Rio Tinto plc (ADR) (RIO) and How Else to Play the Iron Ore Shortage

This would boost its margins, and allow the company to repay its debt as soon as possible. Its management aims to cut net debt to $15 billion, which would be its lowest debt level since the merger of Arcelor and Mittal in 2006. Amidst an environment of economic uncertainty, ArcelorMittal has not only cut its debt, but also staged a turnaround for itself. Now that the steel demand is expected to pick up with recovering global economies, analysts expect its annual EPS to grow 32.39% over the next 5 years.

At the end of 2012, its iron ore production stood at 56 million tonnes, and the company aims to produce 84 million tonnes of the commodity by 2015. That is an impressive growth rate. To meet the production targets, ArcelorMittal (ADR) (NYSE:MT) has a $1.4 billion worth of expansion plan underway. Its Canadian mine currently produces 15 million tonnes of iron ore per annum, and post expansion, its annual production capacity would increase by 60%.

For the recent quarter, ArcelorMittal (ADR) (NYSE:MT) reported net operating cash flow of $3.32 billion, which rose an impressive 15.6% compared to the last year’s quarter.

Wrap up

But shares of ArcelorMittal have declined nearly 32% over the last year, and risk averse investors should stay at a distance from this one. That said, there’s no denying that ArcelorMittal is regaining financial health and its debt reductions along with production increases make it a value play. In my opinion, investors should keep an eye on ArcelorMittal.

Piyush Arora has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal.