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Vale plummeted as much as 5.4 percent on the probe and potential fine. The news wasn’t expected and it should keep the stock under pressure in the short-term, according to Leonardo Rufino, a portfolio manager at Pacifico Gestao de Recursos.

Over 300 people are believed to have died after the dam collapsed on Jan. 25 near the city of Brumadinho. While 186 casualties have so far been confirmed, 122 people are still missing. After the accident, the company lost its investment grade rating from Moody’s and could face penalties and fines over their role in the tragedy.

This week, Brazil’s Senate also passed a law that increases penalties in accidents with mining dams, that would establish a ceiling of 10 billion reais. The bill still has to be approved by the lower house.

	WHAT BLOOMBERG INTELLIGENCE SAYS
"Our math shows Vale will be on the hook for about $7.2 billion should Brazil’s government fine the company 20% of annual revenue (projected at $36.5 billion for 2018). We believe the stock was already discounting a figure twice the size -- $6-$7 billion in fines and $5 billion for missed dividend payments."

The law is clear in punishing companies if they are found to have colluded to prevent proper government monitoring,” Oliveira said in an interview. “I’ve requested the start of the probe and now the mining agency has 180 days to present some conclusions”.

In a regulatory filing on Friday afternoon, the company said that it hasn’t been officially notified of the investigation. Vale also denied that it has been responsible for -- or has encouraged -- any difficulty or interference with investigations of its business, including its tailings dams. Vale also said that it has always acted in strict accordance with the law.

Vale’s net revenue was 127 billion reais in the 12 months through September 2018.Brazil’s mining authorities have started a probe into Vale SA over a possible cover-up regarding safety procedures that could lead to a fine of up to 20 percent of its 2018 gross revenue.

The country’s mining secretary, Alexandre Vidigal de Oliveira, said in an interview that he requested an investigation into whether the company colluded with auditors to mislead authorities over the risk assessment of the mining rejects dam that collapsed near Brumadinho in the state of Minas Gerais. If convicted under Brazil’s anti-corruption law, the maximum penalty could be around 25 billion reais ($6.6 billion) based on estimates of preliminary 2018 data. By contrast, the mining code sets a 3,000 reais limit for fines.