Brazil faces iron ore disturbance after Vale's announcement of the second dam alert

New York –
Brazilian iron ore production is likely to be interrupted following the warning of dams in the Corrego do Feijao mine area in Brumadinho, just days after the catastrophic failure of a mine tailings dam , producer Vale announced Sunday night.

"This dam is part of the Brumadinho complex," Vale said on its website. "The authorities have been notified and, as a precaution, the community of the region is being displaced."

Vale, the world's largest producer of iron ore, said it was continuing to monitor the situation at Dam 6 and was using pumps to drain the water. The company also said that the civil defense had lowered its warning level enough to allow the inhabitants of the region to return home. The latest warning follows the failure of the Vale 1 iron ore residue dam, which broke out Friday afternoon in the same mining complex in the state of Minas Gerais, southeast Brazil.

Such mining accidents usually lead to production shutdowns and inspections. Current issues are affecting the critical mining of Vale's South System iron ore in Brazil. As such, a supply disruption is expected.

In November 2015, production of iron ore and pellets was stopped in Samarco – also in the state of Minas Gerais – a joint venture owned by Vale and BHP. In this case, a dam was punctured, causing one of the worst ecological disasters in Brazil. A mudslide killed 19 people and continued production disruption.

The latest failures could further delay the work of restarting the exit of Samarco.

"At a minimum, we believe that the event could raise doubts about the timing and / or likelihood of Samarco's return," Cowen Equity researchers said in a note on Friday.

"The absence of Samarco (compared to 30.5 million tons previously) has limited pellet supply, contributing to the setting of high prices for pellets in the Atlantic basin during the past years, "said Cowen.

– Joe Innace, [email protected]

– Edited by Andy Critchlow, [email protected]