Vale SA reached a settlement agreement with Brazilian authorities for a dam collapse that killed 270 people and led to production cuts that earned the company the title of the world's largest iron ore producer.
The deal comes two years after the Brumadinho disaster, giving affected communities a clear framework for compensation and restoration and removing significant legal overhang for Vale. Shares in Sao Paulo have changed little.
Vale will pay 37.7 billion reais ($ 7.03 billion), including cash payments to affected people and investments in environmental projects, the Rio de Janeiro-based company said in a statement. Vale estimates it will have an additional spend of 19.8 billion reais in the 2020 results.
"This is the largest recovery deal ever signed in Latin America in financial terms and with the participation of the state," and one of the largest in the world, Minas Gerais said in a statement.
The two sides come together after Vale initially presented a value of about 21 billion reais, while Minas Gerais outlined 28 billion reais in property damage plus 26 billion reais in moral damage.
Vale said about 8,900 people are already party to civil or labor insurance contracts, while more than 100,000 have received emergency relief for a total of 1.8 billion reais.
With Vale benefiting from high iron ore prices, the Brumadinho settlement is not expected to jeopardize its investment plans, according to Ativa Investimentos. Iron ore futures rose 73% last year due to strong Chinese demand.
The deal is about two-thirds of the amount initially requested by the courts, "confirming a positive negotiation for Vale," said Ativa analyst Ilan Arbetman. "In addition, his adjusted net debt allows him to sell the unforeseen amounts without further complications."
Vale's shares increased their profits after a trading stop, but then reduced the advance. The stock rose 0.2% at 11:24 am local time, while the Brazilian benchmark changed little.
In the past year, Vale's local shares gained 73%, double that of rival Rio Tinto Group. Still, Vale is trading at 5.3 times its estimated earnings versus Rio Tinto's ratio of 8.8.
"The agreement removes a significant overhang for the shares, which are still trading at a discount to peers," said Leonardo Morales, head of shares at ASA Investments.
–With the help of Ney Hayashi, Rachel Gamarski, Vinícius Andrade and Luana Vicentina.
Photo: Residents investigate damage following the bursting of a Vale SA dam in Brumadinho, Minas Gerais state, Brazil, on Saturday, January 26, 2019. Photo credit: Victor Moriyama / Bloomberg.
Copyright 2021 Bloomberg.
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