Death Toll Rises in Brazil Dam Collapse as Mining Company Faces Criticism


A dam at the Corrego do Feijao iron ore mine in Brumadinho, Brazil collapsed on Friday, January 25. The dam’s failure resulted in a 24-foot tsunami of water, mud, and mining waste obliterating the surrounding facilities, homes, as well as most of Brumadinho. The death toll is currently at 65 fatalities and climbing as there are still nearly 300 people missing and presumed dead. The mine is owned by Brazilian metal mining company Vale S.A. (VALE) who is the largest producer of iron ore in the world. The security is held in many international, emerging market, and commodity funds.

Rescue efforts have been underway throughout the weekend but were halted on Sunday after alarms sounded from a nearby mine in the region. It was feared that this dam would collapse too after heavy rainfall and a broken drainage pipe resulted in dangerously high water levels. This emergency not only stopped rescue efforts for over 10 hours but resulted in a recommendation for 24,000 people to seek higher ground and evacuate. It is important to note that this dam is also owned by Vale.

The mayor of Brumadinho, Avimar de Melo Barcelos referred to Vale as “careless and incompetent” as he blamed Vale for the tragedy that has many Brazilians outraged. Many of the missing and deceased are Vale employees who were eating lunch in the company’s cafeteria as it was destroyed by the bursting dam. Renato Simao de Oliveiras lost his twin brother who was a Vale employee. “The cafeteria was in a risky area” he said while claiming that Vale had traded safety for profits. Laudi Soares Ribas is unsure of the safety of her husband who also worked for Vale. “Sometimes we think he is dead, sometimes we think he is in the hospital” she said.

The CEO of Vale, Fabio Schvartsman, commented on the situation saying, “I don’t know who is responsible, but I apologize to everyone.” Schvartsman also announced that they will “go above and beyond any national or international standards” and “will create a cushion of safety far superior to what we have today to guarantee that this never happens again.”

But this isn’t the first time that a Vale dam has burst and resulted in a tragedy. Less than 60 miles away, lies the remains of the Fundao iron ore mine which collapsed in 2015. Fundao was a joint venture between Vale and BHP Group Ltd (BHP), respectively the third and fourth largest mining companies in the world. The catastrophe resulted in the worst environmental and economic disaster to date; 19 deaths, 250,000 left with contaminated drinking water, a destroyed village, thousands of dead fish, impoverished fisherman, and over 2.1 billion cubic feet of waste that flooded rivers and the Atlantic Ocean. The dam collapsed due to a range of construction and design flaws including a failed tailing which is a large dam used to store mining byproducts.

Almost 4 years after the tragic event, Vale and BHP have done nothing but deny responsibility and continue to dismiss the severity of the damage their inadequate dam operation caused to the indigenous peoples’ land. In statements made to news sources, BHP says that they reject the charges they are being accused of and that safety was and remained a top priority throughout the dam’s operation and that the dam complied with the Brazilian legislation. The company states that they stand behind their employees and trusts that executives had no prior knowledge of the possibility of the disaster; however, prosecutors say that despite these statements evidence shows otherwise.

Six months before the accident, unreported company documents showed that BHP’s risk assessment had predicted the high probability of the dam failure but instead “prioritized profits and left safety in second place,” said José Adércio Sampaio, coordinator of a taskforce of federal prosecutors. Several people were charged with qualified homicide from Vale and BHP. Both companies deny their charges and have defended their employees. The companies launched their own investigations on the matter finding other reasons for the failure. Their reports point to possible seismic activity prior to the failure that might have led to the disaster. However, months later a former employee prosecuted against them stated he had informed the company the situation was not under control. Vale responded in an email that it “repudiates vehemently the complaint presented by prosecutors because innumerable pieces of evidence and testimony presented in the case files that proved that Vale was never responsible for the operational management of the Fundao dam were disrespected”.

Clearly safety of their mines has been a previous issue for Vale which calls into question comments made by their CEO about the recent dam collapse. “I’m not a mining technician. I followed the technician’s advice and you see what happened. It didn’t work. We are 100 percent within all the standards, and that didn’t do it.” Despite Schvartsman’s assurance of safety, the dam was in the process of being decommissioned. It was built in 1976. In a Vale risk assessment presentation, Corrego do Eijao was identified as a high potential risk but listed as a low probability of collapse. Schvartsman reported that the facilities were built to code and equipment had shown the dam was stable two weeks earlier.

Comments from others close to the matter tell a different story. “There are safe ways of mining, it’s just that it diminishes profit margins, so they prefer to do things the cheaper way and put lives at risk” said Joao Vitor Xavier who is the head of the mining and energy commission in Brazil. Luiz Jardim Wanderley, a mining specialist at the State University of Rio de Janeiro, claims that there is a tendency for mining companies to cut safety and maintenance budgets following a period of falling commodity prices. Commodity prices suffered large losses last year, mainly linked to rising United States interest rates. In the surrounding area, there were 8 sirens intended to warn habitants of a disaster. However, none of the sirens sounded as the dam collapsed and flooded the area. A wife of a Vale employee told reporters, “They all knew the dam could break. Are they never going to learn? Will there be a third? A fourth? It’s unbelievable.”

Vale claims that the waste is non-toxic sand, but United Nations’ reports from the last Vale dam collapse show that what was claimed as harmless mining waste actually contained high levels of toxic heavy metals. Naturally, many fear this collapse is worse than the previous and will bring widespread environmental contamination and destroy the entire agricultural economies of the region.

Prior to this incident, Vale and BHP already had a pending lawsuit against them for over $40 billion. Both companies settled a $5.4 billion claim last year and have paid out an additional $4.4 billion to the community over the past three years. Since the recent collapse, Brazil has frozen over $3 billion of Vale’s liquid assets to be used as funding for rescue efforts and victim compensation and has issued Vale a fine of $66 million. Vale has indefinitely suspended all shareholder dividends, share buybacks, and executive bonuses. The looming liability to Vale for the incident has caused S&P Global Ratings to place Vale on CreditWatch. S&P announced they would consider downgrading Vale’s BBB bond rating by several levels depending on the level of the impact. “Vale’s environmental and social liabilities could be substantial, especially considering that such an incident has happened before. Financial obligations for remediation and compensation might be substantial.” Brazil’s Attorney General, Andre Mendonca, has announced he will be considering both civil and criminal charges against the company. Brazil has already arrested 3 Vale employees and 2 contractors who were involved in ensuring dam safety. The American Depository Receipt for Vale S.A. that trades on the NYSE (VALE), was down over 18% on the first trading day since the accident. This represents almost $13 billion in lost market cap for the company.

On its company website, Vale lists its values as “life matters most”, “prize our planet”, and “do what is right”.

IWP Capital has reached out to Vale’s investor relations, board chairman, and CEO to address environmental, social, and governance concerns.