Vale announces plan to shut down risky mines

Author

Gustavo Ribeiro
January 30, 2019 • Reading Time: 6 minutes

Vale announces plan to shut down risky mines. Vale shares still labeled a ‘buy’. Veteran Renan Calheiros gets stronger in bid for Senate President .

Vale announces plan to shut down risky mines 

Mining giant Vale has presented the government with a plan to shut down residue dams similar to the ones used in Mariana and Brumadinho. These dams are of the cheapest, most unsafe kind, growing through walls built over the residue itself (picture below). The plan will cost BRL 5bn and would mean Vale will temporarily reduce its annual output by roughly 40m tons of iron ore — 10% of the total.

CEO Fabio Schvartsman said the company owns 19 such dams — nine of which had already been deactivated. Prosecutors want the company to commit to the plan in writing. But this might not be enough. One-third of Vale-owned dams (56 of 175) have a “high potential for damage” and, if they collapse, each could generate a disaster similar to what we are witnessing in Brumadinho.

Yesterday, police arrested two engineers who had attested that the Brumadinho dam was compliant with safety requirements. Three Vale employees responsible for the dam’s environmental permits and the site’s management were also arrested. “The tragedy showed that [the documents regarding the dam’s safety] weren’t truthful — as a dam of this magnitude wouldn’t collapse overnight, without giving previous signs of vulnerability,” stated Judge Perla Brito, who authorized the arrests.

Vale shares still labeled a ‘buy’

After crashing by 24% on Monday, Vale shares went up both in São Paulo’s and New York’s stock exchange market — by 0.8% and 2.6%, respectively. XP, one of the country’s largest brokers, released a report recommending long-term investors to buy Vale. XP Chief Analyst Karel Luketic projects that the shares, now at BRL 42.74, have a potential of reaching BRL 70 — or even BRL 85.

As this newsletter informed, Vale share value is more connected to international iron ore prices. And the commodity reached its highest value since March 2017 in Asia — which, in the cold-hearted world of stock trading, means more than the deaths caused by Vale’s security shortcomings. There is also a perception among investors that the plan announced by Vale will improve its image.

Veteran Renan Calheiros gets stronger in bid for Senate President  

Despite the wave of new names in the October congressional elections, a familiar face is set to—once again—take the Senate President position. Renan Calheiros got stronger after his MDB party held a meeting to decide which candidate they will back for Friday’s election. Traditionally, the party holding the most seats gets to name the upper house leader — and that is always the case with the MDB.

Mr. Calheiros is challenged internally by Simone Tebet, who is still serving her first term as Senator. She pushed for the meeting, hoping that she would get the nod — but, not only did Mr. Calheiros managed to delay the decision, Ms. Tebet was forced to step down as party whip in order to keep her bid alive. Now, Mr. Calheiros has the inside lane for a third stint as president.

The Senate presidency is not only a prestigious position, the job also holds immense legislative power. Senate presidents are responsible for picking which bills will go to the floor, as well as dishing out the presidencies of permanent committees — through which every bill must pass. Depending on their acquiescence towards the proposal in question, these committees can speed up or slow down the processing time of bills.

Brazil’s primary deficit lowest since 2014 

The so-called central government (Department of Treasury, Central Bank, and pension system) finished 2018 with a BRL 120.3bn primary deficit — better than what was projected for the year. That improvement, despite a continually deteriorating situation of the pension system, is due to the fact that the government is raising more money from taxes and to some control of public spending.

It was, however, the 5th consecutive year in which Brazil spent more money than it raised. Last year, the government’s net revenue was up by 2.6% above inflation — while expenditure was up by 2%. For 2019, the primary deficit goal is set at BRL 139bn — but Economy Minister Paulo Guedes promises to cut it down completely through radical austerity measures and massive privatizations.

What else you should know today

  • President again. Still in the hospital after undergoing surgery, Jair Bolsonaro will take back the role of president — which had been filled by VP Hamilton Mourão. Mr. Bolsonaro will work from the hospital, and doctors should release him next week. On Monday, the president removed the colostomy bag he had been wearing since being stabbed on September 6.

  • Privatizations. Salim Mattar, Brazil’s Divestments Secretary, said the federal government will privatize all state-run companies with three important exceptions: Petrobras (oil & gas) and banks Banco do Brasil and Caixa. “But even those will be trimmed down,” said Mattar in a Credit Suisse event.

  • Lula. Two federal courts denied former President Lula’s request to leave prison to attend the funeral of his brother Vavá, who died on Tuesday. The Federal Police had issued an opinion against the request, stating that it would take a security apparatus the force just can’t mobilize. For safety reasons, Lula would have to be flown from Curitiba in a helicopter — but according to the Feds, all helicopters have been sent to help rescue teams in Brumadinho.

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