Probably explains the sudden rise in iron ore stocks.

Chanticleer

Vale cuts production in wake of dam disaster will rock iron ore markets

By Chanticleer

30 Jan 2019 — 11:01 AM

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The fallout from the Brazilian tailings dam disaster took a stunning turn on Wednesday, with the owner of the dam, Vale, signalling it will pull as much as 40 million tonnes out of the market as it races to decommission 19 similar dams.

The death toll from the tragedy stands at 84, with more than 270 still missing. There are also reports that environmental issues are emerging from the spill. This is just a terrible, terrible tragedy.

In the face of mounting political pressure – completely justified, it seems from a distance - Vale's chief executive Fabio Schvartsman said the miner will halt operations around the 19 upstream dams, and spend $US1.3 billion to decommission them over the next five years.

Rescue workers coordinate with a helicopter while attempting to remove a body from the debris of a bus after a Vale SA dam burst in Brumadinho, Minas Gerais state, Brazil, on Monday, Jan. 28, 2019. Vale's dam breach has left at least 60 people dead and 292 missing in Brazil, leading the world's biggest producer of iron ore to suspend dividends as it braces for the financial fallout of the catastrophe. Photographer: Victor Moriyama/Bloomberg Victor Moriyama

"We decided the company should, once and for all, do what it takes to remove any doubt about the safety of Vale's dams," Schvartsman told journalists in Brasilia.

At the peak of that process, Vale's annual iron ore production will be cut by 40 million tonnes of iron ore a year, and its iron pellet production cut by 11 million tonnes.

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That equates to about 10 per cent of Vale's annual production, which is a big chunk in a market that is pretty well balanced.

No wonder Rio Tinto shares popped 6 per cent in early trade on Wednesday morning, and BHP rose around 3 per cent.

Vale is also the part owner, with BHP of the Samarco mine, where a similar tailings dam accident in November 2015 and killed 19 people.

While Brazilian prosecutors were quick to link the two, BHP says it is far too early to determine what any fallout might be.

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BHP has offered Vale assistance in the emergency, and sources said the Australian company's team on the ground in Brazil is ready to go in and help when appropriate.

It's worth noting that the latest disaster zone is some 100 kilometres away from the area affected by the Samarco tragedy and it is understood that the work of the Renova Foundation, which was set up by BHP and Vale to drive the local relief and reconstruction efforts, is continuing apace.

Will BHP be dragged into political firestorm engulfing Vale? Appropriately, given the human diaster that's unfolding in Brazil, that's not a high priority for the BHP camp right now.

James Thomson

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