Australian iron ore Raising LT iron ore to $90/t - BHP/RIO remain preferred; FMG lacks catalysts despite valuation uplift

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Australian iron ore Raising LT iron ore to $90/t - BHP/RIO remain preferred; FMG lacks catalysts despite valuation uplift

.P. Morgan Securities Australia Limited

iron ore is up ~$10/t since the conflict began, more than covering higher input Zane Guo

costs. We increase our near-term earnings modestly for BHP/RIO/FMG, but (61-3) 9633-4020

the bigger impact is valuation - up 10/12% for BHP/RIO and ~18% for FMG zane.guo@jpmorgan.com

under our revised LT price (first change since 2023). Three structural drivers J.P. Morgan Securities Australia Limited

underpin our LT price move: persistent sector cost inflation, deteriorating

average product quality (higher cost per Fe unit), and less Simandou disruption

than the market expects (China's higher-for-longer steel run rate suggests the

cost curve won’t flatten as much as has been anticipated).

• Maintaining positive views on BHP/RIO with a skew to BHP. Rotation into

mining and global appetite for copper exposure should maintain support for

BHP and RIO. Mid single-digit EV/EBITDAs aren't demanding, and our LT

price upgrade reinforces P/NPV support. BHP is our preferred name, as

copper-driven growth offers an attractive investment thesis. RIO provides a

secondary path via aluminium which should rise longer term in sympathy with

copper and benefit in the near term if ME smelter disruptions lift prices.

• FMG lacks re-rating catalysts. FMG’s valuation has improved materially,

but we are waiting for a more attractive entry point to become more

constructive. FMG's P/NPV is comparable to BHP/RIO’s, but medium-term

earnings aren't growing under our price deck - limiting the case for re-rating

without an iron ore tailwind. We also expect scrutiny on FMG's renewable