Brazil’s agony after a second deadly mudslide at an iron ore mine is roiling the market for the steel-making material with the potential for a long-term price increase if operations at part of its vast iron ore industry are suspended while other dams are investigated.
Developments on multiple fronts are occurring on a daily basis in the wake of the collapse of a dam holding tailings (residue) at the relatively small Corrego do Feijao mine near the town of Brumadinho in the south-east State of Minas Gerais.
At the site of incident the search continues for possible survivors while the dead are recovered. At the last count there were 60 confirmed deaths with hundreds of people listed as missing.
Safety Report Probe
Investigations into the cause of the dam collapse are focusing on a recent safety report which said the dam was stable. Two contractors working for the company which signed off on the safety report have been placed under temporary arrest by Brazilian authorities, who have also detained three employees of the company which owns the mine, Vale.
A front loader transfers mined iron ore to a dump truck at Vale SA’s Brucutu mine in Barao de Cocais, Brazil. Photographer: Dado Galdieri. Bloomberg.BLOOMBERG NEWS
On commodity markets the latest deadly incident at a Brazilian mine has helped boost the price of iron ore by around 5% to $78 a tonne with speculation that it could go higher if any of Vale’s much bigger mines are forced to slow production while their operations are scrutinized.
The primary reason for expecting Vale’s business units to be under pressure is that the Feijao dam collapse follows a similar, but less deadly, dam failure and resulting mudslide in late 2015 at the Samarco mine which claimed the lives of 19 people.
Legal Action
Legal action following the Samarco incident is still underway, as is a proposed financial settlement with the Brazilian Government by the mine’s joint owners, Vale and its Australian-based partner, BHP, though it is possible that the latest dam failure could delay resolution and possibly see the two events linked because of the common involvement of Vale.
On financial markets Vale’s share price has tumbled, dropping by 25% since the dam burst became public news with the timing of Vale’s public reporting part of ongoing investigations with what appears to be a two-hour gap last Friday between first news reports and Vale’s filing of an official report.
Rival miners are benefiting from the higher iron ore price. Australian-based pure-play iron ore producer, Fortescue Metals Group has seen its shares rise by 12% over the past three trading days. Rio Tinto and BHP, which include iron ore among their interests, have risen by 7% and 4% respectively.
Long-Term Threat
But what comes next is what interests some investment banks because while the mines affected by the dam failures (Samarco and Feijao) are small it is the threat of a more widespread event which could see a longer-term reaction.
Crushed iron ore is transported in railroad cars at Vale SA’s Brucutu mine. Photographer: Dado Galdieri. Bloomberg.BLOOMBERG NEWS
Macquarie Bank said it had cut 18 million tons from its forecast of Vale’s annual iron ore output this year, a small hit to a business which had been expected to produce 355m/t but was now expected to produce 337m/t.
It could be worse because an estimated 40% of Vale’s iron ore is produced using a wet process to separate ore from waste rock and it’s those mines which store their tailings in dams. The other 60% of iron ore is produced using a dry separation process, as is all Australian iron ore.
In an extreme, and very unlikely scenario, Macquarie said all of Vale’s wet processing operations could be forced to slow production while their dams are subject to highly-detailed investigation which could further boost the iron ore price.