Shares of Vale SA (NYSE:VALE) are in free fall today as investors attempt to assess how a deadly dam collapse will impact the business. On Friday, one of the company's mining tailings dams in Brazil failed, killing over 60 people and leaving another 300 missing. The death toll is expected to rise significantly.
Vale announced it will suspend its annual dividend of $0.51 per share to free up capital for what's expected to be hefty fines and stricter regulations across its operations in the country. Analysts find the latter especially likely given this is the second time one of Vale's mining dams has collapsed in Brazil since 2015.
As of 11:04 a.m. EST, shares were down 17%.
There are several moving parts for investors to keep an eye on. When a Vale mine collapsed in Brazil in 2015, a slow response and a lack of leadership eventually led to the ouster of former CEO Murilo Ferreira. He was replaced by Fabio Schvartsman, who now has his own disaster to grapple with.
Commodity markets are also responding to the catastrophe. Bloomberg reports that iron ore futures are trading at one-year highs in China over fears of a supply disruption. If that materializes, then it could lead to an increase in steel prices and ripple across the global economy. At this time, however, there's no indication that Vale's vast mining empire will be affected by the dam collapse.
Additionally, while some analysts expect Vale to cover any financial fallout without any struggle, there's more uncertainty about the miner's reputation going forward. Will Brazil's new deregulation-friendly president be forced to take a tougher stance on the industry?
The ongoing crisis in Brazil threatens to wipe away a significant amount of the progress Vale made -- both financially and with its reputation -- since the last dam collapsed in 2015. After resetting some parts of its management team and retooling operations, Vale saw its shares rise almost 350% from early 2016 through last week. Now investors are left with much more uncertainty regarding the company's near-term future.
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