Brazilian miner, Vale is considering suspending its dividend, share buyback program and bonus payments to top executives in the wake of the deadly dam burst in the Brazilian state of Minas Gerais that killed at least 58 people.
The Brazilian miner said it had “deliberated” over the payments during an emergency board meeting on Sunday where it agreed to set up independent committees investigate the causes of the disaster and monitor relief efforts in and around the town of Brumadinho.
“The board of directors remain in readiness . . . and it will take necessary additional measures,” Vale said in an English-language statement released last night.
Vale shares fell 8% in New York on Friday and were down more than 23% in Brazil on Monday, wiping more than $US18 billion from the company’s value.
The statement warning of the possible suspension of shareholder payments tells us that Vale is bracing itself for a significant financial hit from the accident, one of the worst in the modern history of the mining industry. At least 58 people are dead and hundreds of people are still missing, many of whom are company employees.
Thanks to the strong demand for its high grade (65% iron oxide) iron ore from China, Vale was able to pay out billions of dollars last year, boosting its share price and making it a firm favourite among natural resource investors.
At its annual investor day in December Vale pledged to return a minimum of $US4 billion between 2019 and 2021.
On Saturday, ratings agency Standard & Poor’s put Vale’s rating on credit watch negative, warning that it could cut the current BBB- rating by several notches depending on fines and the possible loss of an operating license in the affected area.
Three court orders over the weekend have already frozen 11 billion reais ($US2.9 billion) of Vale assets pending damages. Vale had around $US6 billion in cash on its balance sheet at the end of September.
Vale said on Sunday that it agreed to deposit 1 billion reais with the courts, but argued that the court orders freezing the additional 10 billion reais were counterproductive because they could block resources need for relief support.
Traders, worried about cuts to Brazilian iron ore exports (Vale is the biggest shipper in the world, followed by Rio Tinto, BHP and Fortescue of Australia, bid futures prices to well over $US84 a tonne on Monday, before they settled back to trade at just over $US82 a tonne).
The Financial Times reported that the latest mine disaster “is a huge blow to Brazil’s Vale, the world’s biggest producer of steelmaking ingredient iron ore, and its chief executive Fabio Schvartsman.”
“Since Mr. Schvartsman, one of Brazil’s most experienced executives took the helm in May 2017, Vale has been transformed from a company that behaved like a quasi-state enterprise to a results-oriented miner feted by the market and mentioned in the same breath as peers such as BHP and Rio Tinto.
“Its shares have jumped more than 50 percent, handsomely outperforming all of its peers as Mr. Schvartsman has reduced net debt from more than $20bn to less than $10bn, boosted returns to shareholders through dividends and share buybacks and reworked several difficult projects.
“All this is at risk as the company, which has an equity market value of almost $US80bn, faces crippling and potentially open-ended fines from the tragedy unfolding at the Córrego do Feijão mine in the southeastern state of Minas Gerais,” the paper reported.
