Legal ‘Noise’ Adds to Deepening Iron Ore Rout for Brazil’s Vale

(Bloomberg) -- For Brazilian iron-ore giant Vale SA, a sector-wide rout fueled by tumbling metal prices is being accompanied by a stark reminder of its legal issues.

The company’s shares are down about 12% this week -- including a more than 6% slump Thursday, underperforming peers -- as iron ore prices lose all of their gains this year on worries over Chinese steel output and global growth.

Not helping Vale’s cause this week was a request from Brazilian prosecutors to seize $9.5 billion in assets from the Rio de Janeiro-based company and BHP Group in their capacity as owners of the Samarco venture that filed for bankruptcy protection in April. While a judge denied that request, the news flow underscores the legal uncertainties.  

“Undoubtedly, it causes noise and weighs on the feeling of investors, especially foreigners, who follow the situation from afar,” said Itau BBA analyst Daniel Sasson.

Samarco’s judicial recovery process risks disrupting talks over reparations for the 2015 dam disaster that caused its financial distress. Some creditors and the prosecutors claim Vale and BHP should be responsible for covering damage costs.

A final settlement between authorities and Samarco is expected to be reached late this year or early next. While iron ore prices are still high enough for Vale to comfortably put its legal issues to bed, the 40% slump from a mid-May peak will leave less for dividends and investments than previously thought.

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