Vale to pay US$7B for mine disaster

Vale SA reached a settlement agreement with Brazilian authorities for a dam collapse that killed 270 people and led to production cutbacks that stripped the company of the title of world's biggest iron ore producer.

The deal comes two years after the Brumadinho disaster, giving affected communities a clear framework for compensation and reparations and removing a considerable legal overhang for Vale. Its shares were little changed in Sao Paulo.

Vale will pay 37.7 billion reais (US$7.03 billion) including cash payments to affected people and investments in environmental projects, the Rio de Janeiro-based company said in a statement. Vale estimates it will book an additional expense of 19.8 billion reais in 2020 results.

“This is the largest reparation agreement ever signed in Latin America in financial terms and with the participation of the state,” and one of the largest in the world, Minas Gerais said in a statement.

The two sides come together after Vale initially presented a value of about 21 billion reais, while Minas Gerais outlined 28 billion reais in material damages plus 26 billion reais in moral damages.

Vale said about 8,900 people are already parties of civil or labour indemnification agreements, while more than 100,000 have received emergency aid totalling 1.8 billion reais.

With Vale benefiting from high iron ore prices, the Brumadinho settlement isn't expected to jeopardize any of its investment plans, according to Ativa Investimentos. Iron ore futures climbed 73 per cent last year on strong Chinese demand.

The agreement is about two thirds of the amount initially sought by the courts, “which corroborates a positive negotiation for Vale,” Ativa analyst Ilan Arbetman said. “In addition, its adjusted net debt allows it to dispose of the amounts not provisioned without further complications.”

Vale's shares extended gains after a trading halt, but then pared the advance.

“The agreement removes a key overhang for the stock, which still trades at a discount to peers,” said Leonardo Morales, head of equities at ASA Investments.

WASHINGTON ALVES / REUTERS FILES Red balloons and smoke are seen in January at a ceremony to mark two years after the disaster caused by the collapse of a tailings dam owned by Brazilian mining company Vale SA.

WASHINGTON ALVES / REUTERS FILES A woman reacts during a ceremony to mark two years after the Vale tailings dam disaster in Brazil.