Stobie Mine Accident Could Seriously Damage Vale
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Vale (NYSE: VALE) is facing health and safety charges related to the death of two miners. These charges are responding to an event that occurred almost exactly a year ago. The miners were buried by falling rocks at Vale's Stobie Mine.
The company and one of its employees — a supervisor whose name has not been released — have been charged under the Occupational Health and Safety Act. Mining unions, however, feel that this is inadequate, and there is a high chance that criminal charges will also be made at some point in the near future. In addition to this, some are pushing for a full investigation into the safety of mining in the area. This should not present a problem to Vale if the company complies with safety standards, which it claims to do. If there is a problem, however, it would look bad and have a negative impact on the stock. Even the existence of an investigation in the first place could damage the stock.
According to union representatives, the mining company acted with negligence. Even worse is that the union claims it is obvious that Vale was negligent in this situation. Things are not looking good for Vale, and I think this will hurt the confidence of many investors.
Allegedly, Vale “failed to take reasonable precautions to prevent the movement of material through an ore pass while hazardous conditions existed, failed to ensure a transfer gate to an ore pass could be operated and monitored from a safe distance, failed to maintain drain holes at the 2,400 level of the mine, and failed to ensure water, slime and other wet material wasn't dumped in the No. 7 ore pass at the 3,000-foot level where the men were working.” Given the situation, I am not surprised that so many charges have been made. We can only wait and see whether or not they are legitimate though. Vale could be made to pay as much as $4.4 million, and this could bring great concern for investors, leading to a drop in the stock.
Vale maintains that its primary focus is on keeping its mines safe. It is in the process of implementing a number of recommendations from an internal investigation into the deaths of the two men. Vale says that a combination of factors accounted for the situation and claims that changes are being made to address those factors. The first court hearing relating to the charges will be on August 14, but the bad publicity will have a much more immediate impact on the stock.
In contrast, competitor Barrick Gold (NYSE: ABX) appears to be doing quite well. It plans to buy land from Victoria Gold in Nevada. This is a smart move for Barrick, as the purchase will serve to extend the land it owns around its highly-profitable Cortez mine. The land makes up roughly 7000 acres, and the price Barrick will pay should be in the region of $24 million. The company has chosen to take the route of focusing on its own pipeline rather than making acquisitions, which is an interesting strategy that could serve it well in the long run. I see this as good news for the company, and it should result in gains for Barrick stock.
AngloGold Ashanti (NYSE: AU) is working with the local authorities in Geita to determine the causes of a fatal shooting that occurred at one of its mines recently. The company vows to give the authorities its full cooperation. The company claims that it always acts “in accordance with internationally recognized human rights protocols,” and investigations will hopefully back this claim from the company. Investors in AngloGold Ashanti should keep a close eye on these proceedings, as further bad press could significantly impact the stock. At least for the moment, however, I think this will only have a slightly-negative effect.
Freeport-McMoRan (NYSE: FCX) is having problems at its Grasberg mine in Indonesia where yet another strike may occur in the near future. When the miners went on strike last year, it caused a huge drop in the company’s profits and an increase in the price of copper across the board. The details about the planned protest have not yet been made clear, so the ramifications are also unclear. At this point in time, it seems that Freeport needs to find a way to keep its mine operational. Otherwise, it needs to get out of Indonesia immediately, as these conflicts continue to have negative effects on the company and the stock.
Rio Tinto (NYSE: RIO) has met some opposition regarding the fact that it locked out 780 workers in Alma. The opposition may glean international attention, as Canadians have written to Olympic bosses and asked for the company to no longer be involved in making the medals for the Olympic Games. Although Olympic bosses will not get involved in the issue, it has caused the situation to escalate in a way that could have a significant impact on Rio Tinto stock.
Vale still has much to deal with in response to the deaths, but it is not the only mining company facing problems. Of the ones I have mentioned, Barrick appears to be the only one in a good position. The court date is still over two months away, but the bad press is already beginning to develop. This will probably only continue to get worse and keep investors uncertain over the future of this stock. I expect Vale stock to fall as a result of this bad press.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.