Vale SA (NYSE: VALE), the world’s top iron ore miner, has seen drastic output reductions as Brazilian authorities force the shutdown of many facilities following the initial dam disaster in January.
This has had an impact not only on global iron supplies but also on Vale’s bottom line. Thursday, the company reported it’s Q1 2019 performance figures, shocking the markets as Vale saw a $1.64 billion loss in the first quarter.
Most of this decline came from a series of provisions for the cost of the dam disaster, including around $2.4 billion for compensation and remediation programs along with a further $1.86 billion cost for shutting down various dams.
The cumulative impact of the Brumadinho dam rupture on the first quarter alone is predicted at $4.954 billion. Three years ago, Vale reported a $1.59 billion net profit while also reporting a $652 million loss before interest, taxes, depreciation and amortization.
But even besides the various mine shutdowns, Vale’s iron output is lower than expected with the company’s production 30 percent less than the previous quarter.
Besides mine closures, this is attribution to bad weather as well as new inventory management procedures in Chinese ports, which has slowed down the timing of sales revenue by their accounting standards. Vale also blames abnormal rains which impacted shipments from the Ponta da Madeira port.
Another announcement made by the company was that it confirmed Eduardo Bartolomeo as a replacement CEO for Vale. Under pressure from Brazilian prosecutors for failing to do enough to stop the disaster, Vale ended up shedding a number of its key executives.
In addition to financial damages leveled against the company, it’s still possible that many of these key executives could get jail time.
“I am committed to leading Vale through the most challenging moment in its history. We will work tirelessly to ensure the safety of people and the company’s operations,” said Eduardo Bartolomeo in a press release. “We will never forget Brumadinho and we will spare no effort in alleviating the suffering and repairing the losses of the impacted communities. This focus on people and on safety will boost our operational excellence and will strengthen our license to operate, thus guaranteeing sustainable results through the supply of a high-quality product portfolio.”
In response to the news, shares of Vale dropped 1.4 percent in today’s trading session, with after-hours trading seeing the stock dip even further.
Ever since Vale’s dam in Brazil first broke, share prices drastically plunged before slowly recovering over the next couple of months. For the past few weeks, however, the company’s shares have been moving downwards again and losing value.
Vale Company Profile
Vale is the world’s largest iron ore miner and one of the largest diversified miners, along with BHP and Rio Tinto.
Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal.
The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper. – Warrior Trading News