Second ‘impending’ Vale Dam collapse will sweep these ASX stocks off their feet
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ASX iron ore stocks outperformed the market on Friday thanks to a broker upgrade, but another possible dam collapse at Vale SA (NYSE: VALE) could cause them to skyrocket.
the BHP Group Ltd. (ASX: BHP) share price and Fortescue Metal Group Limited (ASX: FMG) The share price jumped over 1% today.
On the other hand, the S & P / ASX 200 Index (Index: ^ AXJO) rose 0.1% to 7,312 – a new high.
New Vale Dam threatens greater catalyst for ASX miners
ASX iron ore miners were reinforced after Macquarie Group Ltd. (ASX: MQG) improved its price forecast for the raw material.
But the rally triggered by the broker may pale in comparison to the upside the sector will experience if the Brazilian authorities are right.
The decommissioned Xingu dam in Vale is at “imminent risk of collapsing,” the regional labor department of the southeastern Brazilian state of Minas Gerais has warned, reported Reuters.
Second major failure will push iron ore prices up
The warning brings back bad memories of the Brumadinho Dam disaster on January 25, 2019. The tragedy left 270 people dead and cost mine owners US $ 7 billion, and Vale suffered the brunt of the blame and payment. .
A breach in the Xingu tailings dam killed 19 people in 2015. Its risk level was elevated last October by Brazil’s National Mining Agency, according to Reuters.
The Xingu Dam may have ceased to receive tailings or mining waste in 1998. But it risks liquefying, a process where water weakens the walls and barriers or the dam.
Bad memories wake up
It is the same reason that caused the collapse of the Brumadinho dam with devastating consequences.
However, Vale contradicted the official warning. He said the Xingu dam was not at “imminent risk” in a regulatory dossier on Friday.
The Brazilian iron ore giant has only said it has stopped production at its neighboring Timbopeba mine and part of its Alegria mine. This was after government officials ordered the evacuation of an area around the Xingu.
Brazil’s iron ore export could be hit again
But if the dam collapses, it could very well impact Vale’s iron ore exports at a time when it struggles to meet production forecasts.
Brazil’s raging COVID-19 pandemic is already hampering the country’s exports and contributing to record iron ore prices.
Vale could breathe new life into ASX miners
Vale’s Australian competitors like Rio Tinto Limited (ASX: RIO) and BHP are reaping the rewards and are overwhelmed with money. As a result, investors expect generous dividends from these two ASX stocks and if Xingu drives further production cuts, it will give Australian miners additional tailwind.
Vale will have to meet a number of technical conditions before it can obtain authorization to reopen the area.
ASX investors are hopeful that Vale will take a little longer to meet these conditions.