Judge Halts Operations of Brazil's Vale SA at Key Port of Tubarão
January 22 2016 - 12:38PM
Dow Jones News
By Paul Kiernan
RIO DE JANEIRO--Brazilian mining giant Vale SA was dealt a pair
of blows this week, after a judge ordered it to suspend iron-ore
shipments from its second-busiest port, and ratings firm Moody's
threatened to downgrade the company's debt to junk status.
Federal judge Marcus Vinicius Costa ordered Vale to suspend
activities at the port of Tubarão in southeastern Brazil starting
on Thursday because of alleged pollution. Police accused Vale of
spilling iron-ore dust into the sea from conveyor belts at a pier
from which loads ships.
"For years, society has accustomed itself to the 'black dust'
and non-existent bathing conditions in the sea in Vitória," Judge
Costa wrote, referring to the nearby industrial city. He ordered
Vale to suspend operations until it had implemented "effective
measures" to prevent emissions.
Vale criticized Judge Costa's decision and said it has equipped
the Tubarão complex with "the latest in environmental-control
technology." The company said it was adopting "all applicable legal
measures to guarantee the reestablishment of its activities at the
port of Tubarão."
Separately, Moody's Investors Service on Friday put Vale's debt
on review for possible downgrade, citing slack demand for prices of
base metals, iron ore and other commodities because of slowing
growth in China. Moody's currently rates Vale at Baa3, the lowest
of investment grades.
The world's top producer of iron ore and nickel, Vale is already
struggling with rock-bottom commodity prices and fallout from a
Brazilian dam failure that ranks among the mining industry's worst
disasters.
The company's notes due 2022 have traded as low as 67 cents on
the dollar in recent days, while its preferred shares listed in
Brazil have fallen in price by one-third since the beginning of the
year, more than any other major mining company.
In what analysts viewed as a sign of growing financial strain,
Vale said on Jan. 12 that it would draw $3 billion from its
revolving credit lines to "increase liquidity and bridge potential
cash flow needs."
The Tubarão port is a key component of Vale's infrastructure for
exporting iron ore from Brazil. In the first nine months of 2015,
the port shipped 82.5 million tons, or about one-third of Vale's
total production.
Benchmark prices for iron-ore were mixed following Friday's Vale
news, suggesting traders are betting that Judge Costa's decision
will be overturned on appeal before it affects the market. Vale's
shares recently traded 1.75% higher at 6.98 Brazilian reais.
Citing a police investigation last year, Judge Costa cited a
"large plume of iron ore" in the sea near Vale's pier as his motive
for suspending the company's operations at the port. He also
referred to the Nov. 5 dam break at Samarco Mineração SA, a joint
venture between Vale and BHP Billiton Ltd., as an example of
"giants of the sector causing disasters that are proportional to
their size."
Judge Vinicius Costa also ordered local unit of European
steelmaker ArcelorMittal SA to suspend activities at the port of
Tubarão for alleged polluting of the air and water with coal
ash.
"Measures of this nature will certainly affect more than
ArcelorMittal Brasil and Vale, bringing legal uncertainty to the
overall business environment that will certainly diminish the
state's competitiveness in attracting new investment," Vale
said.
(END) Dow Jones Newswires
January 22, 2016 12:23 ET (17:23 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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