As Vale Warns of a Possible Dam Collapse, Iron Ore Surges

Vale warns about possible dam collapse risk

According to Reuters, on May 16, Vale (VALE) told prosecutors that a dam was at risk of rupturing at its Gongo Soco mine. This mine is ~40 miles from Vale’s Brumadinho dam, which collapsed on January 25, killing more than 230 people.

Prosecutors said that as per Vale’s prediction, the dam in the city could collapse next week if the current rate of movement in the embankment of the mine pit is maintained.

As Vale Warns of a Possible Dam Collapse, Iron Ore Surges

Vale’s cut in shipments

Vale previously announced that it would decommission all the dams built via upstream construction. There have been several injunctions on Vale’s mines, which are expected to weaken its iron ore production. During its fourth-quarter earnings results, Vale said it expected a volume decline of 75 million more tons than its previous expectation. In addition to the decline in the supply of iron ore owing to Vale’s medium- to long-term issues, other miners have also flagged temporary disruptions that could affect their shipments in 2019.

Supply disruptions at BHP and Vale

BHP Billiton (BHP) is expecting a reduction of 6 million–8 million tons of iron ore. Its port and rail operations are running at reduced rates due to flooding, affecting its shipments. The likely impact on Rio Tinto’s (RIO) production is even higher. Due to the combined impact of Cyclone Veronica and a fire at one of its ports in January, Rio is expecting an output cut of 14 million tons in 2019.

Due to the expected decline in iron ore supplies, iron ore prices have been gaining in 2019. After the Vale’s recent warning about its dam, iron ore surged to a five-year high of over $100 per ton.