Vale valuation discount is smaller than traditional metrics suggest, says XP

XP analysts have updated their estimates for Vale, maintaining a neutral recommendation as the company's valuation discount relative to global mining peers appears smaller than traditional multiples suggest.

Using an adjusted methodology that accounts for cash-adjusted EBITDA and liabilities similar to debt, analysts estimate Vale will trade at 5.9 times its 2027 EV/EBITDA. This represents a roughly 10% discount compared to the 6.6 multiple seen among diversified global miners. This level is noted to be close to the historical average observed since the Brumadinho tragedy.

In the short term, XP anticipates limited room for significant price re-rating due to pressured cash flow generation. The firm projects a free cash flow yield of approximately 6% in 2027, based on assumptions of $100 per ton for iron ore and $14,000 per ton for copper. Factors impacting cash flow include higher freight costs, a stronger Brazilian real, and investments in base metals projects. However, the Vale Base Metals division is viewed as a long-term value driver, with potential free cash flow yields reaching between 7% and 13% by 2030–2035.