Vale Earnings: Solid Operating Result Though Additional Samarco Dam Failure Costs a Headwind

We modestly lower our fair value estimate for no-moat Vale by 3% to USD 15, driven by increased costs for the Samarco dam failure. Vale added USD 1.2 billion in provisions for compensation payments on top of USD 3.2 billion at the end of September 2023. No-moat BHP, Vale’s 50/50 joint venture partner in Samarco, recently recognized an additional provision of USD 3.2 billion. The difference is mainly due to differing assumptions around Samarco’s ability to contribute to compensation, with Vale taking the more optimistic view of the partners. While Samarco will likely return to full capacity of roughly 30 million metric tons (100% basis) toward the end of the decade, we incorporate an additional USD 2 billion provision to be consistent with our BHP fair value estimate. Otherwise, our long-term forecasts are broadly unchanged, and shares in Vale look undervalued.