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

Commodities

<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>Iron ore continued to operate in its band from 95-130 USD/ton over the last few years, with a recent drop from 120 USD/ton to 105 USD/ton on tepid China data.</li>
<li>With incremental news on China's stimulus in the property and infrastructure sectors, we remain confident that iron ore will return to 120 USD/ton in the short term. </li>
<li>We also remain bullish on the 65-62 spread, which has expanded to the teens. <a href="https://www.smartkarma.com/entities/rio-tinto-ltd" target="_blank" data-smartkarma-citation="entities:13:1" rel="noopener">Rio Tinto Ltd (RIO AU)</a> and <a href="https://www.smartkarma.com/entities/vale-sa" target="_blank" data-smartkarma-citation="entities:23731:1" rel="noopener">Vale (VALE US)</a>  are good plays on the spread.</li>
</ul>


Iron ore continued to operate in its band from 95-130 USD/ton over the last few years, with a recent drop from 120 USD/ton to 105 USD/ton on tepid China data.
With incremental news on China's stimulus in the property and infrastructure sectors, we remain confident that iron ore will return to 120 USD/ton in the short term. 
We also remain bullish on the 65-62 spread, which has expanded to the teens. Rio Tinto Ltd (RIO AU) and Vale (VALE US)  are good plays on the spread.


Iron Ore: Disappointing Data Pushed Price Down to 105, Bounce To 120 On Further Stimulus From China

Energy Transition | AI | Shifting World Order, Mint Finance

Srinidhi Raghavendra

Energy Transition | AI | Shifting World Order

Deep Fundamental Analysis

Mint Finance

Mint Finance's investment research blends deep fundamental analysis with technical & quant insights. Investment strategies straddle across multiple asset classes with risk management embedded into every trade to deliver an outsized reward-to-risk ratio.

Mint Finance's research is centered around three key themes. First, energy transition and climate change. Second, artificial intelligence. Third, shifting world order with its impact across politics and monetary economics.

<ul>
<li>Chinese real estate investments fell 10.1% in the first five months of 2024 YoY. New home prices fell at the fastest pace in more than 9.5 years in May.</li>
<li>Fresh bank lending in China rebounded well expectations in May. Chinese banks issued 950B yuan (v/s 1.36T yuan issued last May) in new loans last month.</li>
<li>China's consumer inflation held flat in May amid feeble domestic demand, uneven economic recovery, and consumer confidence weakness.</li>
</ul>


Chinese real estate investments fell 10.1% in the first five months of 2024 YoY. New home prices fell at the fastest pace in more than 9.5 years in May.
Fresh bank lending in China rebounded well expectations in May. Chinese banks issued 950B yuan (v/s 1.36T yuan issued last May) in new loans last month.
China's consumer inflation held flat in May amid feeble domestic demand, uneven economic recovery, and consumer confidence weakness.


Persistent Weakness in Chinese Real Estate Will Drag Iron Ore Prices Down

<ul>
<li>SGX Iron Ore prices exhibit seasonality. For select six months being long Iron Ore combined with short positions during other months deliver positive P&amp;L based on back tests. </li>
<li>In line with prices, realised volatility exhibits seasonality too. Options strategies can exploit this to deliver superior alpha &amp; higher sharpe ratio.</li>
<li>Averages confound extreme variances. Monthly iron ore futures price returns are less volatile during the months of December, February, June, October, &amp; March based on range.</li>
</ul>


SGX Iron Ore prices exhibit seasonality. For select six months being long Iron Ore combined with short positions during other months deliver positive P&amp;L based on back tests. 
In line with prices, realised volatility exhibits seasonality too. Options strategies can exploit this to deliver superior alpha &amp; higher sharpe ratio.
Averages confound extreme variances. Monthly iron ore futures price returns are less volatile during the months of December, February, June, October, &amp; March based on range.


Harvesting Seasonality in Iron Ore Prices Induced by Weather, Inventory Restocking, and Holidays

<ul>
<li>
<a href="https://www.smartkarma.com/entities/champion-iron-ltd" target="_blank" data-smartkarma-citation="entities:19734:1" rel="noopener">Champion Iron (CIA AU)</a> reported an inline result for FY24, with revenue/profits up 9%/16% YoY.  Q4 revenue/profits were -28%YoY/-73%YoY due to lower pricing on 60% of volumes in transit. </li>
<li>The company-guided production volumes have reached the annualized 15 mnt mark, but logistics continued to be challenging in Q1. Easing is expected in August, and base case a 1.5-year destock.</li>
<li>The name carries some risks trading at 7x PE FY25 (March end), but it could be one to watch in case the 65-62 spread widens.</li>
</ul>



Champion Iron (CIA AU) reported an inline result for FY24, with revenue/profits up 9%/16% YoY.  Q4 revenue/profits were -28%YoY/-73%YoY due to lower pricing on 60% of volumes in transit. 
The company-guided production volumes have reached the annualized 15 mnt mark, but logistics continued to be challenging in Q1. Easing is expected in August, and base case a 1.5-year destock.
The name carries some risks trading at 7x PE FY25 (March end), but it could be one to watch in case the 65-62 spread widens.


Champion Iron (CIA AU): Q4 Results Update and Future Outlook

Australia

Iron ores are rocks and minerals from which metallic iron can be economically extracted. The ores are usually rich in iron oxides and vary in color from dark grey, bright yellow, deep purple, to rusty red. The iron itself is usually found in the form of magnetite (Fe3O4, 72.4% Fe), hematite (Fe2O3, 69.9% Fe), goethite (FeO(OH), 62.9% Fe), limonite (FeO(OH).n(H2O)) or siderite (FeCO3, 48.2% Fe).

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Iron Ore (IRON ORE COMDTY)

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: Disappointing Data Pushed Price Down to 105, Bounce To 120 On Further Stimulus From China

We provide our take on the China data like TSF, auto sales and property that led to the sell-off in iron ore. We provide our rationale for an iron...

Sameer Taneja

Persistent Weakness in Chinese Real Estate Will Drag Iron Ore Prices Down

Chinese home prices fell fastest in 9.5 years in May. Domestic loan issuances were well below lowered expectations. Inventory remains elevated....

Mint Finance

Harvesting Seasonality in Iron Ore Prices Induced by Weather, Inventory Restocking, and Holidays

Iron ore futures prices exhibit seasonality. Harnessing seasonality using SGX Iron Ore Futures delivers a success rate of 63% (positive P&L in 57...

Mint Finance

Champion Iron (CIA AU): Q4 Results Update and Future Outlook

We summarize the Q4 FY24/FY24 financial results for Champion Iron (CIA AU) and the post-results conference call. The company is set to have a...

Sameer Taneja

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