- Vale's stock price has risen almost threefold in the past few weeks since news of the settlement was first reported.
- Vale was one of the largest shareholders in Petrobras before the company requested a purchase of the stake in the Brazilian oil company.
- There are many questions that remain unanswered as to how, exactly, Vale will manage to continue operating its mines.
Brazilian mining giant Vale has reached an arbitration agreement with the Minas Gerais state government, agreeing to pay $7 billion in restitution as a result of a dam collapse two years ago at one of its mines. Vale’s share price increased by 60 percent after the collapse of the dam.
“Vale is committed to fully repair and compensate the damage caused by the tragedy in Brumadinho and to increasingly contribute to the improvement and development of the communities in which we operate,” CEO Eduardo Bartolomeo said in a statement.
Vale’s stock price has risen almost threefold in the past few weeks since news of the settlement was first reported. Many people have questioned whether or not the price increase is a real positive for Vale.
Vale’s stock price has risen because it has significantly increased its cash reserves, from reducing operations in the past year to additional cash balances being injected into its business model.
This increase in funds allows Vale to take advantage of market opportunities, such as the current government debt program, more aggressive depreciation of mining equipment, and the possibility of greater foreign markets for its natural gas and coal production.
Vale has said that since the latest breach two years ago, the company has tried to work with “the impacted families, providing assistance to restore their dignity, well-being and livelihoods.”
“In addition to meeting the most immediate needs of the affected people and regions, it is also working to deliver projects that promote lasting change to recover communities and benefit the population effectively,” the company said in its statement.
Vale’s wholly-owned U.S. subsidiary, Energy East, was found to be responsible for the dam collapse that claimed the lives of 272 people. The news report cited anonymous sources saying that the investigation was still ongoing, but would most likely reveal whether the company was aware of the risk of the dam collapse two years before it happened.
This revelation comes at a time when Vale is struggling with heavy losses in its other ventures, including its acquisition of a stake in Brazilian oil company Petrobras.
Vale was one of the largest shareholders in Petrobras before the company requested a purchase of the stake in the Brazilian oil company. The report cited anonymous sources claiming that the company “does not own the majority shares of the Brazilian company.”
Vale’s stock price has tumbled on the heels of the disastrous dam collapse, and the news report cited one current employee as saying that “for now, the worst is over and everything is fine, but there will be an evaluation to see if everything was done correctly.”
It is also interesting to note that Vale has retained Brazilian mining giant Brumadinho, which is partially responsible for the catastrophic flooding in Brazil’s state of Paraiba. Brumadinho was responsible for the dredging of the area’s port in the aftermath of the dam catastrophe.
While Vale is one of the largest investors in Brazilian mining, this particular acquisition represents yet another example of the company trying to manage its way out of a problem, rather than looking at ways to solve the crisis at hand.
The company is said to be in talks with the government and the construction company currently operating the dam is working closely with Vale.
There are many questions that remain unanswered as to how, exactly, Vale will manage to continue operating its mines without causing irreparable damage to the environment, and causing the people that live in and near the areas to suffer without clean water and other essential services.
Vale’s most immediate need is for cash to meet its obligations to its various partners in the Minas Gerais mines. If the negotiations between Vale and the government do not result in a satisfactory outcome, then Vale is likely to seek protection from the government through the Ministry of Mines.
It is also possible that the company will seek protection from international governments, such as the United States, through the Inter-American Investment Corporation or through the European Investment Corporation.
The Ministry of Mines has not yet responded to requests for comment on whether it would consider Vale’s request for protection from the Brazilian government.
One interesting possibility is the possibility that Vale could bring a lawsuit against the Brazilian government for negligence in the permitting process of its dam project. Environmentalists are already worried about the effect that the dam collapse will have on the indigenous tribes living in the Amazon basin.