A disaster has struck the world’s leading iron ore producer Vale SA (NYSE: VALE) as the international community responds to a tragedy concerning one of their dams in Brazil. The Brumadinho dam, which collapsed today and led to the deaths of 60 people and hundreds missing, marks the second major disaster linked to the mining giant over the past few years. In response, the Brazilian government is looking to press criminal charges against the company.
At this moment, firefighters have confirmed the deaths of 60 people. While 192 others have been rescued, a further 300 are still missing. Although the cause of the dam burst remains unclear, what has been emphasized by Brazilian officials is that corporate executives will likely be facing criminal charges for this negligence. “If there was malpractice, recklessness or negligence on the part of someone inside the company, that person has to answer criminally,” said Brazil’s Vice-President Hamilton Mourão according to the BBC.
“We believe Vale now faces multiple risks arising from the disaster,” S&P Global Ratings said in a statement, putting the company’s bonds on CreditWatch. Three judges have already frozen up to $3 billion in the company’s assets to ensure compensation for victims and reconstruction efforts in the region. “Its financial obligations to remediate and compensate for losses might be substantial, and the company would have to face long and complex studies from environmental entities and regulatory bodies that could end up in license suspensions.”
The company has also suspended dividend payments to shareholders in an effort to save funds for the cleanup efforts. Brazil’s environmental protection bureau’s Minas Gerais and IBAMA have fined the company $26 and $66 million already. “There are reasons to think that the impact on Vale could be substantial given this is the second failure in three years and the significant loss of life as a result of this event,” said BMO Capital Markets, which downgraded the stock to $13 per share. “However, with the dam independently certified as safe as recently as September 26, 2018, the impact on Vale is difficult to quantify.”
Vale already had a similar fiasco just less than four years ago, where a dam failure killed 19 people and buried an entire village. While the mining giant was hoping to get the Samarco mine operational again in 2020, this recent disaster means that the current lawsuit surrounding this older incident might completely change as a result. In response to the news, Vale shares tumbled 18 percent on the NYSE, and will likely continue plunging as a the week goes on.
Vale SA Company Profile
Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pallets for use as raw materials in steelmaking in Brazil and internationally. It operates through Ferrous Minerals, Coal, and Base Metals segments.
The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of related railroad, port, and terminal logistics services. The Coal segment is involved in the extraction of metallurgical and thermal coal; and provision of related logistic services.
The Base Metals segment produces and extracts non-ferrous minerals, including nickel, as well as its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil – Bloomberg
