Vale Faces Spiraling Losses After Brazil Dam Collapse -- Update

Date : 01/28/2019 @ 1:44PM
Source : Dow Jones News
Stock : Cia Vale Rio Doce (VALE3)
Quote : 57.0  0.0 (0.00%) @ 11:00AM

Vale Faces Spiraling Losses After Brazil Dam Collapse -- Update

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By Samantha Pearson 

SÃO PAULO -- Vale SA's shares tumbled at the start of trading Monday as the iron mining company potentially faces spiraling losses after a dam burst at one of its mines in southeast Brazil, leaving at least 60 people dead and hundreds missing.

Vale's ordinary shares fell 19% to 45.00 reais ($12) shortly after they began trading.

The company said earlier Monday that it suspended dividend payments and share buybacks . Vale also froze executive bonuses and created independent committees to help victims and investigate the cause of what is shaping up to be the world's most deadly mining disaster in over 50 years.

The death toll rose to 60 by Monday morning, according to civil defense authorities, but rescue workers were losing hope of finding another 292 or so people alive who were buried under thick mud when the Vale-owned dam burst Friday.

Analysts said the disaster is unlikely to have a big effect on Vale's production, but the legal liabilities and cleanup costs are potentially enormous.

"The company will have to make provisions, and shares will fall sharply, but investors are going to realize that it might not justify such big losses because the impact on production is small and the company will continue to generate cash," said Pedro Galdi, an analyst at Mirae Corretora in São Paulo. "Vale won't disappear. Brazil needs Vale, the government needs Vale and the towns where it operates need Vale."

The dam's collapse in Minas Gerais state has sparked outrage across Brazil, especially as it comes only three years after another dam partly owned by Vale also burst nearby, killing 19 people and causing widespread environmental damage.

Judges have already frozen about $3 billion in total of the company's assets in response to Friday's disaster to fund relief efforts and structural work to shore up the dam, Vale said in a statement.

Brazil's environmental agency IBAMA has also fined Vale $66 million, while the state of Minas Gerais has ordered the company to pay $26 million as a penalty for the breach.

Rating agency Standard & Poor's warned Saturday that it could cut Vale's BBB-rating by several notches as a result of the disaster, citing concerns over fines and the possibility that the company could be stripped of some operating licenses.

Write to Samantha Pearson at samantha.pearson@wsj.com

 

(END) Dow Jones Newswires

January 28, 2019 08:29 ET (13:29 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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