Vale Stock Drops After Mining Dam Burst Results in Casualties
NEW YORK (TheStreet) -- Vale S.A. (VALE) - Get Report shares are down by 7.74% to $4.05 on heavy volume in mid-morning trading on Friday, after a mine dam in Brazil jointly owned with BHP Billiton (BHP)burst late Thursday, resulting in at least two people confirmed dead and over 30 injuries, according to Reuters.
Local television outlets showed footage of the town of Bento Rodrigues covered in mud, as mudslides leveled trees and spread waste water in the southeastern Brazilian village.
"We have offered our full and complete assistance to the Samarco team and to the local authorities in the first instance to manage the immediate rescue efforts and then of course to help with the very important clean-up and afterwards the investigation," BHP CEO Andrew Mackenzie said in a statement.
The defective dam had valid licenses from environmental authorities, who last inspected the structures in July, according to the joint venture company that runs the mines, Samarco.
The Samarco Mineracao venture produced about 25 million metric tons of iron pellets last year with a value of about $6.2 billion, according to Bloomberg.
Separately, TheStreet Ratings team rates VALE SA as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
We rate VALE SA (VALE) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Metals & Mining industry and the overall market, VALE SA's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $1,629.00 million or 44.59% when compared to the same quarter last year. Despite a decrease in cash flow of 44.59%, VALE SA is in line with the industry average cash flow growth rate of -54.04%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.93%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 46.42% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- VALE SA's earnings per share declined by 46.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, VALE SA increased its bottom line by earning $0.13 versus $0.01 in the prior year. For the next year, the market is expecting a contraction of 373.1% in earnings (-$0.36 versus $0.13).
- The change in net income from the same quarter one year ago has significantly exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 47.3% when compared to the same quarter one year ago, falling from -$1,437.00 million to -$2,117.00 million.
- You can view the full analysis from the report here: VALE
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.