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Why Vale SA Shares Soared

By Brian D. Pacampara, CFA – Mar 4, 2016 at 3:57PM

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The mining giant jumps on the detainment of former Brazil President.

Image Source: Vale SA.

What: Shares of Rio de Janeiro-based mining giant Vale SA (VALE -3.32%) soared as high as 18.5% on Friday on news that former Brazil President Luiz Inacio Lula da Silva was detained as part of a corruption probe.

So what: The police action -- part of a larger inquiry into corruption centered on the state oil company Petrobras (PBR -3.17%) -- also threatens to speed up the impeachment of da Silva's successor, President Dilma Rousseff, suggesting that the political risks surrounding Brazil are finally starting to ease. When you couple that somewhat improved Brazilian outlook -- the real rose nearly 2% on Friday, the highest in about three months -- with recently surging iron ore prices, it's no surprise that Vale shareholders are among today's big winners.

Now what: The odds of Rousseff's impeachment are much higher after today's developments. "Ex-president Lula, besides being party leader, was the one ultimately responsible for the decision on who would be the directors at Petrobras and was one of the main beneficiaries of these crimes," said a police statement on his detention. "There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group." Of course, with Vale shares now up a whopping 60% during just the past week, investors might want to look at other Brazilian stocks for a more-tempting impeachment play.

Brian Pacampara has no position in any stocks mentioned. 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.

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