The global major miners Anglo American (AAL), BHP Billiton (BLT), Glencore (GLEN), Rio Tinto (RIO), Teck Resources, and Vale trade at an average 38% premium to our fair value estimates. Of the major miners, Vale is now the most expensive given its exposure to higher-grade iron ore, which is enjoying premium pricing.
BHP, at a 13% premium to our fair value estimate, are the least expensive of the major miners, reflecting oil exposure where we are relatively more optimistic and less exposure to iron ore relative to Rio Tinto and Vale.
All these mining firms are rated no-moat. We raise our fair value estimate for Rio Tinto plc by 4% to £28 per share, reflecting higher near-term iron ore prices. For Vale, it increases 6% to $9.40 per share with higher near-term iron ore prices and pellet premiums.
Our Anglo American valuation is up 3% to £11.50 per share, with increased near-term coal prices and a higher spot palladium price, partly offset by a lower spot platinum price. Our valuation for Glencore falls 4% to £2.40 per share with higher near-term coal prices outweighed by average declines in the spot prices of nickel, zinc, lead, and cobalt of 13%. Our BHP fair value estimate is unchanged at £13.80 per share.
The bulk-focused miners have generally withstood recent market volatility so far, most posting share price gains since the end of June thanks to strong underlying prices for iron ore and coal. Vale has been a stand out, up 20% since the end of June, reflecting the continued strength of the iron ore price and elevated premiums for high-grade ores and pellets. Base metals-focused miners Glencore and Teck are down 11% and 5%, respectively, since the end of June with weakness in the price of zinc, lead, nickel, copper, and cobalt weighing.
We now think Vale is the most expensive of the large miners, trading at a 59% premium to our $9.40 per share fair value estimate. The overvaluation reflects Vale’s high exposure to iron ore and bloated premiums for high-grade ore and pellets, which we think are unlikely to last once steel margins in China normalise. We are most bearish on iron ore as we expect China to reduce its steel consumption and for a growing amount of steel to be made from scrap.
BHP plc is the least expensive of the large miners. We think BHP is less expensive given a smaller exposure to iron ore, and the addition of oil to the portfolio where we are relatively more optimistic on the outlook. The Australian listed shares of BHP and Rio Tinto continue to trade at substantial premiums at least 15% to the London listed shares.
The changes to our fair value estimates for large diversified miners have been relatively small, averaging a 1.6% rise. The increases are noticeably higher for the Australian listed shares with the lower AUD/USD exchange rate a benefit for these share classes on translation of U.S. dollar earnings and commodity prices.
