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The 7 Biggest Iron Stocks

Iron is crucial in supporting the growth of the global economy. That's because the metal is a critical ingredient in making steel, which we use to build everything from commercial buildings to bridges to pipelines. It's also a key component of many products, such as automobiles, appliances, and wind turbines.

Given steel's important role in building the critical infrastructure of the global economy, the iron market is the largest one in the mining sector by volume. It's also the third-largest commodities market overall by dollar value behind oil and gold.

Because of how vital this metal is to the global economy, investors should get to know the iron sector's top stocks.

Image source: Getty Images.

The largest publicly traded iron companies in the world

While iron is the most used metal in the world, only a handful of companies focus on this key industrial metal due to the high costs of producing it economically. In fact, just four companies -- Vale (NYSE: VALE), Rio Tinto (NYSE: RIO), BHP Group (NYSE: BHP), and Fortescue Metals Group (OTC: FSUMF) -- control 70% of the global iron ore export market.

While several other companies vie for that remaining share, many are either privately owned or government-controlled. Many others, meanwhile, have market capitalizations (the sum of the company's total available shares multiplied by its stock price) of less than $200 million. Those factors trim the list of noteworthy iron stocks down to seven:

Top Iron Producers

Market Cap

What it does

1. BHP Group (NYSE: BHP)

$124.5 billion

A global resources company that produces copper, iron ore, nickel, zinc, oil, and natural gas.

2. Rio Tinto (NYSE: RIO)

$88.6 billion

A diversified mining company that produces iron ore, aluminum, copper, and diamonds.

3. Vale (NYSE: VALE)

$61.7 billion

The largest iron ore producer in the world. It also produces nickel, coal, and copper.

4. AngloAmerican (LSE: AAL)

$36.0 billion

A diversified mining company that produces iron ore, copper, diamonds, and coal.

5. Fortescue Metals Group Ltd (OTC: FSUMF)

$18.6 billion

An Australia-focused iron ore producer.

6. ArcelorMittal (NYSE: MT)

$15.7 billion

An integrated steel manufacturer and miner of both iron ore and steelmaking coal.

7. Cleveland-Cliffs (NYSE: CLF)

$1.9 billion

The oldest and largest iron ore mining company in the U.S.

Data source: Company websites. Market cap as of October 27, 2019.

Here's a closer look at each one of these iron-focused companies.

Image source: Getty Images.

1. BHP Group

BHP Group is the largest mining company in the world by market capitalization. In addition to being one of the biggest iron ore miners, it also produces copper, nickel, zinc, oil, and natural gas. In BHP's fiscal 2019, iron ore contributed 48% of the group's underlying EBITDA. Copper, meanwhile, accounted for 19% of its earnings while coal followed at 17%, and oil and gas provided 16% of its profits.

BHP Group has iron ore assets in two regions: Australia and Brazil. Its key iron ore operation is Western Australia Iron Ore (WAIO), which is an integrated system of four processing hubs and five mines focused on the Pilbara region of northern Western Australia. More than 600 miles of railroads connect these mines and hubs to port infrastructure, which exports iron to global markets. In fiscal 2019, WAIO -- which is made up of four joint ventures 85%-owned by BHP -- produced 238 metric tons of iron ore attributable to BHP Group.

The company's Brazilian iron ore business consists of the Samarco mine, which it co-owns with Vale. The companies, however, suspended operations from that mine in 2015 following a tragic dam failure, which killed 19 people. The partners spent several billion dollars cleaning up the disaster and received approval to resume production at the mine in October of 2019. They expect it to start producing again toward the end of 2020, aiming to bring it back online slowly. The initial plan is for output to be at about one-third of the mine's previous capacity of nearly 25 million tons per year, with a target to get production up to 14-16 million tons within six years of restarting the mine.

In addition to bringing Samarco back online, another of the big drivers of BHP's iron ore business in the future is its more than $3 billion investment in South Flank. This mine will replace the output of Yandi, which is nearing the end of its useful life. South Flank should come online in 2021 and produce about 80 MT per year, offsetting Yandi's current output.

With the planned restart of Samarco and the upcoming completion of South Flank, BHP Group should remain a dominant force in the iron ore industry over the next decade.

2. Rio Tinto

Rio Tinto is a large, diversified mining company. It has organized its operations into four product groups: Aluminum, copper & diamonds, energy & minerals, and iron ore.

The company makes most of its money on iron ore. In 2018, that product group supplied 59% of its underlying EBITDA. Aluminum was next at 16%, followed by copper & diamonds at 14% and energy & minerals at 11%.

Like BHP, Rio Tinto is a major iron producer in the Pilbara region of Western Australia, where it operates the world's largest integrated portfolio of iron ore assets, which also boast industry-leading margins. Overall, it has 16 mines, four port facilities, and more than 1,000 miles of rail. This business produced 281.8 million tonnes of iron ore for Rio Tinto in 2018, up about 4% year over year.

Rio Tinto approved three new iron ore projects in 2018 designed to sustain its existing operations. The largest is a $2.6 billion investment in the Koodaideri mine that should start-up in 2021 and produce 43 million tonnes of ore per year. The company also approved a $44 million investment for a pre-feasibility study into Koodaideri Phase 2, which could expand this mine's capacity up to 70 million tonnes per year. Finally, the company and two joint venture partners will invest $1.55 billion to sustain the production capacity at the Robe Valley and West Angelas mines in a project that should also start-up in 2021.

Rio Tinto's investments in its iron ore business should ensure that it remains a leader in the sector for years to come.

3. Vale

Brazil's Vale is the world leader in producing iron ore as well as nickel. The company also mines manganese, ferroalloys, coal, and copper. In addition to mining, the company operates a large-scale logistics business, which includes railroads, ports, terminals, and a shipping fleet, an electricity-generating business, and has joint-ventures that make steel.

In 2018, Vale's ferrous minerals group, which includes its iron ore, manganese, and ferroalloys operations, generated 89% of its adjusted EBITDA (nearly all of which came from iron-ore related activities). The company's base metals group, which includes nickel and copper, produced 15% of its earnings. Coal also contributed to its earnings while all its other businesses recorded losses.

Brazil is the center of Vale's iron ore mining business. The company operates 22 mines in the country, with the bulk located in the Carajas region in Northern Brazil, which contains some of the highest quality iron ore in the world. On average, rocks found in Carajas contain 67% iron ore, which is the most concentrated level on earth.

The company's mines produced 307.4 million metric tons of iron ore in 2018. That's a 6.5% increase from 2017's level. The company also produced 56 million metric tons of iron ore pellets at its plants in Brazil, Oman, and China.

Vale has invested a lot of money over the years to become the leading iron ore producer. One of its largest investments was in building the S11D mine in Brazil, with spending totaling $14.3 billion to bring it online. That mine, which produced 55 million tons in 2018, should reach its current capacity of 90 million tons by 2020. The company, however, is investing another $770 million into that mine to boost its annual production capacity to 100 million tons per year by 2022. That's one of several projects the company has under way to improve its iron ore operations by not only increasing output but also reducing costs and improving product quality. These investments should ensure that Vale remains the global iron ore leader in the coming years.

4. AngloAmerican

AngloAmerican is a diversified mining company headquartered in the UK. It produces diamonds, copper, platinum group metals, coal, iron ore, nickel, and manganese from mines in Africa, North and South America, and Australia.

Coal was the company's biggest money-maker in 2018 at 35% of its underlying EBITDA. Copper came in second at 20%, followed by its investment in the De Beers diamond business at 14%. Its iron ore operations, meanwhile, contributed 13% of its underlying profitability.

AngloAmerican's iron ore operations consist of two assets. It holds a 69.7% interest in Kumba Iron Ore in South Africa and has developed the integrated Minas-Rio mining operation in Brazil. Those assets produced 46.5 million tons of iron ore in 2018. That was down nearly 25% from 2017's total due to third-party rail constraints at Kumba and a long suspension of Minas-Rio due to two iron ore pipeline leaks.

AngloAmerican doesn't currently have any plans to invest in growing its iron ore business. While it aims to invest $1.5 billion to $2 billion per year in the 2020 to 2021 timeframe on mining growth projects, that will mainly go toward expanding its copper, diamonds, and metallurgical coal operations. That's because those projects offer the highest margins and returns, as well as fast paybacks. Given this focus elsewhere, AngloAmerican will likely remain a second-tier player in the iron ore market in the future.

Image source: Getty Images.

5. Fortescue Metals Group Ltd

Fortescue Mining Group, FMG, is one of the four main global leaders in the iron ore industry along with Vale, Rio Tinto, and BHP Group. Like those latter two, it focuses on operating world-class infrastructure and mining assets in the Pilbara region of Western Australia.

The company mined 206.7 million tons of iron ore in its fiscal 2019, up 12% year over year. FMG's production should continue rising in the coming years, given the amount of money it's investing in new iron ore projects. The $1.275 billion Eliwana project, for example, will enable it to boost production by 30 million tons per year when it comes online at the end of 2020. The Iron Bridge Magnetite project, meanwhile, is a $2.6 billion investment by the company and its joint venture partners. It will supply 22 million tons of ore per year when it starts up in mid-2022.

FMG is working to ensure it remains a major force in the iron ore market by continuing to explore for new resources. It's the largest landholder in the Pilbara, where it continues to look for new resources. It's also searching for iron ore deposits in places like Ecuador, Argentina, and Colombia. That combination of visible growth and exploration upside potential should enable FMG to remain a leader in the iron ore sector in the decades to come.

6. ArcelorMittal

ArcelorMittal is the world's leading integrated mining and steel company. It's one of the largest global steel producers, including being the biggest one in North and South America, Africa, and the European Union. The company also operates a world-class mining business with a global portfolio of 13 mines. It produces both iron ore and coking coal, which are the two main ingredients for making steel.

The company engages in iron ore activities in Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine, and the U.S. These operations produced 58.5 million tons of iron in 2018, which supplied about 49% of the company's total need. Arcelor Mittal's mining business contributed about 12.5% of its EBITDA in 2018, with its steel operations accounting for the rest of its earnings.

In many ways, ArcelorMittal uses its iron business as an offset to its steelmaking operations. It ships about 35% of the iron ore its mines produce directly to its steel mills on a cost-plus basis, which adds a markup to the direct mining costs to arrive at a price for the material. It sells the rest of its ore at the going market price to external customers as well as internally. As such, it sources some of its ore at potentially below market prices while the rest at the prevailing market price, enabling it to offset a large portion of its iron input costs.

Given that ArcelorMittal's iron ore operations primarily support its steelmaking business, its focus isn't on becoming a leader in that industry. Instead, it's pouring the bulk of its growth-focused capital into expanding its steel business. Because of that focus, it's not growing its iron ore production, which means it will likely remain in the sector's second tier.

7. Cleveland-Cliffs

Cleveland-Cliffs is North America's largest iron ore producer. It operates three mines in the Great Lakes region and is also a minority partner in another mine in that area. Those locations combined to produce 20.3 million tons of ore for the company in 2018.

Cleveland-Cliffs is a niche player in the iron ore industry. It primarily supplies ore and other iron-based materials to steel mills in the U.S. Further, it focuses on producing high-grade, custom-made pellets that its steelmaking customers can feed directly into a blast furnace. These products sell for a premium price compared to the ore sold by rivals. While this focus enables it to earn a higher profit margin on the iron it produces, it's highly susceptible to changes in the North American steel sector. As such, if industry conditions weaken due to an economic slowdown in the U.S. or increased competition from global steel producers, it can negatively impact Cleveland-Cliffs operations.

The company, however, remains focused on meeting the needs of its core market. It took another step toward supplying customers with high-grade iron materials in 2017 when it announced the construction of an HBI (hot briquetted iron) plant in Ohio. That material is a specialized, high-quality iron alternative to scrap metal, which enables steel manufacturers to produce more valuable grades of steel. The company expects to finish the $830 million plant in 2020. It should produce 1.9 million metric tons per year, which should replace the 3 million metric tons of ore that the Great Lakes region's steel producers need to import each year to support their operations.

Because Cleveland-Cliffs focuses on supplying iron to the North American steel market, it has limited its upside to that one region. That can prove problematic. In 2019, for example, steel demand in the U.S. was on track to fell by about 1% compared to 1.3% growth in global steel consumption. That puts the company at a disadvantage to its global rivals, which could have more growth potential as they supply the more rapidly expanding Asian economies with iron ore. As a result, Cleveland-Cliffs will likely remain a second-tier iron producer.

Dominated by a quartet

Many regard iron ore as the second most important commodity to the global economy behind oil. However, it's an expensive metal to mine, which is why only a handful of companies focus on it, with the market dominated by four main players. Because of that, investors who are interested in this market should focus their attention on those leaders. They're best positioned to profit from the metal's importance in helping support economic growth, which means that iron could provide the biggest boost to their stock prices.

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Matthew DiLallo owns shares of BHP Group Ltd. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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