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Vale Calls Off Dividend Payout on Dam Disaster in Brazil Mine

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Vale S.A. (VALE - Free Report) suspended its planned dividend, share buybacks and executive bonuses in the wake of a dam disaster at Vale’s Corrego do Feijao iron ore mine in Brazil.

The Corrego do Feijao iron ore mine is one of the four in Vale's Paraoeba complex, which includes two processing plants. The complex produced 26 million tonnes of iron ore in 2017.
 
Vale’s strategic plans such as reinvesting in loss-making divisions, offering handsome dividends and mid-sized acquisition deals are under scrutiny as the company braces for lawsuits that could cost it billions of dollars.

The Minas Gerais state fire department had confirmed 58 dead after a tailing dam broke. Around 300 people remain missing. However, the company focuses on rescue efforts and protection of the lives of direct employees and local communities.

Three court orders froze 11 billion reais ($2.9 billion) of Vale assets to pay for damages. Moreover, Brazilian environmental agency Ibama has fined the company $250 million reais ($66.3 million) for pollution and other regulatory violations related to the disaster.

The company has put its expansion plans on hold for now. Vale has plans to pump $500 million into its nickel mine in New Caledonia. Also, the company focuses on mid-sized acquisition in its core iron ore business instead of any big deal. Last December, the company announced the acquisition of iron miner Ferrous Resources Ltd from its controlling shareholder Icahn Enterprises for $550 million. The deal is expected to close this year.

Shares of the company have gained around 4.7% over a year, in line with the industry’s growth during the same time period.


 
Vale has been steadily lowering its debt through increased free cash flow generation. During the third quarter, Vale reduced net debt by $815 million, closing the quarter with net debt of $10.7 billion — the lowest since third-quarter 2009. The company is close to its target of net debt of $10 billion. However, the company expects volumes to decline and costs to rise in first-quarter 2019, mainly due to seasonality.

VALE S.A. Price and Consensus

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space are Ingevity Corporation (NGVT - Free Report) , Israel Chemicals Ltd. (ICL - Free Report) and The Mosaic Company (MOS - Free Report) .
 
Ingevity’s shares have gained 22.8% in the past year and flaunts a Zacks Rank #1 (Strong Buy). The company has an expected earnings growth rate of 21.5% for 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 2.7% for 2019 and carries a Zacks Rank #2 (Buy). The stock has rallied 34.3% in a year.

Mosaic has an expected earnings growth rate of 20% for 2019 and carries a Zacks Rank #2. Its shares have gained 15.1% in a year.

Zacks' Top 10 Stocks for 2019
 
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