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The iron ore mining company must provide the Brazilian government with the appropriate documents if it wishes to keep Ferrous Resources.
The Brazilian government may annul major miner Vale’s (NYSE:VALE) acquisition of iron ore producer Ferrous Resources if the company does not provide sufficient environmental compliance documents within the next 30 days.
Vale purchased Ferrous Resources on August 1 for US$550 million, a move which was expected to immediately increase Vale’s production with 4 million tonnes per year of iron ore pellet feed. Ferrous Resources owns and operates iron ore mines close to Vale’s assets in Minas Gerais, Brazil.
On August 15, Vale temporarily halted operations at Ferrous Resources’ Viga concentration plant after the company discovered an inconsistency in the permit documents. The operations at the Viga mine, however, continued, since the inconsistent documents did not have any bearings on the safety of the tailing dam.
At this time, Vale’s spokesperson assured Reuters that the company would be taking “appropriate measures” in light of the news regarding the inconsistent documentation.
Safety at Vale’s dams has been of particular importance, given that a tailings dam at the company’s Córrego do Feijão mine near Brumadinho, Brazil collapsed, killing over 250 people.
This disaster was not Vale’s first major mining mishap. Samarco, Vale’s joint venture project with BHP (ASX:BHP,NYSE:BHP,LSE:BLT), also suffered a dam collapse in 2015.
BHP was hit with a shareholder class action lawsuit for the environmental disaster, the worst in Brazil’s history, which released 12 million cubic meters of iron-ore mining by-product into the nearby facilities.
Vale’s share price has taken a beating this year due to the Brumadinho controversy, dropping 20.53 percent between January 24 and January 28. Vale’s share price hasn’t been able to bounce back to its year-to-date peak of US$14.96, which it reached the day before the dam collapse, on January 24.
However, Vale’s share price has slowly inched up from its slump, opening the market on November 6 at US$12.01, a 2.74 percent increase since its January 28 low of US$11.69.
On November 7, Vale opened markets at US$12.29, while iron ore was trading at US$82.98 per tonne.
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Securities Disclosure: I, Sasha Dhesi, hold no direct investment interest in any company mentioned in this article.