The disaster of a new dam puts Vale's chief executive officer, his transactions and dividends under surveillance

SAO PAULO (Reuters) – When Fabio Schvartsman took over the reins of Vale SA in 2017, he suggested a motto for the world's biggest iron ore miner, turning the page on the disaster of a tailings dam that had hit a small Brazilian town two years ago: "Mariana, never again."

These and many other great Schvartsman promises seem destined for scrap.

Four years later and about 100 km from Mariana, a Vale tailings dam set off a mud storm on Friday in another small Brazilian community, Brumadinho, leaving hundreds of people missing and presumed dead.

So far the company has focused on the human tragedy, badysts and shareholders have no doubt that Vale can not continue on the same path as its CEO.

Schvartsman, 63, who recently said that he would stay until 2020 after the expiry of his current term in May, devised Vale's strategy of spending more than $ 10 billion in annual free cash flow, while China engulfed its high-grade iron ore.

Generate dividends, reinvest in losing divisions and seek medium-sized acquisitions – many of these plans may have to be abandoned as Vale prepares for lawsuits worth tens of billions of dollars .

An executive of a pension fund that owns shares of Vale, who requested anonymity because of the seriousness of the situation, said it would be difficult to justify large payments to shareholders in the coming quarters, adding that it was necessary to conduct a comprehensive review of Vale's governance.

Indeed, the company said Sunday in a late statement that it suspended its dividends to shareholders, its share buybacks and bonuses of leaders expected due to the disaster.

Vale said in a statement that its goal was to help the victims of the disaster. During a Sunday visit to rescue, Mr. Schvartsman is committed to restoring Vale's focus on safety, going beyond any national or international standards. "

"We are going to create a much bigger cushion than we have today to ensure that this does not happen again," he said.

One of Vale's largest shareholders, the public pension fund Caixa de Previdencia, known as Previ, made the unusual decision on Saturday to issue a statement stating that it would require a thorough investigation into the company's business. And will ensure that society helps affected families and communities. .

The fund has not responded to any additional request for comment. Bradespar SA, the investment company of Brazilian lender Banco Bradesco SA, also declined to comment.

DIVING ACTIONS

Vale shares, listed in the United States, fell 8% Friday after the disaster. Brazilian markets have been closed for holidays.

On Saturday, the rating agency Standard & Poor's put the rating of Vale negative, warning that it could reduce the rating of BBB by several notches depending on the fines and the possible loss of a license to operate in the affected area.

Three courts of justice over the weekend have already frozen $ 11 billion reais ($ 2.9 billion) of badets pending damages.

In a statement released on Sunday, Vale said it had agreed to deposit $ 1 billion reais, but said court orders blocking the freeze of the additional $ 10 billion were counterproductive because they could block the resources needed to help the bank. 39; emergency.

Vale had $ 24 billion in cash and cash equivalents at the end of September.

Mining industry badysts at Jefferies said the disaster was "likely to overestimate Vale's share price for a long time" in a note reducing their price target by more than 20% and downgrading the Buy stock to Hold.

"The overall impact of the dam failure is almost impossible to quantify at the moment," wrote badysts headed by Christopher LaFemina. "Rigorous safety inspections could also affect the production of other mines in Brazil."

The estimate of the cost of a disaster of this magnitude is a challenge for badysts, who always refrain from giving a final price to the collapse of the dam in 2015 involving Samarco Mineracao SA, a joint venture Vale and the BHP Group.

As part of an agreement to settle a dispute, Vale and BHP pledged to spend R $ 20 billion for a foundation established in Mariana to badist the victims and restore the local ecosystem. . The Renova Foundation has spent R $ 2 billion in 2018 and plans to spend R $ 11.3 billion by 2030, the companies said in a statement.

In an interview with Reuters, a federal prosecutor said on Saturday that Friday's disaster could halt talks to settle a much bigger case against Samarco, which was targeting 155 billion reais.

Renewed legal risks also risk delaying talks with Samarco's creditors, based on the hope that they will be able to reopen their operations quickly and start repaying their debts. A person involved in the discussions said that they could now be suspended.

EXPANSION IN DOUBT

It is unclear whether Schvartsman will be able to devote new resources to expanding activities as planned.

After failing to sell it or find a partner, Vale had planned in December to invest $ 500 million in its troubled New Caledonia nickel mine, in hopes of dropping prices and ultimately to make the expected increase in sales of electric vehicles profitable.

The mining company also pursued medium-sized acquisitions in its core iron ore business, after deciding not to enter into large-scale agreements for increased cash flow from higher ore prices. of iron last year.

In December, Vale announced the acquisition of the Ferrous Resources Ltd iron mine from its controlling shareholder, Icahn Enterprises, for $ 550 million. The agreement should be concluded this year.

($ 1 = 3.7695 reais)