Analysts say Vale execs optimistic about recovery of output at Brucutu mine

Brazil’s Vale which needs court approval to resume production at its Brucutu mine after a deadly dam collapse, told analysts it expects to do so soon, analysts at brokerage XP said on Thursday after meeting with the miner’s top executives.

They said Vale executives were also optimistic that they could partially recover output at several other mines in the second half.

The company was forced to suspend about 90 million tons per year of iron ore capacity after the collapse of a tailings dam in the mining town of Brumadinho killed at least 246 people, triggering a broad safety review.

Brucutu is operating at only a third of its 30 million tonnes yearly capacity, using “dry processing,” which does not require use of tailings dams. Restoring the other 20 million depends on persuading a judge that the mine is safe.

XP Investimentos said another 30 million tonnes of capacity could be restored in the second half once its Alegria, Vargem Grande and Timbopeba mines receive dry processing licenses.

Vale had forecast in May that those licenses could take 6 months to 12 months.

As the largest global iron ore producer, Vale has contributed to a reduction in global supply and a surge in international prices.

“Vale does not see current iron ore prices as sustainable and believes that keeping production low to sustain prices could encourage new capacity in the medium term and is therefore not the ideal strategy,” XP said.

Vale has told analysts it is focused on reaching agreements with those affected by the Brumadinho tragedy and with Brazilian authorities and expects to sign social and environmental settlements by the end of 2019 or in 2020, XP said.

Vale has provisioned $4.5 billion in Brumadinho-related costs, an amount that does not include environmental costs, which are likely to be gradually added over the year, according to XP.

Credit Suisse, which attended the same meeting with recently named Vale Chief Executive Eduardo Bartolomeo and Chief Financial Officer Luciano Siani, said it estimated that additional environmental provisions would total between $1 billion and $1.5 billion.

In addition, Vale mentioned that an investigation to determine the causes of the accident could be completed in the next three months and a final report ready in late September or early October, Credit Suisse said.

Vale shares were up about 1% in early afternoon trading after earlier hitting its highest level in almost two months.

(By Marta Nogueira; Editing by David Gregorio)