The worst is behind Brazilian mining operator Vale SA (NYSE: VALE), according to Bank of America Merrill Lynch.

The Analyst

Analyst Timna Tanners upgraded Vale from Neutral to Buy and raised the price target from $14.50 to $15.50.

The Thesis

Bank of America estimates a likely maximum of $6.5 billion in fines, dam remediation, lawsuit, and environmental cleanup after discussions with Vale at the Global Metals and Mining conference last week, Tanners said in a Friday upgrade note. (See her track record here.)

One of the company's dams in Brumadinho, Brazil collapsed in January, killing 270, and the Wall Street Journal reported this week that another dam nearby is at risk.

Vale faces no production impact from recent headlines, but it has suffered a "reputational hit" from rail disruptions and Gongo Soco dam risks, the analyst said.

All of the company's upstream tailings dams have been idled, Tanners said. Brazil politicians will ultimately want to restore lost tax revenue, she said.

Vale said it could reinstate a dividend by the fourth quarter of 2019 assuming that remediation payments are behind it, according to BofA.

"This can redirect investor focus to its strong FCF, and we assume US$10B in 2019E and $8.5B in 2020E."

Price Action

Vale shares were higher by 1.95 percent at $12.02 at the close Friday.

Related Links:

Benzinga's Top Upgrades, Downgrades For May 24, 2019

BMO Lowers Vale Estimates On Court-Ordered Mine Shutdowns

Public domain photo by NASA.

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