Vale SA (ADR) (NYSE:VALE) has been climbing the charts on the news of a settlement between the Brazilian authorities and BHP Billiton, over the joint venture at Samarco Mineracao. The litigation had been ongoing for the past few weeks and had concerned a deadly dam collapse at the Samarco site.
As per the details of the agreement, Samarco would pay for damages to specific programs, rather than one large sum. The authorities had originally asked Samarco to pay $4.9 billion as compensation. However, this is just a compensation deal and the executives of the company are still prone to prosecution. Nonetheless, investors have started returning to the stock and both BHP and VALE have been climbing the charts. The deal is being viewed by analysts that the authorities want let Samarco survive.
Apart from the situation at Samarco, Vale has continued with its iron ore operations and is said to have recorded an all-time high output, 88.3 million metric tons, during the 4Q2015. This is in accordance with the general trend in large mining companies, which have been boosting production, despite a market slowdown in China. The growth in production and slow demand for iron commodities, there are only two explanations. Either the company is trying to provide these commodities at cheaper prices and expand to other markets, which would mean that smaller miners could very well go out of business. On the other hand the company can just be preparing for the market conditions to change soon.
Analysts at TheStreet have awarded VALE a sell rating, based on its poor returns on equity, operating cash flows and minor growth in EPS. The deal with the Brazilian government is also an indication that Samarco operations might be resumed by the end of this year. This means that Vale can further increase its production and improve its margins.
Vale SA (ADR) (NYSE:VALE) gained 10.29% during the February 17 session, after having a trade volume of 40.92 million, to reach a close at $3.06.