2025 Outlook_ Heightened Uncertainty; Downgrade Vale to EW, Prefer Base Metal Equities

Summary of Key Points from the Conference Call Company and Industry Overview - Company: Vale S.A. (VALE) - Industry: Metals & Mining, specifically focusing on iron ore and base metals Core Insights and Arguments 1. Downgrade of Vale: Vale has been downgraded to Equal-weight (EW) with a new price target of $11.30, reflecting concerns over iron ore supply/demand outlook and low free cash flow (FCF) yield [12][74][75] 2. Performance Comparison: Vale's stock has underperformed, down 38% year-to-date (YTD), compared to the Ibovespa index which is down 24%, and also lagging behind global peers like BHP and Rio Tinto [75][78] 3. Iron Ore Price Forecast: The commodities team forecasts an average iron ore price of approximately $100 per ton in 2025-2026, down from the current spot price of $106, due to expected market surpluses [79][91] 4. Free Cash Flow Yield: Vale's estimated FCF yield is projected at 2.8% in 2025 and 5.0% in 2026, which is lower than competitors like Rio Tinto and Petrobras [91] 5. Management and Strategy: Despite the downgrade, there is recognition of Vale's long-term asset value and management strategy, including a clear vision for 2030 [74][75] Additional Important Insights 1. Global Economic Outlook: The global GDP growth is expected to taper to 3% in 2025, with significant uncertainty surrounding trade policies in the US and China, which may impact commodity demand [11][55] 2. Sector Volatility: The mining sector is anticipated to experience elevated volatility, particularly in the first half of 2025, due to uncertain trade and stimulus policies [9][11] 3. Comparative Valuation: Vale is trading at 3.7x EBITDA and 5.2x EPS based on new estimates, compared to its 5-year averages of 3.4x and 5.6x, respectively [74][103] 4. Investment Choices: Investors may find more attractive investment opportunities elsewhere, particularly in terms of FCF and dividend yields, as Vale's yields are positioned between those of its competitors [91][92] Conclusion The conference call highlighted significant challenges facing Vale, particularly regarding its iron ore outlook and competitive positioning in the market. The downgrade reflects a cautious approach amid broader economic uncertainties and sector-specific risks.