Iron ore on way to $US100/tonne as Vale clampdown continues

Vale's S11D mine at Carajás, the world's largest iron ore project.

The global iron ore price is expected to temporarily rise above $US100 ($138) per tonne due to fallout from Vale’s recent tailings dam disaster in Brazil.

The price for 62 per cent fines on Monday was $US86.53, according the Australian Market Index, a rise of 20.7 per cent over one month and 16 per cent since the day of the disaster.

Media reports, referencing Capital Economics data, suggest iron ore will increase to $US100 a tonne, at least temporarily.

The Córrego de Feijão mine in the state of Minas Gerais suffered a dam breach that killed at least 134 people, with around 200 more still missing, according to Reuters.

It is Brazil’s worst environmental disaster, and Vale’s second tailings dam breach in just over three years, following an accident in November 2015 at the Fundão mine (also in Minas Gerais) run by the Samarco joint venture between Vale and BHP.

While Vale has committed to an accelerated shutdown of 19 tailings dams over the next three years in light of the incident, the company confirmed yesterday that it had received an order from the 22nd Civil Court of the Comarca of Belo Horizonte to refrain from disposing of tailings at eight of its mines: Laranjeiras, Menezes II, Capitão do Mato, Dique B, Taquaras, Forquilha I, Forquilha II and Forquilha III.

Vale responded by stating that three of the eight dams — Forquilha I, Forquilha II and Forquilha III — are already inactive and included on the company’s existing list of 19 dams to be decommissioned.

Of the other five, Vale stated that only the Laranjeiras dam, which is at the Brucutu mine in Minas Gerais, was used for tailings disposal, while the other four were solely for sediment containment.

“Vale therefore understands that there is no technical basis nor risk assessment to justify a decision to suspend the operation of any of these dams,” the statement read.

However, decommissioning of the Laranjeiras dam would have a large impact on Brucutu’s production to the effect of around 30 million tonnes a year, which would present a large increase to Vale’s planned 40 million tonne reduction through its decommissioning efforts.

Brucutu is Minas Gerais’ largest mining operation and the second largest in Brazil after the Carajás project (also Vale) in the Pará region.

Such impositions — which are likely to continue as the ramifications from the disaster become clearer — on Vale’s business are presenting a knock-on effect to global market prices for iron ore that could result in improved pricing structures for other iron companies, including in Australia.

Should Vale’s output continue to dip as a result of the disaster, Rio Tinto has a strong chance of taking its place as the world’s largest iron ore miner.

Vale stated that it would adopt “appropriate legal measures” to fight the court’s decision.

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