Vale’s biggest problem won’t be easy to fix – by Vinícius Andrade and Sabrina Valle (Australian Financial Review/Bloomberg – Janaury 17, 2020)

São Paulo | In the weeks and months after Vale’s deadly dam disaster, some of Brazil’s biggest investors snatched up shares in a bet they’d bounce back and then keep rising.

A year later, the gamble paid off, but with a caveat: The stock rebounded, but Vale’s reputation hasn’t — and that’s the problem. Vale still trades at a discount of at least 20pc to peers BHP and Rio Tinto, based on enterprise-value-to-expected-Ebitda ratio.

While the world’s largest iron ore producer, like all miners, has struggled with plenty of environmental issues in the past, there’s no denying that a company’s green credentials suddenly matter now more than ever.

“With sustainability growing in importance by the day for the global investor, my big concern now relates to the long term and whether Vale is going to be able to change its image,” said Leonardo Rufino, portfolio manager at Pacifico Gestao de Recursos. “Because if it can’t, the risk is that Vale ends up being a cheap stock forever.”

Pacifico, along with SPX Capital and Vinland Capital, were among asset managers that scooped up Vale stock after the dam break in January 2019 wiped out a quarter of the company’s market value.

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