Iron ore: Why this left-for-dead metal could rocket, and 4 easy ways to buy it
Clayton Jarvis
Wed, September 22, 2021, 6:38 PM·5 min read
Iron ore: Why this left-for-dead metal could rocket, and 4 easy ways to buy it
The last 60 days have been a brutal stretch for iron investors.
As a result of China cutting back on iron ore production as a means of reducing pollution, the iron and steel sectors have both been walloped.
Iron ore prices have collapsed about 60% since a record in May. And in less than two months, three of the world's largest ore miners, Rio Tinto, BHP and Vale have lost roughly $110 billion in market value.
What can we say? It’s tough being Iron Man.
But if you’ve been sniffing around the ore space waiting for the right time to get in, this could be it. China’s restrictions may provide short-term pain for investors, but the planet’s need for iron ore and steel isn’t going away.
Here are four iron-related investments that might be worth pouncing on ?— maybe even with your spare change.
1. Rio Tinto (RIO)
Rio Tinto, despite its stock being down almost 30% since the end of July, may be the most intriguing option out there. As one of the world’s largest producers of iron ore, Rio’s shares may be the ones most likely to benefit from an eventual rebound.
In addition to the 16 mines Rio operates in Australia, it also has projects in Serbia, Canada, Mongolia, Guinea and the U.S.
Rio Tinto is not solely an iron play. The company produces a variety of products — copper, diamonds, titanium, aluminum — that the world needs a continual supply of.
Its extensive reach has led to some serious profits: Earnings over the first half of 2021 were $12.2 billion, leading to an interim dividend of $5.61 per share.
Rio Tinto currently trades at just under $70 per share. But you can get a piece of Rio Tinto using a popular stock trading app that allows you to buy fractions of shares with as much money as you’re willing to spend.
2. Vale SA (VALE)
Shares in Brazil’s Vale SA have lost about 13% of their value in the last month, but a massive first six months of 2021 led the company to announce $7.6 billion in first-half dividends.
That’s the largest payout to investors since 2019.
Vale says it is the world’s largest producer of iron ore and iron pellets. Its biggest operation is its iron ore mine in Carajas, Brazil, one of the richest iron deposits in the world, but it also runs a plant in Oman and has various stakes in joint ventures in China.
In the most recent quarter, Vale posted earnings of $7.6 billion, up more than 600% year-over-year. To be sure, those results were helped by higher iron ore prices at the time.
But with the company on track to hit 2021 guidance of between 315 and 335 million tons of ore production, Vale remains a potent bet on the steelmaking metal.
3. BHP Group (BHP)
Australia’s BHP Group has fared even worse than its competitors over the last two months, with its stock losing more than 40% of its value since July 29.
Like Rio Tinto, BHP is involved in more than just iron ore mining. It also has its fingers in petroleum, coal and copper, which makes it a somewhat diversified play.
BHP has been receiving lukewarm assessments from analysts. Zacks, Berenberg Bank and Deutsche Bank all recently rated the company a “hold”, while Liberium Capital downgraded BHG from “hold” to “sell” in July.
The company reported profits of $25.9 billion for the financial year ending June 30. And with BHP having generated $19.3 billion in free cash flow over the past 12 months, it should have some cushion to weather the current storm afflicting iron ore.
If you're still cautious about buying into BHP, some investing apps will give you a free share of BHP just for signing up.
4. VanEck Vectors Steel ETF (SLX)
The VanEck Vectors Steel ETF was riding high from May to August, as rising iron ore prices lifted the fund to its highest value since July of 2011.
The last month has seen the price of SLX shares shrink by about 11%, but compared to the individual companies featured here, that’s not so bad.
SLX tracks the performance of some of the world’s biggest ore producers, including Rio Tinto and Vale, but it also holds large steelmakers including Arcelormittal, Nucor, and U.S. Steel. This bit of diversification should help spread some of your risks around in the event iron ore hits the skids once again.
As of Sept. 21, shares in SLX were selling for around $54.53. The most recent dividend paid out was $0.83 a share in December of 2020.
A quieter commodity play
If the volatility in iron ore markets has you questioning your future as an iron/steel investor, there’s another asset that also provides exposure to rising commodity prices: U.S. farmland.