>
</ul>


With ongoing restrictions on BHP products by the CMRG, China continues to stockpile iron ore, with port inventories exceeding 47 days (~165 million tons). 
As a result, imports from China are up 10% YoY to 210 million tons for Jan-Feb, and are likely to remain strong with ramp-ups by (RIO AU) and (VALE US). 
With steel production stabilizing and apparent demand at -5.6% YoY (coupled with restocking), it is likely that iron ore prices will hold up in the 100-110 USD/ton range till Q3.


Iron Ore: China Steel Demand Stabilizes, Port Stocking Continues Unabated

Australia

Fortescue Metals Group Ltd. explores for and produces iron ore. The Company conducts business worldwide.

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Fortescue Metals (FMG AU)

VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield

We initiate coverage on VALE US, one of the world's biggest iron ore producers, with high-grade iron ore and low-cost production. The stock trades...

Sameer Taneja

Iron Ore Comes Roaring Back! BHP-Anglo, VALE, FMG: What's Hot In the Space

We summarize newsflow in the iron ore market and our take on the BHP-Anglo deal. We also summarize the production reports of Vale/FMG and Champion...

Sameer Taneja

Introduction: Initiation of Coverage in the Materials Sector

We provide readers with an introduction to our initiation on commodities. We also provide a rationale as to how our coverage will be comprehensive...

Sameer Taneja

Iron Ore: Temporary Relief With The Correction in Diesel And Shipping Costs

The massive decline in diesel prices (Singapore gasoil) of 45% from the peak and the retreat in BDIY are helping spreads for iron ore producers. We...

Sameer Taneja

Iron Ore: China Steel Demand Stabilizes, Port Stocking Continues Unabated

China is stockpiling iron ore amid the BHP/CMRG standoff and negotiations, supporting prices near $100–$110/ton. We assess the medium-term iron‑ore...

Sameer Taneja

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