There's been a great deal written about falling iron ore prices and for good reason. The price, currently near $92 per metric tonne, is at a troublesome level for mid-tier and junior iron ore producers. However, the outlook for the Big 3 iron ore producers BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), and Vale (NYSE:VALE) is different because they control the market. Of the three iron ore majors, Vale is most at risk to the weak iron ore price because it has a hefty 6% dividend yield and has operating costs that are higher than BHP's and Rio's Australian operations. 

In the short term, Vale might have to revise earnings estimates for 2014 lower. However, that announcement could already be factored into the stock price, barely above its 52-week low. Still, analysts continue to estimate positive free cash flow in the billions of dollars per year as the company prudently cuts spending and sells non-core assets. 

Vale's stock not immune from further weakness in spot prices
I believe that Vale makes sense as a long-term investment, but if the iron ore spot price falls to $80 per tonne or lower, the company's dividend would be at risk and the stock price would fall. To be clear, I don't believe that the iron ore price will remain at or below $80 per tonne for an extended period. Further, I don't think that Vale's stock price would fall more than 10%-15% from currently depressed levels. On the flip side, if iron ore prices remain steady or rebound to the $100-$120 per tonne range over the next few years, Vale stock could return 50% or more (including dividends). 

It's important to remember that all the doom and gloom about the iron ore price is due to rapidly increasing global supply. But, the companies that are pumping out the onslaught of supply will make more money, just with lower margins. Vale hopes to increase iron ore volumes from 320 million tonnes in 2014 to 342 million in 2015. In the long run, Vale, BHP, and Rio are pursuing a prudent pricing strategy. For example, BHP and Rio have the lowest costs in the world in the $20s/$30's per tonne, so they can comfortably navigate the lower spot price. 

Why Not Buy BHP or Rio Tinto Instead?
BHP is a giant, diversified conglomerate with a 3.5% yield. It's a stronger, lower-risk company, but it has less upside than the more volatile Vale. While Vale languishes near its 52-week low, BHP is closer to its 52-week high. In part, that's do to BHP's impressive oil and gas segment. Rio Tinto historically has been an iron ore play, but it's diversifying into aluminum, copper and diamonds. For example, it has a massive copper/gold project in Mongolia. Like BHP, Rio probably has less upside than Vale. 

One last name to consider is Cliffs Natural Resources (NYSE:CLF). A lot has been written about Cliffs lately, including my article here. Cliffs is a high beta play on iron ore. It's a stock that could double in 1-2 years, but only if the iron ore price jumps to say $130-$140 per tonne. A move like that is possible, but not likely anytime soon. 

Bottom line
Vale has more upside than BHP or Rio Tinto, but is riskier. It has a 6% dividend yield, but that yield is not entirely safe if iron ore prices fall further. Vale's stock is trading near its 52-week low due to that fear of a dividend cut, so a lot of bad news is priced in. Over the long term, measured in years, not months, I believe that Vale is a solid investment.