Vale Dam Collapse and Impact on Shipping

Hundreds of people have been reported missing following the deadly dam collapse at Brazilian town of Brumadinho, in Minas Gerais, operated by the Brazilian miner giant Vale.

Specifically, as of January 27, 2019, 361 people have been found, 305 people are still missing, and 16 fatalities were confirmed by the Instituto Médico Legal, Vale told World Maritime News in a statement.

“Vale continues fully focused on relief efforts and on the support of those affected. Rescue and assistance to the victims on site continue being operated by the Fire Department and by the Civil Defense Corps,” the company said.

Vale is the world’s largest producer of iron ore, and runs several deep-draft ports in Brazil as well as Indonesia, Malaysia and Oman, equipped to receive Valemax ships, the biggest mineral vessels in the world, with capacity for 400,000 tonnes of ore. The company also owns and charters Capesizes and Very Large Ore Carriers (VLOCs) and its fleet primarily services the Asian energy needs.

The incident

The breach of the Dam I of the Córrego de Feijão mine occurred in the early afternoon of January 25, 2019. According to the latest information from Vale, the dam, built in 1976 and acquired by Vale in 2001, received the disposal of tailings from the production of the mine until 2015. Since then, it was inactive and a decommissioning project of the dam was under development.

The 86-meter high dam with a crest length of 720 meters was issued with Stability Condition Statements by TUV SUD do Brasil, an international company specialized in Geotechnics, on two occasions in 2018 following periodical reviews.

Furthermore, Vale added that the dam had a Safety Factor in accordance with the world’s best practices and above the reference of the Brazilian Standard, confirming the physical and hydraulic safety of the dam.

The small-sized structures IV and IV-A of the Córrego de Feijão mine were affected by the tailings that leaked from Dam I.

As a result, on Sunday, a siren warning was activated in the region of Córrego do Feijão mine in Brumadinho after detecting an increase of the water levels. The community in the region was evacuated and Vale said it was draining the Dam VI with the use of pumps, to reduce the amount of water in the reservoir.

As informed, the water levels already receded to safe levels, reducing the critical alert level from 2 to 1.

“With that, people that had left their homes have already been allowed to return and the Civil Defense Corps have also been able to recommence their search for the missing people in the region. The Dams VII and Menezes I and II did not suffer any impact,” Vale said in an update.

The operation of the mine has been suspended as the plant facilities, the loading terminal, the maintenance workshops and the administrative buildings of the Córrego de Feijão mine suffered damages from the tsunami of toxic mud that broke lose from the dam.

Vale’s Board of Directors informed that a special committee would be established to determine the cause of the dam breach, indicating also that various financial measures would be taken at the top-level, including suspension of dividends, as part of follow-up activities to support affected victims.

Furthermore, the CEO of Vale, Fabio Schvartsman, announced a plan to develop a new dam safety standard.

This is the second dam collapse incident Vale saw in less than four  years. Namely, in 2015 a larger dam, Samarco Mineracao SA, a joint venture between Vale and BHP, collapsed claiming the lives of 19 people and creating a major environmental disaster.

The incident resulted in legal proceedings and estimated damage claims from state prosecutors of USD 1.33 billion, Reuters reported.

Impact on shipping

Being a major player in the iron ore exporting market, the incident is expected to impact the dry bulk shipping industry due to production disruptions. As such, a likely effect is to be felt in the tonne mile demand.

It is still to early to assess the potential consequences on the company’s exports, as Vale is currently focused on relief efforts.

“The impact on the bulk market is first of all uncertainty. Secondly, the size of the disruption depends on Vale’s ability to source the ‘lost ore’ from other facilities and at what pace that will happen. Carriers may be re-directed to other loading ports,” Peter Sand, Chief Shipping Analyst at BIMCO told World Maritime News.

The Córrego de Feijão mine belongs to the Paraopebas Complex in the Southern System and produced 7.8 million tons in 2017 and 8.5 million tons in 2018, out of a total of 26.3 million tons and 27.3 million tons of the Paraopebas Complex, respectively, data from Vale shows.

“Surely this disrupts production as well as exports, most likely for all four mines,” Sand continued.

However, Sand believes the overall effect on the market is likely to be minor, based on what is known so far. This is in part due to the fact that the first half of a year is normally lower in production than the second half.

Nevertheless, it is yet to be seen what direction will the developments take.

Written by Jasmina Ovcina Mandra