One of the world’s largest mining companies has been struggling over the past few weeks. Dealing with the blowback from a recent burst dam caused is no small part to poor management, several executives of Vale SA (NYSE: VALE) have been jailed and the company’s stock has plummeted. Unfortunately for them, the company has been hit with even more news as credit agency Moody’s downgraded the company’s bonds to “junk” status today.
Moody’s has warned the company back at the end of January that they had put the company’s bonds on negative watch, potentially cutting their BBB ratings by several notches depending on how it’s Brazilian operations are affected by the ongoing investigation.
Today the agency official cut the mining giants credit to junk status, effectively outside the range of mainstream investment. Fitch, another credit agency, cut Vale’s rating to BBB-, just one notch above junk status earlier this year.
“The outlook for all ratings is negative. These rating actions conclude the review for possible downgrade for Vale’s ratings initiated on 29 January 2019 in response to the collapse of the tailings dam at the Corrego do Feijao mine in the city of Brumadinho, state of Minas Gerais,” Moody’s research said. The agency added that “considerable uncertainties associated with the full impact and long-term implications of this labor and environmental disaster for Vale’s overall credit profile, as well as the significant overhang of litigation exposure and financial liability that is likely to persist in the years to come.”
Vale ended up declaring force majeure on some of their iron ore contracts after the Brazilian court order a halt to one mine responsible for almost 9 percent of its production. Additionally, eight Vale staff have been arrested in the country following the disaster, although a new judge order has seen the release of these workers as the investigation continues.
Vale’s stock price surprisingly stayed relatively the same despite the announcement. However, the decision from Moody’s to cut the company’s rating is expected to have a long-term bearish effect on stock prices. Vale’s stock plunged around 23 percent the day the news of the burst dam came out. Since then, share prices have remained low and aren’t expected to recover anytime soon.
Vale SA Company Profile
Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pallets for use as raw materials in steelmaking in Brazil and internationally. It operates through Ferrous Minerals, Coal, and Base Metals segments. The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of related railroad, port, and terminal logistics services.
The Coal segment is involved in the extraction of metallurgical and thermal coal; and provision of related logistic services. The Base Metals segment produces and extracts non-ferrous minerals, including nickel, as well as its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil – Bloomberg