Shares in the world’s biggest iron ore miner, Vale remain under pressure as it moves to close dams at mines producing 40 million tonnes of ore a year in a move that seems certain to boost global iron ore prices even further than the $US85 or a tonne they reached this week.
Trading in global iron ore markets is on the back burner this week because of the Lunar New Year holiday, especially in China where the country has shut for a week.
With mills not active, prices are marking time just above last Friday’s levels of just over $85 a tonne – that’s the highest they have been for nearly two years.
And prices seem certain to rise when trading resumes next Monday in earnest as Vale starts shutting 8 dams and their mining operations as ordered by a Brazilian court on Monday.
That will take upwards of 40 million tonnes off the global market (progressively), although the court order seems to suggest the closures must be immediate – Vale says it is challenging that order.
If 40 million tonnes of exports are taken off the market it will send prices higher because the dam closures, dismantling and mining operations shutdown could take two to three years (and cost upwards of $US2 billion).
Vale shares were temporarily halted for trading in São Paulo on Monday after the court ordered the miner to stop using 8 mine dams including at its second-biggest operation, Brucutú.
The order came after an accident in another mine, Córrego do Feijão, killed at least 134 people. Almost 200 people are still missing.
The news had no impact on global iron ore prices because of the start of the Lunar New Year holidays across Asia, especially in China, the world’s biggest importer of ore and the major influence on prices.
The Metal Bulletin said its 62% Fe Iron Ore Index price was unchanged from Friday at $US85.53 per tonne, while the MB 62% Fe Pilbara Blend Fines Index was also steady at $8US6.37 per tonne.
A court in Belo Horizonte, the Minas Gerais state capital, ruled that the company is no longer allowed to store more waste material or engage in any action that could compromise the stability and safety of the tailings dams identified as Laranjeiras, Menezes II, Capitão do Mato, Dique B, Taquaras, Forquilha I, Forquilha II and Forquilha III.
Vale will halt operations at the Vargem Grande complex sooner than was scheduled, the company said on Monday of this week. This was one of the mines already included in the company’s decommissioning plan for tailings dams, but its stop has been brought forward, Vale added.
Mine output has been stopped immediately although the decommissioning process could take two or three years. By halting operations at the facility, in the state of Minas Gerais, some 13 million tonnes a year of iron ore output will be eliminated (nearly 8 million tonnes a year have already been taken off the market by the January 25 disaster).
Vale is the world’s largest iron ore producer and had previously published an estimate of 400 million tonnes of iron ore production in 2019. Taking into account all 10 of the tailings dams that Vale intended to decommission, and the end of their respective mining operations, the negative consequences for the company’s total output could reach 40 million tonnes a year.
Brucutu, the largest mine in the mining company’s Southeastern system, has halted the use of its dam.
The world’s largest iron producer said that the court ordered, “among other measures, that the company refrains from throwing tailings or practising any activity potentially capable of increasing the risks of dams” in its Brucutú mine.
It added that “temporary” stopping the use of the dams at the mine could affect the production of almost 30 million tonnes of mineral. The court said in a brief note that it is analysing the case.
“A closure of Brucutú would be a negative for Vale and a positive for other iron ore miners,” US brokers, Jefferies said in a note to investors.
Vale said it would challenge the court’s decision, as it “understands that there is no technical basis or risk assessment to justify a decision to suspend the operation of any of these dams”.
However, the company is increasingly under pressure following the January 25 dam collapse at its Córrego do Feijão mine in Brumadinho on January 26, which has become one of Latin America’s worst ever mining disasters.
Most of the victims are personnel linked to the company, which is now facing crippling fines, class action lawsuits, and credit rating downgrades.
Last week Brazilian courts blocked almost $US3 billion of Vale’s assets to pay for the damage caused by the spill, and labour judges froze an additional $US439 million as compensation for victims.
Vale shares have shed more than 20% of their value since January 25 accident.
In November 2015, 19 people were killed when dams holding waste material at the Samarco iron ore mine — owned by Vale and Anglo-Australian miner BHP — burst, submerging the town of Mariana, spewing millions of tonnes of mud into a river system.
Iron ore export volumes from Brazil went up by 8.40% year-on-year in January to a total of 33.16 million tonnes, the country’s ministry of industry and foreign trade, MDIC, said on Friday, February 1.
The volume shipped abroad in January 2019 compared with 30.44 million tonnes during the corresponding month in 2018. That was 9.2% down on the 33.20 million tonnes shipped in December.
