Iron Ore Price Regains Ground After New Vale Stumble

Global iron ore prices edged up last week, adding around 2% to end the recent run of slides.

The small rise came as Vale, the big Brazilian miner and exporter trimmed its 2019 production forecast, produced a third-quarter profit smaller than expected and with BHP, was given the go-ahead to restart their Samarco iron pellet joint venture in 2020.

That will be more than four years after its dam wall collapsed and triggered a major disaster that was only exceeded by the January 25 dam wall failure this year that left nearly 300 people dead or missing and sent iron ore prices to six-year plus highs in early July.

Metal Bulletin’s Fastmarkets iron ore index for 62% Fe fines delivered to northern China rose 64 US cents on Friday to end at $US87.98 a tonne. That was $US1.62 a tonne or nearly 2% higher than the $US86.36 a tonne the week before (which was nearly 8% down on the week before that).

Vale said mid-week that its 2019 sales would be at the lower end of its 307 – 332 million tonne forecast after it trimmed 1.2 million tonnes from its production target because of the suspension of remediation efforts at a mine tailings dam wall for at least a month.

On Friday Vale and BHP won permission to resume operations at their Germano iron ore mine which feeds the Samarco pellet-making operation. The approval came from the environmental regulator of the Brazilian state of Minas Gerais.

The mine will take years to rebuild its output, meaning the Samarco plant’s output of pellets will also be slow to reach its previous capacity.

Vale said in a separate release that it expected production at the joint venture, which is trying to restructure $US3.8 billion in debt it defaulted on about a year after the accident, to resume toward the end of 2020.

Resumption will depend on a tailings filtration system – which will take about a year to build – that will allow Samarco to use a “dry stacking” technology to dispose of mining/processing waste, replacing the previous tailings dam based system, the company said in its release.

The mine, which once produced nearly 25 million tonnes of iron ore a year, will restart at an annual rate of less than a third of that, Vale said, with a potential increase to 14 to 16 million within another six years.

It will be interesting for Australian investors to see if BHP is as eager to restart Samarco as Vale. There has been talk for the past year or more than BHP wants out of the problematic project.

Earlier on Vale on Friday reported weaker-than-expected earnings for the three months to September 30.

Vale reported a 15% lift in quarterly earnings, rejected talk of a return to dividends for shareholders and again reiterated that it was focusing on dismantling dangerous tailings dams in the wake of the January 25 disaster.

Vale said it’s net profit rose to $US1.654 billion in the three months to September from $US1.408 billion in the September 2018 quarter. That was well under market forecasts of $US2.72 billion.

The profit came off the back of the surge in iron ore prices (the global price touched a six-year plus high of $US125 a tonne in early July, then fell to end around $US88 a tonne on Friday.

Vale said revenue rose 6.6% to $US10.22 billion, helped by that increase in world iron ore prices. That was below the average analysts’ forecasts of $10.5 billion.

Earlier this month, Vale reported a 17% slump in iron ore output in the third quarter.

Vale also made clear on Friday that it is making progress with its effort to “de-characterize”, or shut down, tailing dams at other mines.

It said it was focusing on dismantling 9 tailings dams with “upstream” structures, which were cheaper to build but are now seen as vulnerable to collapse by regulators worried about a repeat of the Samarco and January 25 wall failures.

Two dams will be ‘de-characterized next’ year and another in 2022, Vale said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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