Vale’s dam problem

Vale SA, the world’s largest iron ore producer, reeling from a dam disaster in January 2019 that killed over 230, warns of a similar collapse. Why has this happened?

Background

Vale SA is a Brazilian multinational mining and metals corporation. It is the world’s largest producer of iron ore and nickel. It also produces manganese, ferroalloys, copper, bauxite, potash and cobalt, among others. Vale also operates nine hydroelectricity plants and significant logistical assets to transport its products. Vale was established by the Brazilian Federal Government, before being privatised in 1997.

Vale has had two major dam failures, both in Brazil. Mariana in 2015 and the Brumadinho in 2019. The 2019 disaster led the company to lose its license to operate a number of its dams in the Minas Gerais state that Brumadinho is located in. As a result of the disaster, 230 people lost their lives, and Vale’s stocks lost nearly 25% in value.

Analysis

Vale recently told prosecutors in Minas Gerais that a dam at its Gongo Soco mine is at risk of collapse. The Gogo Soco mine is only 40 miles away from the site of the Brumadinho dam. The Gogo Soco mine has not been active since 2016, although it still contains over 6 million cubic meters of mining waste. Only half that amount was released when the Brumadinho dam burst. Over 500 people believed to be at risk from the potential collapse of the dam have been evacuated.

Vale identified movement close to the mine and predicted that the structure might collapse if the current rate of motion in the mine pit close to the dam is maintained. The structure would collapse due to a phenomenon called liquefaction. Liquefaction occurs when a dam’s barrier gets weakened as it dissolves in water. This is believed to be the cause of the Brumadinho dam tragedy.

Vale said in a statement that it was unclear as to whether slippage in the embankment would trigger a collapse of another nearby dam, the Sul Superior.

Vales shares fell as the report became public while it continues to battle public perception against its operations. Authorities in Brumadinho are still recovering bodies from the collapse there in January 2019. Vale has faced consistent pressure regarding its activities because of environmental concerns. These disasters, with a substantial human cost, is now damaging Vale’s profit-making ability.

Assessment

Our assessment is that because little was done to negate potential disasters proactively, Vale’s dams are in danger of collapsing. The Brazilian government has exercised little oversight over Vale since its privatisation, although it continued to own a controlling stake. The mixture of profiteering and state-centric policies has created a business model that seeks profits without securing environmental and humanitarian concerns. We believe that the government must step in to take concrete measures to reinforce the dams and ensure the safety of all the people living in this area.