Investors optimistic about Vale's prospects

Rio de Janeiro

INVESTORS are looking past Vale SA's worst-ever quarter as analysts highlight the top iron ore miner's brightening prospects after it set aside US$4.5 billion to cover potential costs linked to a fatal dam disaster.

Shares gained as much as 2.6 per cent in Brazil trading on Friday, even after the company posted a net loss of US$1.6 billion in the three months ended in March. Provisions related to the dam breach in January took the company's adjusted earnings before interest, taxes, depreciation and amortisation to negative US$652 million, the first such loss in its history.

"Once Vale reaches a final agreement with authorities on compensation for families and environment (which we don't think will surpass US$4-5 billion), we think investor focus will shift back to fundamentals, potentially triggering a re-rating," Thiago Lofiego, an analyst at Bradesco BBI said in a note Friday. "This is actually the remaining overhang on the stock."

The Brazilian miner set aside provisions to cover legal costs and agreements with local authorities related to the Brumadinho dam rupture that left hundreds dead in January. The company is taking steps to turn things around after its prospects dimmed. Last year, it was on pace to boost 2019 output to a record 400 million tonnes. On Friday, chief financial officer Luciano Siani Pires said it will take two to three years to meet that target. The deadly disaster forced it to shut mines that account for almost a quarter of that goal.

On Monday, Rio de Janeiro-based Vale scaled back its 2019 outlook, saying sales of iron ore and pellets will likely be in the middle-to-lower end of its guidance of 307 million to 332 million tonnes after a local court ordered that operations at its Brucutu mine be halted for a second time. BLOOMBERG