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"Global Mining Descisions in Your Palms"
From the tailings dam’s safety systems that have been throwing tantrums which caused an unforgiving damage and loss of quality of life and life, to the criminal enquiry lawsuits and loss of revenue, it has been winter after winter for the Brazilian mining giant Vale S.A.
We have known Vale, for the largest supplies of iron ore but lately, for the wrong reasons especially the safety issues that have dragged its reputable name into the mud. From the breach of Dam I in Brumadinho that recently occurred in January 2019 killing an estimated 233 people with still about 40 people missing to dams that have had warning levels raised at B3 / B4, at the Mar Azul Mine in Macacos / Nova Lima, and the Forquilha I and Forquilha III dams, at the Fábrica Mine, in Ouro Preto, Minas Gerais. There may have been neglect when it comes to tailings safety with several independent Dam Safety Auditors declaring that these were not going to receive Stability Conditions declarations as they had safety factors below the new limit established by the Brazilian National Mining Agency (AMN) in February 2019.
The January 2019 tailings breach has had several resigning, cases of criminal negligence opened against them, a stock price that fell 24% in a single day translating to about US19 Billion in market capitalization and extensive environmental damage due to release of more than 12 million cubic metres of tailings. The court filings indicated that officials at Vale knew that their dams had elevated risk of rupture but ignored warning signs and had inadequate safety protocols in place. These included head of ferrous minerals and coal; Peter Poppinga, Planning Director; Lucio Flavio Gallon Cavalli and, Silmar Magalhaes Silva, the Head of Geographic Division at Vale.
The promises of Vale’s former CEO Fabio Schvartsman to create a working group to raise the safety standards of the company’s tailings storage facilities (TSF) came of being a little bit too late, given the opportunity the company had to do so about three years ago following the Mariana Dam Disaster which left 19 people dead, which destroyed a village and is considered the worst environmental disasters in Brazilian history coming with a cost tag of close to US$200 Million in fines.
In the wake of these and other latest burst of turbulence at troubled miner, the Vale Board have had changes effected to it with some senior executives sent packing and on April 29th, Eduardo Bartolomeo was elevated to the position of Vale’s new Chief Executive Officer.
“I am committed to leading Vale through the most challenging moment in its history. We will work tirelessly to ensure the safety of people and the company’s operations. We will never forget Brumadinho and we will spare no effort in alleviating the suffering and repairing the losses of the impacted communities”, said Bartolomeo.
…. But who is this guy diving deep into the meltdown of Vale’s operational quagmires?
Little known in the markets compared to his predecessor, Eduardo is a senior executive with 10 years of experience at Vale, having previously held the position of Executive Director of Logistics, Integrated Operations of Bulk Commodities and most recently as Executive Director of Base Metals in Canada where he developed the Vale Production System (VPS), which together with investment in technology and professional qualification, resulted in significant gains for the company.
He was a member of Vale’s Board of Directors and Financial Committee between 2016 and 2017. He worked for Ambev from 1994 to 2003, having served in executive positions, the last one being Operations Director. He also has experience as Chief Executive Officer and Board Member in other companies.
With solid experience in bulk commodity operations, supply chain and business turnaround throughout his professional career, Bartolomeo has shown great ability to lead complex operations and establish a culture of operational excellence.
Bartolomeo structured logistics to support Vale’s operations in Africa and was one of the main negotiators that enabled Vale to obtain the sub-concession of the 720km rail branch of the North-South railroad (FNS, Ferrovia Norte-Sul). His role in the negotiations was essential to create Valor da Logística Integrada (VLI), a general cargo transportation company, structured by Bartolomeo in December 2010. Today, VLI has 7.5 thousand employees and in 2017 achieved a turnover of R$4.5 billion.
Since its creation, the quality and reliability of the Vitória-Minas (EFVM, Estrada de Ferro Vitória a Minas) and Carajás (EFC, Estrada de Ferro Carajás) railroad assets have improved considerably. In 11 years, Vale’s railroads have become beacons of mining safety and productivity. In 2018, according to the statistical yearbook of the National Agency of Land Transport (ANTT, Agência Nacional de Transportes Terrestres), EFC was classified as the safest railroad in Brazil – the accident rate per million train/km dropped to 1.81, when compared to the 7.43 rating in 2006. In addition, according to this ranking, EFVM holds the second position, whose rate per million train/km is 2.38 compared to 5.86 in 2006.
Supporting Eduardo will be the enlarged board once an additional independent director has been appointed. Recently, Vale established a Special Executive Board for recovery and development to accelerate compensation for affected people whose purpose is to address the events and humanize the relationship with the communities by structuring actions that involve repairing the damages caused by the breach of Dam I in Brumadinho (Minas Gerais). The new structure will coordinate the actions of socio-economic and environmental recovery of the municipalities affected by the tragedy.
Marcelo Klein, the Director of the project indicated that, “The challenge is to move from emergency to permanent recovery. This Executive Board is Special because it was mobilized due to the breach. It aims at Recovery because we must repair what has been destroyed, and it focus on Development, which must occur from now on.”
Vale S.A. will report its Q1 2019 earnings on May 9, 2019. This will be huge for investors and the company who have experienced a tumultuous opening to 2019 with its stock having been trading cheaply following the announcement of the Brumadinho Dam collapse, especially in light of the rally in iron prices. Since September 2016, debt to equity fell from 1.06x to 0.23x, net operating revenue increased from $27.5bn to $36.6bn and the share price rose from $7.70 at the end of 2016 to finish 2018 at $13.02. Many expected this trend to continue into 2019; however, with this major incident that has derailed those forecasts, it remains to be seen how the company performance will fare. It also remains to be seen if the new CEO, will patch together and steer the broken vessel down the recovery path.
Could it be, in the wake of the recent incident, Vale now prefer someone who is operations centred like Bartolomeo to someone who is market centred to which Schvartsman was? Though Vale may have made huge profits in the past, and, is still making lots of it right now, the costs of forgoing certain operational needs will always catch up or rather has caught up and the cost involved to its reputation will forever be etched in the mining history books.