VALE ON (BOV:VALE3)
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1 Year : From Jan 2019 to Jan 2020
By Paul Kiernan, Alistair MacDonald and Rhiannon Hoyle
Mining giant Vale SA had denied owning the sort of mine-waste dam that collapsed in January and killed at least 157 people at one of its old mines in Brazil, underscoring the industry's reluctance to disclose information about such structures.
Vale's denials to investors and the news media came after another so-called upstream tailings dam, known as Fundão, failed in 2015, killing 19 people in what was then considered Brazil's worst-ever environmental disaster. That dam was co-owned by Vale and Australia's BHP Group Ltd.
Despite the two accidents, many large miners have declined to give information about the tailings dams they manage and their exposure to upstream structures. This leaves investors and the public with little chance to gauge the risks of such structures, even those built near their homes.
But scrutiny is rising following the recent dam collapse in Brumadinho, which could pressure companies to share more information on this often overlooked yet risky element of mining. Since Vale's dam burst two weeks ago, Vale's share price has lost nearly a quarter of its value.
Brazilian prosecutors are investigating the accident and regulators are set to publish as soon as Monday new regulations ordering the country's mining industry to destroy or substantially reinforce upstream tailings dams. Out of Brazil's more than 700 mining dams, 88 have their structure type classified by regulator ANM as "upstream or unknown."
The upstream design, which refers to the direction the dam is raised, is the most widespread method to store tailings, or mine waste, permanently. The design, in which the dam is gradually built upon a reservoir of tailings, is also the cheapest one -- and the most prone to failure, experts say.
There will be "a lot more questions from investors regarding these facilities, and significantly greater demands for reporting on them," said Anthony Sedgwick, who invests in miners for Abax Investments in South Africa.
"There is definitely not sufficient disclosure at the moment," he said.
At a press conference soon after the Nov. 5, 2015, Fundão disaster, Vale's executive manager for strategic planning, Lúcio Cavalli, said the company didn't have any upstream dams in its portfolio.
When Joaquim Pimenta de Avila, a prominent Brazilian engineer who had contracted with Vale, told The Wall Street Journal in 2015 that the company did have upstream dams, a spokeswoman stood by Mr. Cavalli's statement.
"Vale has no dams using the upstream method," she said in an email.
Vale executives also told investors the company had no upstream dams. In a July 2016 conference call, an analyst asked about a possible ban on upstream tailings dams. The head of Vale's iron-ore division, Peter Poppinga, responded, saying such a prohibition wouldn't affect the company.
"We don't have those dams," Mr. Poppinga said. "We don't have--we practically have no upstream dams in our operation continuously."
Vale's first public acknowledgment that it did have a portfolio of upstream tailings dams didn't come until April 2017, in a single paragraph buried deep in its 289-page annual report.
In January, the company said it had 19 upstream dams as of 2016, nine of which have since been decommissioned. The company said it plans to decommission the 10 that remain.
Presented with the 2015 email denying that Vale owned any upstream dams, the spokeswoman said on Feb. 1 that Mr. Cavalli had misunderstood a reporter's question.
A Vale spokeswoman said Mr. Poppinga's comments referred not to the dams' upstream design but to the fact that they were raised in a different way from Fundão, using compacted soil rather than mine tailings.
Most of the world's largest miners, including Rio Tinto, Barrick Gold, BHP, Glencore and South32, either declined to give information on their dams, including a tally of upstream structures, or didn't return calls and emails seeking comment.
Newmont Mining Corp.,the U.S.'s largest miner by market capitalization, said it employed "rigorous standards and industry best practices" for its 26 tailings dams, out of which 19 where in downstream constructions.
Freeport-McMoRan Inc. said it has 19 active tailings facilities, the majority of which are upstream, and manages 55 inactive dams. A spokeswoman said in an email that the company has a robust stewardship program and will analyze what happened at Brumadinho, as it has other recent dam failures, "to actively evaluate conditions at our facilities."
Global companies have vowed to do more on the safety of their dams.
On Friday, steel maker ArcelorMittal said it had evacuated around 200 people from the area surrounding an iron ore mine in the Brazilian state of Minas Gerais, citing concerns over the safety of a tailings dam.
Following last month's accident, many miners double checked the safety of their dams.
On hearing the news out of Brazil, Cobus Loots, the chief executive of Pan African Resources, a South African gold miner, commissioned another safety audit on its tailings dams.
"We would be stupid not to," he said.
Investors say they will increasingly demand more information.
"I think it would give the market a lot of heart if they say: these are the risks and this is how we manage these risks," said Prasad Patkar, head of qualitative investments at Platypus Asset Management.
Investors have been particularly scrambling for details on other dams viewed as potentially dangerous. That includes a downstream structure at CSN Mineração SA's Casa de Pedra iron-ore mine, also in Brazil. The mine's tailings dam looms over the town of Congonhas, in Minas Gerais state not far from the sites of the country's two most recent tailings dam disasters.
The Brazilian company said it is phasing out the dam's use.
A spokesman said the structure is safe, but he declined to answer questions about its inspection process or anything related to its stability.
To be sure, there are some investors who say miners would have been open about their exposure to tailing dams if funds had asked. John Ing, who invests in gold miners at Toronto-based Maison Placements Canada Inc., said miners would typically take him on a tour of the dams when he did site visits. Mr. Ing added that deadly accidents happen very infrequently.
Miners also file information about dams with some local authorities, including in Brazil.
The government of Western Australia, home to the world's biggest iron-ore mining hub, said it has a count of more than 800 tailings dams of any kind, two-thirds of which are shut. It said it has records of 131 active upstream tailings storage facilities as of January.
Still, data isn't publicly available in Western Australia on whether any dams have failed audits, while publicly available details in Brazil are difficult to navigate.
Miners said upstream dams shouldn't automatically be considered unsafe because of the recent accident in Brumadinho and that environmental considerations have to be taken into account, including seismic activity and climate.
Anglo American said it has 50 tailings facilities and uses upstream dams in countries with a dry climate, that are seismically stable with a flat topography, such as in South Africa. It used "the greater structural integrity of downstream dams" in Chile, Peru and Brazil, the spokesman said.
--Jeffrey T. Lewis and Paulo Trevisani contributed to this article.
Write to Paul Kiernan at email@example.com, Alistair MacDonald at firstname.lastname@example.org and Rhiannon Hoyle at email@example.com
(END) Dow Jones Newswires
February 10, 2019 13:11 ET (18:11 GMT)
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