Vale Earnings: Solid Iron Ore Sales, the Main Driver of Earnings

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.