Vale, the world's largest producer of iron ore, may prove resilient in the wake of the disaster at Brumadinho
, a hitherto well-respected businessman, may now be the most detested man in Brazil. As chief executive of Vale, a giant miner and the world’s largest producer of iron ore, it was Mr Schvartsman who had to face the public after the collapse of a company tailings dam in the town of Brumadinho on January 25th.
So it was not a shock when, on March 2nd, Vale said that Mr Schvartsman and three other executives would step down. “Today the dams are impeccable,” Mr Schvartsman had said last year. Tailings dams contain tonnes of waste material from mining operations. The design used at Brumadinho was known to be the least expensive and most risky.
He faces mounting problems. A crucial question is if Mr Schvartsman or other executives knew about problems with the dam. The firm maintains that “the executives had no previous knowledge of a scenario of imminent risk of a dam breach”. Prosecutors allege that Vale colluded with auditors to present the dam as safe, dismissing inspectors who disagreed. Vale’s own procedures suggest that any serious safety concerns would have been reported to senior leaders, prosecutors also argue.
Under Brazilian anticorruption law the company could face $7.2bn in fines, estimates Morgan Stanley, a bank. That does not account for other penalties or costs. Vale must deal with challenges outside court, too. These include accelerating plans to dismantle dams similar to the one at Brumadinho, suspending production at another big mine in Brazil and evacuating residents from three areas near other tailings dams.
Despite all these difficulties the firm may prove resilient. That is partly because of Mr Schvartsman’s changes since he took over, in May 2017. He reduced Vale’s debt and cut capital spending, notes Carlos De Alba of Morgan Stanley. With healthy free cashflow and low debt, Vale’s balance sheet can probably withstand even hefty government fines, argues Tyler Broda ofCapital Markets, another bank. The fundamentals in metals markets are also helping.
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