Vale, the big Brazilian iron ore producer, has ruled out returning dividends or offering shareholders buybacks while it repairs the damage caused by the January 25 dam wall disaster that left upwards of 300 people dead or missing and slashed production and export volumes for the giant.
Speaking at a Financial Times seminar in Rio de Janeiro at the weekend, Vale’s chief financial officer Luciano Siani made it clear that shareholders will take a back seat in terms of the company’s immediate future.
Adding to that view was news last month that Brazil’s federal police had revealed unveiled the first criminal charges against Vale and Tüv Süd, it’s German safety inspector.
“Vale is a very important company for lots of individuals. We have about 200,000 individual shareholders and about 200,000 retirees from the largest pension funds in Brazil that depend on the income,” Mr. Siani told the FT Summit in Rio de Janeiro.
“So we understand the anxiety of this audience . . . but what I have to say is that this is not a priority for the company right now. We need to be completely focused on reparation, compensation, litigation and beefing up our balance sheet.”
Vale has set aside more than $US6 billion to cover fines and clean up costs and a government order to decommission nine so-called tailings dams with similar structures.
The tragedy, near the town of Brumadinho in the southern state of Minas Gerais, saw iron ore to a five-year high above $US125 a tonne boosting profits at Vale and other producers such as BHP, Rio Tinto, and Fortescue Metals.
That was because of the disruption of Vale’s production and export capacity for 2019 – estimated at 90 million tonnes, compounded by delays and lost shipments from BHP and Rio Tinto mines due to a cyclone in late March, disruptions to export operations at Rio’s Cape Lambert terminals and quality and supply delays at BHP and Rio’s main mines in the Pilbara.
The price has fallen since those highs in early July and are now around $US90 a tonne which is much higher than the $US72 a tonne iron ore was trading at before the disaster in late January.
Helping boost prices though was the conjunction of the reduced supply and higher Chinese demand for steel which helped keep iron ore imports higher than they might have been.
According to the FT report, Mr. Siani acknowledged that it would “take time” to rebuild trust in the company. “We are very mindful that society does not like us at the present moment but we have a strong belief that by doing the right thing it will come back,” he said.
“Trust is our business. We are a company that relies on concessions and licences, we cannot do anything without them,” said Mr Siani. That would mean forging a “new pact” with society that went beyond paying taxes and creating jobs.
Vale’s share price is down 6% year to date at R$47.66. The shares fell to a low of R$41.59 two weeks after the dam wall tragedy happened.
