VALE S.A. (VALE)

Total return at 5 years: 16.6%/year = 11.3% appreciation + 5.3% dividend. The target price ($23) is ex-dividend; the $4 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $43 · Multiples $22) exceeds the market price ($14).

Today — with margin of safety: at $14 trades ~39.6% below its value discounted to today (~$22) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($23) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($14) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-16.9%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.8 bn of owner earnings in year 5 (vs ~$9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad atribuible normalizada (P/E mid-cycle). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Annual reporter: VALE files a 20-F once per fiscal year and publishes its quarters on 6-K with no tagged data, so year 0 is the fiscal year ended 31 December 2025 and not a rolling twelve-month window. Two XBRL lines come with their window lagging the rest of the core (operating flow closes in June 2025 and investment in property, plant and equipment was left in a concept abandoned since 2017), so both are taken from the consolidated cash flow statement of the 20-F itself: operating flow of US$8.80 billion and acquisition of property, plant, equipment and intangibles of US$6.01 billion in 2025. Year-0 earnings are normalized to mid-cycle: the net margin of 17.5% is the midpoint between the 19.1% of 2023 and the 16.2% of 2024, the two recent fiscal years without nickel impairments; the 2025 reported figure (6.1%) carries US$4.60 billion of impairments and results on disposal of non-current assets, of which US$3.48 billion are the identified nickel impairments in Canada (US$1,745 million from the Newfoundland and Labrador operation and US$1,735 million of full goodwill write-off), plus a write-down of deferred tax assets of US$2.83 billion. The tax rate of 22.3% is the aggregate effective rate for 2022 to 2025 from XBRL (US$9.41 billion of tax on US$42.28 billion pre-tax); the 2025 effective rate in isolation gives 57.4% and is an artifact of the non-deductible impairment. Maintenance investment is set at 65% of the total: with volumes growing (iron fines 4.9%, copper 11.6%, nickel 11.6% in 2025) the Greenwald split assigns to expansion the portion that funds the base metals projects, while the rest sustains mines whose depreciation was calculated on assets from another decade, so equating maintenance to depreciation would understate reinvestment. The issuer publishes no revenue or earnings guidance for 2026, only capital investment: year-1 investment uses the midpoint of that guidance (US$5.4 to US$5.7 billion). No share path is modeled: shareholder remuneration in 2025 (US$5.92 billion approved) exceeds the fiscal year's free cash flow and buybacks were nil in 2025, so there is no surplus to accumulate and no sustained buyback pace to extrapolate.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $23 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $14, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $23 in 5 years plus $4 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $22. Against the current market price ($14), the margin of safety is 39.6% (trades below the maximum → there is margin) and the total return at that price would be 16.6% annually.

• Entry multiple. The stock trades at 9× on mid-cycle normalized earnings, against an exit band of 10 to 16 times for the commodities archetype.
• Dividend yield. The yield is 5.9%, but the policy is a formula tied to earnings minus sustaining investment: it varies with the cycle and is not a floor.
• Valuation base. Year-0 earnings are normalized to mid-cycle using the net margin midpoint between 2023 and 2024; the 2025 reported figure would not serve as a base.
• Adverse scenario. With iron ore at the low end of the range and net margin at 12%, the five-year value falls below today's price: the risk is priced in there.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (86%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. On normalized operating income and the balance sheet's real invested capital, the mid-cycle level sits comfortably above the 10% bar; the 2025 reported figure is depressed by the impairments.
• Cash flow predictability. Operating cash flow moves with the iron ore price and also absorbs payments tied to Brumadinho and dam decharacterization: $1,252 million between the two items in 2025 (Samarco payments, $2,298 million, sit in investing activities and do not reduce this flow).
• Cash conversion. Operating cash flow of $8,801 million against reported earnings of $2,352 million: the gap confirms that the accounting result is penalized by non-cash charges.
• Balance sheet quality. Gross debt principal of $17.94 billion against cash of $7.37 billion and staggered maturities, with only $323 million due in 2026.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

VALE's revenue breaks down product by product into volume times realized price, and the two legs have moved in opposite directions for two years: volume grows in iron ore fines, copper, and nickel (it fell 14.4% in pellets) while iron ore and nickel prices fall and only copper rises. Realized prices are net operating revenue divided by volume sold under the company's own definition, and differ from the reference index because they include quality mix, pellet premiums, and provisional price adjustments. The sensitivity is disclosed in the filing: one dollar less per dry tonne in the average iron ore price subtracts about $290 million from the fiscal year's operating income.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent growth. Revenue flat in 2025 (0.9%) after two years of decline, with iron ore down 4.2% and base metals up 25.1%.
• Volume. Iron ore fines, copper, and nickel grew in volume in 2025 (4.9%, 11.6%, and 11.6%), but pellets fell 14.4%.
• Price. The iron ore reference index fell for four consecutive years (2022 to 2025), from $159.5 to $102.3 per dry tonne; only copper rose.
• Reinvestment runway. The base metals projects absorb the expansion share of investment and have already taken that leg's adjusted earnings from $1,453 to $3,355 million.

• Differentiated product. Iron ore is homogeneous and trades against an index: the company does not set its price and the advantage has to come from cost.
• Cost position. High-grade ore in Carajás and transport on proprietary railroad and port: freight is 20.0% of cost of goods sold and is mitigated by a dedicated fleet.
• Ten-year relevance. Carbon steel will keep needing iron ore, and copper and nickel are on the right side of electrification.
• Operating leverage. High fixed cost over a large volume: one dollar less in price per dry tonne subtracts about $290 million from operating income, with no cost changing.
• Recession behavior. Price taker on a Chinese construction input: results fall with the steel cycle and the reference index has posted four consecutive years of decline.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.8x
• ✓Interest coverage (EBIT / interest)10.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 86% of ROIC
• ✓Value creation (ROIC − 10% bar)+8pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.9x
• !Float / working capitalConsumes cash $0.3 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt of about $10.57 billion against normalized operating income of $10.50 billion: under one turn.
• Interest coverage. The $961 million in loan interest in 2025 is covered several times over by operating income, even in the impaired fiscal year.
• Maturity profile. $323 million of principal matures in 2026 and $7,891 million not until 2033 onward, out of a total of $17,939 million.
• Environmental liability. 2025 cash payments: $2,298 million for the Samarco dam failure, $874 million for Brumadinho, and $378 million for dam decharacterization.
• Tax contingencies. Tax exposure under discussion with authorities was $7,200 million at the close of 2025 and $7,982 million as of June 2026.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

On 2025 cash uses: $6,006 million to investment in property, plant, equipment, and intangibles and $3,561 million to dividends and interest on equity paid, with no buybacks executed and no acquisitions. The remuneration policy is a formula tied to earnings before interest, taxes, and depreciation minus sustaining investment, so the dividend varies with the cycle rather than growing in a straight line.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Reinvestment. $6,006 million invested in 2025 with volumes growing 4.9% in iron ore and 11.6% in copper and nickel; 2026 guidance drops to $5.4 to $5.7 billion.
• Capital return. $5,923 million approved in 2025 between dividends and interest on equity, above the year's free cash flow and partly funded with debt.
• Buyback. The program approved in February 2025 executed no purchases during the year; only in the second quarter of 2026 were $140 million repurchased.
• Candor. The filing states that the final exposure of several Samarco proceedings cannot be estimated, and discloses the sensitivity to the iron ore price in dollars per tonne.

• Motivated seller: 2025 earnings fell to $2.35 billion on $4.60 billion in impairments and losses on disposal of non-current assets ($3.48 billion of nickel in Canada) and a $2.83 billion deferred tax asset write-down, none of which touches the cash of the iron ore business.
• Missing buyers: the issuer lists in New York, reports under international standards, and operates under Brazilian regulation, courts, and currency, with a federal government special class share that grants veto power.
• Motivated seller: the proceedings opened over the Samarco dam failure in London and the Netherlands carry exposure that the filing itself states cannot be estimated, which keeps much of the market from putting a number on it.
• Cycle bottom: the iron ore reference index fell for four consecutive years (2022 to 2025), from $159.5 per dry tonne in 2021 to $102.3 in 2025.

The source of the discount is positive and identifiable, not the absence of an explanation: an accounting year sunk by non-recurring charges, combined with a litigation risk whose upper bound no one can set. The subsequent event points in the opposite direction to the price: the first half of 2026 reports dollar revenue of $19.76 billion against $16.92 billion a year earlier, operating income of $4,530 million against $3,803 million, and adjusted earnings before interest, taxes, and depreciation of $7,506 million against $6,501 million. In July 2026 the board approved $1,701 million in remuneration and a new buyback program.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +1%/year (+6% total): the margin of safety protects the downside. The bull (+27%/year, +230% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Geotechnical risk. The dam decharacterization plan is 63% complete with a horizon to 2035, and the construction process itself can transiently raise collapse risk.
• Logistics concentration. The single-track bridge over the Tocantins River and the São Marcos access channel are single points of failure disclosed for the Northern System's outlet.
• Iron ore price. 76.6% of net operating revenue depends on iron ore and pellets, with the reference index declining since 2021.
• Samarco litigation. About 610,000 claimants in London with liability shared equally and about 78,000 in the Netherlands, with final exposure that the filing states cannot be estimated.
• Currency risk. 47.6% of cost of goods sold is in reais against revenue that is mostly in dollars: the real's 11.1% appreciation in 2025 compressed margin.
• Reserve risk. Concessions have fixed terms with limited renewal and unit cost rises as the mines get deeper.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 18% above the 10% bar, with a +40% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 1.7 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 15% (EBIT/EV) + ROIC 18% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -17% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +23%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -17%, within what we project (5%) — the story squares with the numbers.