February 6, 2019 / 2:20 PM / 12 days ago

Brazilian state cancels Vale licenses at two mines in wake of disaster

SAO PAULO (Reuters) - The Brazilian state of Minas Gerais canceled Vale SA’s license to operate a dam at one of its largest mines, the company said on Wednesday, following the collapse of another dam in the state that killed an estimated 300 people.

A view of the Brazilian mining company Vale SA collapsed, in Brumadinho, Brazil February 1, 2019. REUTERS/Adriano Machado/File Photo

Vale has come under intense public pressure since the Jan. 25 dam burst, with some politicians and prosecutors calling for criminal prosecution and a management shakeup, especially since it happened less than four years after another fatal dam burst in Minas Gerais.

Vale shares on Sao Paulo’s Bovespa exchange fell 4.9 percent to a seven-day low of 42.46 on Wednesday, while its U.S. traded ADRS slumped 6.2 percent.

The state canceled Vale’s license for Laranjeiras dam. It had been used in the operation of the Brucutu mine, which had already been suspended by a court order, freezing nearly 9 percent of the company’s output.

Vale, which was already trying to appeal the court order, said it would also appeal the license cancellation.

Minas Gerais also canceled Vale’s license to operate its Jangada mine, which has been paralyzed since the dam close to the Córrego do Feijão mine burst in the state, killing at least 150 people. Another 182 people are still missing from what is possibly Brazil’s most deadly mining disaster.

The cut in output from Brucutu forced Vale to declare force majeure in iron ore and pellets contracts on Tuesday.

In the latest report to raise questions about whether warning signals were missed ahead of the mud avalanche which felled buildings and trees in the town of Brumadinho, Globo TV reported that Vale had been made aware of problems with sensors designed to monitor the structure.

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The report cited a deposition by an engineer for German inspection firm TÜV SÜD, whose job it was to monitor the dam’s safety. Both Vale and TÜV SÜD declined to comment on the report.

Separately, the German firm said in a statement that it had hired two external law firms to conduct an independent probe into its role in the dam collapse. Two of its employees were arrested following the accident but were released on Tuesday.

Vale, which co-owned another dam whose 2015 collapse killed 19 people and polluted a major river, said on Tuesday it would invest some 1.5 billion reais ($400 million) starting in 2020 to reduce its reliance on giant dams to store the muddy detritus from mining, known as tailings.

It aims to boost the portion of the waste material that is dried rather than stored wet to 70 percent by 2023.

The company also said it would spend about $70 million on safety and maintenance at existing tailings dams in 2019, representing a 180-percent jump from 2015.

In December, Vale agreed to pay $500 million for New Steel, a company that owns patents in 56 countries for a dry processing method known as Fines Dry Magnetic Separation.

In 2009, one Vale executive identified concerns about the tailings dams and discussed the possibility of making building material from tailings, including bricks, in a bid to trim the vast amounts of wet tailings, Reuters reported last week. It was not clear whether the company followed any of his recommendations at the time.

Reporting by Ana Mano and Christian Plumb; editing by Bernadette Baum and Grant McCool

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