RBC Lowers Vale Price Target After 'Enormous Tragedy' In Brazil, Anticipates $10B Liability

Brazilian mine operator Vale SA VALE dominated news headlines after one of its dams in the town of Brumadinho burst, killing dozens of people, with hundreds still missing. 

The fallout could weigh on investor sentiment and the stock, according to RBC Capital Markets. 

The Analyst

Analyst Tyler Broda maintained an Underperform rating on Vale with a price target lowered from $11 to $9.

The Thesis

Vale's dam disaster is an "enormous tragedy, and a near-unthinkable one," and it remains unclear what led to the failure, Broda said in a Monday note. 

The company did receive declarations attesting to the physical condition of the dam from a geotechnical firm in late 2018, and the company itself inspected the dam in late January, the analyst said. 

Vale's public response has been a "positive one," as management is cooperating with investigations, Broda said. While this marks a notable improvement from the company's 2015 Samarco disaster, the public outcry is "full of outrage and anger," including courts freezing around $3 billion of Vale's funds, he said. 

Looking forward, the financial impact is difficult to quantify, although Vale will likely pay for all damages, the analyst said

If Vale is found to be in some way responsible for the disaster, the financial impact will exceed any recent fines, Broda said, adding that a base case estimate suggests Vale will pay $10 billion in penalties.  

Price Action

Vale shares were trading down 4.1 percent to $12.06 at the time of publication Monday. 

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