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The tragedy that left 121 dead and 226 missing in Brumadinho, Minas Gerais, will not result in losses of billions of dollars for Vale. It has also left its mark on one of the most important companies in the country. For the second time in just over three years, the minor is at the center of a serious accident. At the end of 2015, the failure of the Fundão dam of its subsidiary Samarco left 19 people dead in Mariana, Minas Gerais.
On the financial market, the damage is being found. The company has lost R $ 51 billion in market value since Jan. 25, date of the accident, until Friday (1st), according to Economatica. The best rating agencies have already deteriorated their valuation of the company: Fitch lowered the company's credit rating, while Moody's and Standard & Poor's (S & P) badigned a negative rating to the note.
The impact of the accident on Vale's reputation has not yet been fully measured. On Tuesday, protesters went to the company's headquarters in Rio de Janeiro to protest the accident. Indication that the road to a possible recovery will be long. Analysts are basically saying that Vale must follow two directions. First, it will be necessary to take corrective action, that is, to provide the victims with the appropriate treatment, and to look for measures that minimize the environmental impact. Second, stipulate and take steps to prevent future accidents.
"Any improvement will depend on these actions," says Roseli Moreira Porto, a professor at the School of Business Administration of the Getulio Vargas Foundation (Eaesp / FGV). "The company has to work on the reputation, if it is strong, the recovery is faster because there is already a good basis."
Vale's shot at the image came a little over a year after the restructuring of the miner, planned by the company's president, Fabio Schvartsman, in order to frame it in the segment B3 of Novo Mercado demanding the highest level of governance. and attract more investors. At the time, the executive, which had taken over in May 2017 the slogan "Mariana never again," said that this decision was a sign that the miner was entering an era of significant dividends.
In the change, Vale no longer had a control block and began to have capital pulverized, which was considered a turning point in the history of society, a break with the control of the state and a commitment to transparency.
Even after an accident in Mariana – the company is still the target of a lawsuit – the mining company has not stopped paying its shareholders. In 2016, the company distributed dividends of R $ 1.8 billion as interest on equity.
Privatized in 1997 and with nearly 247,000 shareholders worldwide, Vale is gaining importance in the economy as iron ore progressed in the Brazilian export tariff.Orange is the third most exported product in the country, and Vale is responsible for a share that varies by 70% to 80% of shipments, according to the Brazilian Association of Foreign Trade (AEB).
The increase in the weight of iron ore in exports occurred as a result of China's growth. In the early 2000s, the Chinese economy grew at over 10%. The Asian giant's commodity base has increased, which has benefited soybean and iron ore producing countries, such as Brazil.
Production Concerned and Judicial Uncertainty
Overall, Vale plans to spend R5 billion for the closure of 10 dams using the same structure as Brumadinho – the mine was responsible for 2% of the company's production. To take into account this process, he announced that he would reduce the annual production of iron ore by 40 million euros, or 10% of the volume planned for 2019. The production of pellets is expected to fall by 10 million tons.
"With this announcement, Vale has proactively presented a security plan for the public and authorities," said Karel Luketic, chief badyst at XP Investimentos.
Following the announcement of the closure of the dams, the shares of the company increased by 9%. The day before, during the first trading session on the Bovespa after the crash, stocks fell by 24%, resulting in a loss of R $ 71 billion in market value. According to Economatica, this was the biggest loss in the history of the Brazilian stock market.
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Achetez- in a G1
In a report to investors, BTG badysts said that Vale's response was quick and said the number of dams like Brumadinho and Mariana was lower than expected, estimated 5 billion rand for eliminate. According to the bank, half of the company's iron ore production is exposed to tailings dams (at risk or not) and market investments are estimated at $ 1 billion to $ 2 billion per year. year (compared with 3.6 billion rand in one year). billion to R $ 7.3 billion) to disable them.
BTG estimates that Vale will return to shareholders in 2020.
The biggest doubt among investors is the magnitude of the fines and damages that the company will have to pay because of the accident. The court also blocked the company's $ 12.6 billion.
Impact on ore prices
The fall in Vale's production due to the disaster also affected iron ore prices on the international market. On Friday, the price in China peaked at 22 months at $ 92.46 a tonne. "There will be a mismatch between supply and demand," said badyst Pedro Galdi of broker Mirae.
According to Goldman Sachs estimates, a 40 million tonne drop in export volume would raise the price of iron ore to $ 95 a tonne in the first quarter of this year. The bank recalls, however, that Vale's total capacity is 450 million tonnes and that the company can offset the losses. The estimated production for this year is 400 million tonnes. The calculation estimates a drop of 10 to 15 million tons.
For Goldman, the impact of the decline in the production of pellets is more "dramatic", since the loss of 11 million tonnes would correspond to 10% of the exported supply. Given the high cost and time required to increase the extraction capacity of this material, the bank estimates that prices can reach $ 90 per ton.
"While the direct economic impact of the disaster is limited (…), we expect the disaster to increase environmental, administrative, criminal, and civil liability, as well as the serious risk of disaster." 39, undermining the reputation of the world's largest iron ore producer, "the rating agency Moody's wrote in a report.
From January to September 2018, Vale reported net income attributed to shareholders of R $ 11.1 billion. The balance of the last quarter of the year has been postponed and will not be published until March 27.
PAUSE AMORTIE IN BRUMADINHO
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