Please ensure Javascript is enabled for purposes of website accessibility

A Big Weight Has Been Lifted Off of Vale SA (ADR) Stock Today

By Matthew DiLallo – Mar 3, 2016 at 5:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A settlement in Brazil with partner BHP Billiton and the government has investors cheering.

Image Credit: Vale.

What: Shares of Vale (VALE 2.55%) jumped 16% by 3:30 p.m. EST on Thursday. Driving the buying spree was a report that the company and its partner BHP Billiton (BHP 3.27%) had reached a deal with the Brazilian government to cover damages for a deadly dam spill last year.

So what: The joint venture between Vale and BHP Billiton, known as Samarco, will pay an estimated $5.1 billion in damages during the next 15 years relating to that spill. The agreement will put to rest lingering concerns about the extent of the financial impact to both companies. In fact, the obligations will be paid out by the joint venture, with Vale and BHP Billiton only responsible if the venture is unable to cover the costs.

In addition to that news, iron-ore prices have been on a tear of late, jumping 18%, to more than $50 a metric ton. That surge is very important to Vale, given that it's the world's leading iron-ore miner. Driving this rally is restocking by Chinese mills, which have started to increase their output after being on a holiday break in February.

Now what: With greater cost certainty surrounding Vale's future liabilities in Brazil, investors are breathing a sigh of relief -- especially considering that the funds will be paid out by the joint venture during the next 15 years instead of by the company in the near term. To top it off, iron-ore prices are finally starting to improve after a pretty rough stretch.

It remains to be seen if this rally is sustainable, or simply due to some initial heavy buying by the Chinese after a holiday. If it's the latter, than its quite possible that the recent price rally could come to an abrupt end.

Matt DiLallo owns shares of BHP Billiton Limited (ADR). The Motley Fool owns shares of Companhia Vale Ads. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vale S.A. Stock Quote
Vale S.A.
$16.50 (2.55%) $0.41
BHP Group Ltd. Stock Quote
BHP Group Ltd.
$62.80 (3.27%) $1.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.