Analyst Note| Mathew Hodge, CFA |
No-moat Vale delivered a second-quarter 2021 gross profit of USD 10.9 billion, a 36% increase from the first quarter. This was underpinned by higher iron ore prices which more than offset weaker base metals performance. Iron ore fines and pellets production surpassed the previous quarter by 11% to 84 million tonnes, supporting sales volumes to a total of 75 million tonnes, up 14% from the previous quarter. Elevated prices for Vale’s most important commodity more than offset a hit to cash costs from higher maintenance, equipment, and transportation costs. Volume guidance is unchanged and iron ore shipments are on track to meet our full-year 2021 forecast of 325 million tonnes of iron ore. At our unchanged fair value estimate of USD 19, Vale’s shares trade at a 10% premium with the elevated iron ore price more than compensating for any residual concerns about their tailings dam disasters.