Brazil’s Vale books hefty dam disaster charges, but bullish about core earnings

RIO DE JANEIRO, BRAZIL – Brazil’s Vale SA logged US$4.9 billion in provisions related to the Brumadinho dam disaster in quarterly earnings, but its ferrous metal division turned in a strong performance and the miner was upbeat about the outlook for key products.

Some US$3.9 billion of the provisions are part of a recently announced US$7 billion agreement with prosecutors and the state of Minas Gerais to settle claims stemming from the collapse of the dam in 2019 which killed 270 people.

The rest of the settlement will be paid out over a period of time not exceeding six years.

EBITDA or earnings before interest, taxes, depreciation and amortization rose 20% to US$4.2 billion in the fourth quarter from the same period a year earlier when Vale also booked heavy charges related to the dam disaster.

Stripped of the dam disaster provisions, however, last quarter’s EBITDA was US$9.1 billion, a 94% hike from a year ago, buoyed by a surge in sales prices for iron ore, its main product, as well as sharp climbs in pricing for nickel and copper.

Its ferrous metals unit saw EBITDA, adjusted for some one-off factors, come in at US$8.8 billion, thanks to a 26% increase in sales volume and a 17% price increase for the division’s products. That was the unit’s second-highest ever adjusted EBITDA.

Vale said in a statement it expected a continued recovery in steel production this year as the world’s principal economies benefit from government stimulus packages. Iron ore is a key steel ingredient.

It also said it was bullish about nickel and copper thanks to robust Chinese demand, as well as growing demand from electric vehicle makers and a gradual recovery in the aerospace industry.

That said, it cut its forecast for 2021 copper production to 360,000-380,000 tons from 390,000 tons, but did not elaborate on the reasons for the revision.