The latest financial reports indicate the Brumadinho disaster has an ongoing negative impact on Vale, which must ramp up operations to reverse its fortunes.
On 11 February, Vale announced that it expects to register a net $671m in additional provisions, arising from the deadly Brumadinho dam collapse on 25 January 2019.
The update is the latest in the company’s dam decharacterisation plan, which it defines as “the process for a dam to be reincorporated into the relief and the environment.” Vale hopes its efforts will reduce risk levels at its sites.
Vale previously said it was decreasing the provisions previously allotted to decharacterising nine dams similar to the one that burst last year by $447 million. However, it later stated that the decharacterisation of smaller dikes at some dams would cost a further $315 million in provisions.
The disaster, which killed 270 people, brought about the company’s most challenging year of its existence. The catastrophic incident has led to production stoppages, the reconstruction and decommissioning of dams and the charge of homicide for the company’s ex-CEO Fabio Schvartsman.
Production forecasts have been slashed, compounding the situation
Provision costs aren’t the only worry for Vale, the company has also reported a slump in iron ore production.
Vale originally pledged between 68 million and 73 million tonnes of iron ore in the three months to 31 March but on Wednesday that calculation was downgraded to between 63 million and 68 million tonnes.
Vale’s poor start to 2020 has meant that its output of iron ore fell to 302 million metric tonnes last year, down 21.5% from 2018. As a result of this, the company has lost its position as the world’s leading producer to competitor Rio Tinto.
Production cuts have been caused by a number of factors, but primarily by the operational disruptions caused by the disaster, such as the closure of five of its other mines.
The company is hoping that production volumes will improve upon the granting of external authorisations to resume halted production, however, it is yet to be determined when this will occur.
Iron ore isn’t Vale’s only headache, finished nickel production also fell 15% year-on-year to 208,000t in 2019, in line with the annual guidance of 210,000-220,000t.
Ramping up operations will support Vale’s long term recovery
Vale recently announced its plans to invest $100 million on constructing a new fines dry magnetic separation (FDMS) plant for iron ore processing, which it plans to open by 2022.
The plant is likely to be built in Minas Gerais, the same state affected by the disaster and is expected to have a capacity of approximately 1.5 million metric tonnes per year.
Ramping up investment is the best option for Vale and is crucial in restoring its production capacity in the long term.