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Brazilian Court Freezes VALE's Assets Worth $255 Million

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VALE S.A. (VALE - Free Report) announced that the 1st Court of Nova Limahas has frozen R$ 1 billion ($255 million) of its assets as compensation for damages caused to people for the evacuation of the area around its Vargem Grande dam in Minas Gerais state. Per the court ruling, Vale will also not construct, operate, alter or utilize the Vargem Grande dam. Further, the company has to adopt certain measures to ensure the stability and safety of the dam and other structures of the mining complex.

However, the company stated that this development does not change its iron ore sales volume guidance for 2019 between 307 and 332 million tons.  Vale’s iron ore production totaled 384.6 Mt in 2018, in line with its production guidance.

Vale also announced that 80 Stability Condition Declarations of its operational structures that were to expire on Mar 31, 2019 have been renewed. However, the company has failed to obtain stability certificates for at least 17 dams and dikes.

On Mar 25, 2019,  the Court of Barão de Cocais froze Vale's funds of R$ 2.95 billion ($763 million) to compensate any potential losses suffered by the people affected by removal that occurred or that may occur in relation to Sul Superior dam, of the Gongo Soco mine, in Barão de Cocais.

This is the aftermath of a rupture at the Dam I in the Córrego do Feijão Mine in Brumadinho on Jan 25. It killed hundreds of people. Vale estimates the annualized impact to iron ore production owing to the dam disaster at 92.8 Mt. The disaster threatened global iron ore supply and propelled iron prices toward levels not witnessed since 2014.

Despite this setback, shares of Vale have gained 6.3% over the past year, compared with the industry’s growth of 2.3%. Higher iron ore prices fueled by strong economic data from China and supply concerns have benefited Vale’s share prices lately.

Vale also gained from its recently reported solid fourth-quarter results — the last complete quarter before the dam disaster. The company’s fourth-quarter 2018 earnings of 73 cents per share marked a substantial improvement from the 15 cents registered in the prior-year quarter. Net operating revenues rose 7% year over year to $9.8 million.

For 2018, earnings came in at $1.32 per share, higher than the year-ago tally of $1.06 per share. Net operating revenues for 2018 came in at $33.6 billion, up 8% from 2017.

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 sector are Ingevity Corporation (NGVT - Free Report) , Innospec Inc. and Materion Corporation (MTRN - Free Report) , each carrying a Zacks Rank of 1.

Ingevity has expected earnings growth rate of 17.9% for 2019. Shares of the company have surged 50% in the past year.

Innospec has a projected earnings growth rate of 3.5% for 2019. The stock has rallied 23% in a year’s time.

Materion has estimated earnings growth rate of 12.6% for 2019. The stock has gained 12% in the past year.

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