Both majors are printing free cash flow near cycle highs at spot prices. One trades at 8x EV/EBITDA, the other at 4x. The gap has logical reasons, but it has widened beyond them.
BHP and Vale are the two largest iron ore producers on earth. Their cost curves are within $3 per tonne of each other. Their blended ore quality is similar. Their FCF yields at spot prices are both in the 9 to 11% range.
Yet BHP trades at roughly 8x EV/EBITDA while Vale trades at 4x. That is a 100% valuation premium. Some of it is justified by governance, balance-sheet quality, and geographic diversification. But 100% is too wide. The Valuation Desk view: the gap closes as Vale's corporate overhangs ease, and Vale is the better risk-reward from here.
BHP produces approximately 290 million tonnes of iron ore per year at an all-in cost of roughly $18 per tonne. The Pilbara operations are the benchmark. Copper exposure through Escondida, Olympic Dam, and the recent Oz Minerals acquisition adds meaningful portfolio diversification. Potash optionality through Jansen adds further.
The balance sheet is pristine. Net debt to EBITDA sits around 0.6x, and the dividend policy returns roughly 50% of underlying earnings to shareholders. BHP has printed 13 consecutive profitable years.
At 8x EV/EBITDA, the stock is priced as a diversified, disciplined major. That is an accurate description. The question is whether the multiple leaves room for upside.
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Vale produces roughly 320 million tonnes per year at an all-in cost close to $21 per tonne. The Carajas complex is the highest-quality ore body in the world, producing 65%+ Fe content material that commands a quality premium.
The discount to BHP reflects three overhangs. First, the Brumadinho and Mariana tailings disasters created litigation and remediation costs that have taken years to resolve. Second, Brazilian political risk is real; tax regime changes and royalty adjustments are a recurring hazard. Third, Vale's base metals strategy (copper, nickel) has been operationally weaker than BHP's.
All three overhangs are real. But all three are fading. The tailings settlement framework is progressing. The Brazilian government has stabilised its mining policy posture. Base metals performance has improved year on year.
Asset quality. Carajas has higher Fe content than Pilbara, which translates to a realised-price premium of roughly $5 to $8 per tonne. Edge to Vale.
Cost curve. BHP sits at approximately $18 per tonne FOB, Vale at $21. Edge to BHP.
Balance sheet and governance. BHP's net debt to EBITDA of 0.6x and Anglo-Australian governance framework compare favourably with Vale's 1.1x net leverage and Brazilian regulatory environment. Clear edge to BHP.
Diversification. BHP has copper, coking coal, and potash optionality. Vale has copper and nickel but is more iron-ore concentrated. Edge to BHP.
The net of these: BHP deserves a premium. A 40 to 50% premium would be defensible. The current 100% premium is too wide.
At spot iron ore prices near $100 per tonne, both companies generate FCF well above historical averages. BHP is printing roughly $14 billion of FCF annually; Vale is printing roughly $11 billion. On current prices, that implies FCF yields of approximately 8% for BHP and 11% for Vale.
Pay-out policies are similar: both return 50 to 70% of FCF via dividends and buybacks. The yield advantage at Vale is roughly 300 basis points.
If you believe iron ore prices stabilise around $95 to $105 per tonne, both stocks are attractive. Vale offers roughly 30% more yield and more room for multiple expansion. The trade is long Vale, either outright or against BHP depending on mandate.
Chinese demand collapse. A 15% move lower in Chinese steel demand would compress spot iron ore toward $70 per tonne, cutting both companies' FCF roughly in half. Both companies' multiples would compress; Vale's dollar impact on yield would be larger.
Brazilian political risk. A populist shift in Brazil's mining royalty regime could cost Vale 300 to 500 basis points of EBITDA margin.
Governance event at Vale. Another tailings incident or major governance shock would widen the multiple gap further.
The base case view does not require iron ore to move higher. It requires the current multiple gap to normalise.
The Valuation Desk is buyers of Vale at 4x EV/EBITDA. Fair value on 5.5x is roughly 37% above current prices. BHP is fairly valued at 8x and is an acceptable hold, not a buyers' stock at current levels. The trade is long Vale, short BHP for multiple-neutral exposure, or long Vale outright for investors willing to hold the overhangs.
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BHP is up 14% on the year, copper has held above $4.50 per pound, and the capex on the copper portfolio is at decade highs. Time to update the thesis.
BHP delivered $9.3 billion of free cash flow in fiscal 2025 against $9.4 billion of capex. The Q3 production report tightened guidance on copper, which strengthens the capital allocation case the Capital Desk laid out earlier.
Vale generated $3.1 billion of free cash flow in 2025 against $5.97 billion of capex. Operating income has compressed by 60% from the 2021 peak. The 32% dividend yield is the market's way of saying it does not believe the payout.