Vale S.A VALE recently issued a level one emergency alert for three inactive tailings dams in Brazil’s southeastern state of Minas Gerais. This is a precautionary measure until the technical analysis of the structures is completed. However, the company stated that that the populations downstream of the dams 6 and 7A at the Aguas Claras mine at Nova Lima and the Area IX dam at the Fábrica mine in Ouro Preto do not need to be evacuated.
The announcement is in adherence to emergency level protocols being followed for Vale dams in the aftermath of the Brumadinho disaster. On Jan 25, 2019, a tailings dam failed at Vale’s Córrego do Feijão mine, in the city of Brumadinho, state of Minas Gerais, killing around 300 people and causing extensive property and environmental damage in the region.
This was the second major tailings dam disaster for the company and deadliest in Brazil’s history. It led to several criminal investigations and rules on dam safety have now become stringent. To add to Vale’s woes, reports have surfaced that the company may have been aware of structural problems at the dam before the incident. Last month, Vale had been asked by a Brazilian judge to set aside 7.9 billion Brazilian Real ($1.5 billion) to cover for potential fines related to the dam collapse.
Recently, Vale has been ordered to shut operations at its Itabira complex by a Brazilian labor court after 188 workers tested positive for coronavirus. It will remain in effect until a binding ruling is issued and ascertained safe by labor inspectors. Notably, the three mines at Itabira churned around 36 million tons, or 12% of the company’s total iron-ore output last year.
The company stated that these developments do not impact production guidance for fiscal 2020. Vale iron ore fines production guidance for 2020 is at 310-330 Mt and pellet production guidance is 35-40 Mt. The company anticipates producing nickel between 180 kt and 195 kt in 2020 and the guidance for copper production is 360-380 kt.
The impact of the coronavirus pandemic and the slowing global economy will impact Vale’s near-term performance. Nevertheless, the company strives to sustain margins by focusing on product line, improving productivity and cutting costs. It is likely to gain from investment in projects, lower debt, efforts to ramp up coal business and transforming base metals business and introducing more high-quality ore in the market. Vale will also gain from the recent increase in iron ore prices. Iron-ore prices are currently trending above $100 per ton as the alarming spread of coronavirus in Brazil has triggered supply concerns.
In the future, Vale plans to significantly reduce use of dams and will invest in alternatives that will enable the transitioning from wet processing operations to safer and more sustainable processes. Over 2020-2024, the company will invest $1.8 billion to increase the use of filtering and dry stacking. Dry processing is anticipated to reach 70% of iron ore production volume by 2024.
Price Performance
Shares of the company have fallen around 17% in a year, in line with the industry.
Zacks Rank & Other Stocks to Consider
Vale currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the basic materials space are Northern Dynasty Minerals, Ltd. NAK, Clearwater Paper Corporation CLW and AngloGold Ashanti Limited AU. All of these stocks carry a Zacks Rank #1.
Northern Dynasty Minerals has a projected earnings growth rate of 32% for the current year. The company’s shares have surged 181% over the past year.
Clearwater Paper has an estimated earnings growth rate of 693% for fiscal 2020. Its shares have rallied 89% in the past year.
AngloGold Ashanti has an expected earnings growth rate of 112% for fiscal 2020. The company’s shares have soared 70% in a year’s time.
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