Vale: The Politics and Consequences of Córrego do Feijão

In this interview with INN, Remi Piet of Americas Market Intelligence shares his thoughts on what’s next for Vale after Córrego do Feijão.

A rash of senior executives at Brazilian iron ore mine Vale (NYSE:VALE) have been stood aside in the aftermath of January’s Córrego do Feijão tailings dam collapse near Brumadinho in south-eastern Brazil, which could have claimed up to 300 lives.

The final death toll of the collapse is yet to be fully tallied — as recovery workers sift through the mud and debris searching for up to 120 missing people more than a month after the disaster.

In a release on Saturday (March 2), Vale said that its CEO, Fabio Schvartzman and other senior executives had been recommended to stand down by the authorities in Brazil — a recommendation that the company had considered and then obeyed after board meetings on Friday (March 1) and Saturday.

Speaking with the Investing News Network, Senior Director at Americas Market Intelligence Remi Piet said that even though the upper levels of Vale had denied any knowledge of issues with the tailings dam in the lead up to the disaster, having them step aside was “completely understandable.”

“When a tailings dam bursts, it’s unacceptable for mining for any company because its a major security flaw — in the case of Vale, it’s even more important because of Samarco in 2015,” which the company is still paying reparations for, 4 years later.

On Schvartzman, Piet said that he had been touted as a “revolutionary” CEO when he was first appointed in early 2017, fresh from his role at Klabin — Brazil’s largest paper and cardboard producer.

“When [Schvartzman] arrived from the paper company probably 2 years ago, he was quite revolutionary — [he] started to change a lot of the ways that business was done in the company.”

Piet said that from conversations he had in Brazil at the time, the feeling was that “Vale was really evolving, was becoming more of a modern player.”

“Which is saying [like] a brontosaur is turning into a crocodile — it’s not exactly turning into an ideal company yet, but at least it was becoming a little more market oriented and efficient.”

Piet added that intelligence coming out of Brazil was indicating that systemic issues still remained within Vale despite “revolutionary” changes at the top, given “the information that has been leaked — not sure how — is that there had been some warning indeed on that specific dam.

“Not only were there eight local engineers that tried to cover it up, but actually those memos went up to the top.”

The causes of the collapse remain a developing story however, with a clear picture of the disaster yet to be revealed as Vale and Brazilian authorities’ investigations are ongoing.

On Saturday, Vale said that the suspension of its CEO and other top executives was a temporary measure. Eduardo de Salles Bartolomeo, who was previously Vale’s executive director of basic metals, was appointed as acting CEO of Vale.

Bolsonaro and Vale

The collapse of the dam also poses an issue for the (relatively) freshly minted administration of the nationalist Jair Bolsonaro — which Piet described as pro-business, pro-mining, harsh on land rights with indigenous communities, populist, and above all: anti-red tape.

“So this ideology … has been faced with a major catastrophe, and what [the administration is] saying in the newspapers and in speeches is probably what they should be saying (demanding justice and site visits), but you still have below the surface the ideology of ‘why do we have all those regulations.”

Because of the intersection of the pro-business finance minister Paulo Guedes working on liberalizing the economy, and the nationalist Bolsonaro, “whose knowledge of the economy is very limited”, said Piet, the key players in the administration have found common ground on liberalizing and deregulating the economy but with a nationalist bent.

In other words: Brazil first.

So what does that mean for mining? “Vale will probably continue to be the cornerstone of that in the mining sector.”

Vale, which was formerly state-owned, is the largest iron ore miner in the world — and the largest mining company operating in Brazil, making it top dog locally when it comes to all things mining.

When asked whether the disaster had changed anything about the government’s approach to Vale, Piet said that he was yet to see any major changes in attitude — besides the current expected response of outrage and punitive measures — which include banning similar tailings facilities.

“When you happen to have a catastrophe like this, it takes time, so it’s going to take six months to know exactly what happened,” though Piet added that the lag in time is typically “a way to procrastinate and try to wing it” when it comes to actual changes to regulations and oversight.

“The whole program of Bolsonaro is in limiting civil servants, limiting red tape — [the bureaucracy] is already seriously understaffed.”

That lack of manpower on a bureaucratic level meant that any reforms that were carried out to strengthen the mining regulator or try to ensure greater compliance with rules would likely fall flat because “no-one wants to sign off on a project because you don’t want to have your name there.”

Vale and BHP

BHP (ASX:BHP,NYSE:BHP,LSE:BLT) was — and indeed still is Vale’s joint-venture partner in the previous dam that collapsed — Samarco in 2015.

A 50-50 arrangement, BHP has been denying rumours that it is seeking an exit from Samarco for years, with information on negotiations between the two coming from “people familiar with the matter” that are never quoted by name.

BHP has been tied up paying reparations alongside Vale since Samarco, which claimed 19 lives and contaminated vital river systems in the same state as Córrego do Feijão.

In the aftermath of the Córrego do Feijão collapse BHP has only shared its condolences and offered its thoughts on what the industry must to do avoid further tragedy.

“I understand BHP wants to get its name out [of Samarco],” said Piet.

That BHP was even in with Vale — a company with a different structure and attitude to operations and litigation — was a head scratcher, said Piet.

“The strategy of BHP … was to enter Latin America with a large, strong partner — just to learn, to get their feet wet.

“And then they stuck with Vale which is the biggest one – probably not the best strategy on that one, but it’s easier to say now.”

Piet explained that the approach of relying on local operators was becoming untenable for companies new to an area.

“That’s not a strategy that will work for companies in the future, because you want to be responsible for your own risks.”

Will Vale pull through?

The short answer, said Piet, was yes.

He said that the budget for paying down damages for the latest tailings dam collape was going to be “very large”, but money was something Vale had plenty of.

“Vale is Vale. Vale is not a junior miner. It will take a serious hit, it will survive this, it might have to get some outsider help, it might have to sell certain assets… I wouldn’t invest in Vale now. But will the company survive this? I think so, but it will need some outside help.”

That ‘outside help,’ said Piet, was likely to be government assistance long term (though not from Bolsonaro), other miners lending a hand, and the ever-present Chinese companies in the wings, ready to step in and snap up lucrative assets.

Until then, Vale’s share price continues to hover at a price around 18 percent below its pre-disaster value on the NYSE, while on the Sao Paulo exchange the story remains much the same.

Historically however, Vale’s value remains well above where it fell to in the aftermath of the Samarco disaster in 2015 — when the companies value wallowed as low as US$2.24. By comparison, on Monday (March 4) Vale sat at US$12.08.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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gold bars

2020 was a banner year for gold-backed ETF inflows, but interest has lagged this year as investors become more comfortable taking risks.

In 2020, gold-backed exchange-traded fund (ETF) inflows ballooned to 877 tonnes, the largest one year intake in ETF history.

Investor appetite was fueled by economic stimulus mixed with concerns about COVID-19 closures, which together brought risk-averse buyers to the yellow metal in droves, propelling investment demand.

"Over the first three quarters of 2020, gold ETFs accounted for almost two-thirds of total investment demand," notes a monthly ETF report released by the World Gold Council (WGC) in January. "This is significantly higher than any previous full year. Gold ETF demand was also equivalent to a quarter of the average annual gold mine production over the past five years."


Since then, gold ETF demand has waned as investors become more comfortable taking risks. So far, 2021 has seen outflows of 269.1 tonnes compared to 87.6 tonnes of inflows. Of the last 10 months, six have registered net outflows from the ETF segment.

In fact, a large part of gold's muted Q3 price performance has been attributed to a 7 percent decline in demand coming largely from the ETF segment. This trend continued in October, when gold ETF holdings shed 25.5 tonnes.

"Global gold ETF holdings fell to 3,567 tonnes (US$203 billion) during the month — notching year-to-date low levels — as investor appetite for gold diminished in the ETF space following price declines in August and September," the October WGC gold ETF report states.

After two months of pressure pushed the gold price to a six month low at the end of September, October saw the metal begin to rebound from the US$1,750 per ounce range to US$1,819.

Adam Perlaky, senior analyst at the WGC, told the Investing News Network that gold's price positivity in October was largely driven by growing inflationary tones.

"In recent years, gold has been inversely correlated with nominal interest rates, and yet gold strengthened during the month despite higher nominal rates,' he said via email. "This is likely a result of rising inflation expectations, though changes in the relative move in interest rates may have had an impact."

He added, "Though higher rates could be a headwind for gold, broader concerns of inflation and a potential recession highlights gold's value as an effective portfolio hedge."

The role of gold amid uncertainty

Gold's use as a hedge against inflation is likely to come into focus in the coming months, a sentiment that was echoed by Juan Carlos Artigas, head of research at WGC.

Artigas explained that while some are of the belief that the "elements of high inflation we've seen so far are transitory" and will dissipate, there will be longer-term reverberations from the current inflation, and potential secondary effects from the fiscal and monetary policies that were put in place to restart the economy.

In mid-November, investment bank JP Morgan (NYSE:JPM) said it anticipates that the US Federal Reserve will begin raising rates in September 2022 by 0.25 percent, followed by 25 basis point increases on a quarterly basis until real rates are zero.

"Gold still can face headwinds from potentially higher interest rates," said Artigas. "(The) opportunity cost of holding gold is one of the drivers of performance, and especially in the short and the medium term, interest rates tend to influence gold's behavior significantly, especially in a period where investors are looking to understand how central banks will behave."

However, as the head of research at the WGC pointed out, there are also some tailwinds that could move gold higher, including inflation that may not be transient, but more structural.

He also pointed out that interest rates are still historically very low, which has pushed investors to make their portfolios more risky. Hedging against this type of exposure is positive for gold's investment side. Additionally, on the consumer side, US infrastructure spending could also serve as a catalyst to more gold upside.

"What we know historically is that better economic growth tends to support consumption of gold, whether it is in the form of jewelry or technology, and 2021 is a good example of that, where you saw the contraction in gold-backed ETF holdings, you (also) saw an increase in demand coming from jewelry, technology and even bar and coin investment."

Another factor the researcher is watching is central bank gold holdings, which are on track for a 12th consecutive year of inflows. Artigas noted that a 2021 survey of central bankers conducted by the WGC found that the monetary institutes are interested in "expanding the role that gold has in foreign reserves."

"We do expect central banks to continue to be net buyers," he said, adding. "We have seen investors, especially more strategic longer-term investors, taking advantage of the price pullback that we saw in previous months as an opportunity to add gold to their portfolios."

For investors wanting to look at the strategic role gold has played throughout history, the WGC recently released a five part documentary series titled The Golden Thread.

The price of gold was at the US$1,790 level on November 25.

Don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

Commercially viable scandium deposits are rare, making widespread use of the metal tricky. However, there is indeed opportunity in the space.

Scandium is a critical metal that is as strong as titanium, as light as aluminum and as hard as ceramic.

While it is more abundant than lead, mercury and all the precious metals, there are no pure scandium-producing mines. The rare earth element is often a by-product, produced from refining other metals, including uranium.

Pure scandium metal rarely concentrates at higher grades alongside other metals, making commercially usable scandium deposits very rare. What's more, even when scandium is found at elevated levels, processing it can be difficult, leading to very few stable sources of this critical metal.


Not surprisingly, that means there has been very little adoption of scandium in commercial applications. However, as John Kaiser of Kaiser Research has pointed out several times in the past few years, as well as more recently, that doesn't mean there hasn't been research into how scandium could be used in the future.

"Hundreds of applications (have been) filed, many of them related to alloys with aluminum," he said in an interview with the Investing News Network. "This obscure metal is going to go ballistic in the next few years."

Kaiser made that statement a few years back, and scandium has yet to go ballistic. But he still has hope for the metal, and it could yet have its day in the sun.

Below is an overview of the scandium market. Topics covered include current production, newcomers to the space and the metal's potentially bright future.

Current scandium production

The first known large-scale scandium production was associated with Russian military programs. Details are lost to history, but Russians reportedly alloyed the metal with aluminum to make lightweight MIG fighter parts. Mining at these historic Russian production sites has ceased, but stockpiles of scandium oxide and scandium master alloy remain in Russia. These stockpiles are rumored to be dwindling, but continue to be offered for sale on the market.

Today, most scandium is produced as a by-product during the processing of other ores, such as uranium or rare earths, or recovered from previously processed tailings. As a result, scandium supply can be affected by the supply and demand dynamics of the metals it is produced with. That can make the metal's already tough-to-follow market dynamics even more difficult to understand.

According to the US Geological Survey, scandium-producing countries include China, where it is a by-product of iron ore, rare earths, titanium and zirconium; and the Philippines, where it is a by-product of nickel. Scandium is also produced as a by-product of uranium in Russia, Ukraine and Kazakhstan.

More US production could be on the horizon as well after a push in legislation that encourages the Department of Defense to look into the potential uses of the metal. Environmental and construction permits have been approved for NioCorp's (TSX:NB,OTCQX:NIOBF) polymetallic Elk Creek project with probable reserves estimated to be 36 million tonnes containing 65.7 parts per million scandium.

Scandium resources have been identified in minerals-rich regions across the world, most notably in Australia, where a number of junior mining companies are working to develop scandium deposits in New South Wales. These include Scandium International Mining (TSX:SCY), which controls the Nyngan project; Clean TeQ Holdings (ASX:CLQ,OTCQX:CTEQF), which holds the Sunrise project; and Platina Resources (ASX:PGM,OTC Pink:PTNUF), which is working on the Owendale project.

Scandium price and trading

The US Geological Survey states that the global scandium market is "small relative to most other metals." This is exemplified by global production and consumption, which is only an estimated 15 to 20 metric tons annually.

The US Department of Commerce and the International Trade Commission do not have specific data on trading for the metal. Furthermore, there is no formal buy/sell market today — scandium is not traded on an exchange and there are no terminal or futures markets.

Instead, the metal is traded between private parties, mostly at undisclosed prices and in undisclosed amounts. Therefore, understanding the precise volume of production and cost of scandium is difficult, and independent estimations are more relevant.

Production estimates are based on levels of trader activity and interest, as well as the knowledge that some traders deal in the critical metal from very small operations.

The estimates also include consumers believed to be sourcing their own scandium through small, controlled recovery operations, but don't consider amounts of the metal contained in the master alloy currently being sold from Russian stockpiles.

The scandium opportunity

Analysts expect the global scandium market to grow at a compound annual growth rate of above 11 percent between 2020 and 2025. "The major factors driving the growth of the market studied are the accelerating usage in solid oxide fuel cells, and the rising demand for aluminum-scandium alloys," notes ReportLinker.

Despite the lack of known, stable supply, scientists and engineers have been working hard to develop new products incorporating the metal. Scandium's potential in high-tech applications is well documented. Highlights of the metal's properties include:

  • It can be used in the creation of stronger, corrosion-resistant, heat-tolerant and weldable aluminum alloys for lightweight aircraft and automobiles.
  • Its outstanding electrical properties and heat resistance are valuable for solid oxide fuel cells.
  • It has unique optical properties for high-intensity lamps.

A recent Kaiser Research report on scandium details the wide variety of end uses for scandium now and into the future, as well as where potential supply to meet that demand may originate.

potential scandium oxide supply and demand

Potential scandium oxide supply and demand.

Kaiser Research

As Kaiser has explained, "There's an enormous latent demand for scandium if it ever became available on a primary, scalable basis."

In other words, the only barrier to accessing demand from a new family of high-performance aluminum materials and energy/lighting products is the lack of commercially viable larger-scale scandium production. Interestingly, Kaiser's work highlights two important scandium market events that may "have the potential to launch scandium demand growth over the next decade towards a 1,000 (tonne per annum) market worth US$2 billion."

For one, Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) announced in 2020 that it has developed a route to recovery for scandium at its Sorel-Tracy facility in Quebec, where it produces titanium slag from the Lac Tio iron-titanium deposit. In mid-2021, Rio Tinto began commercial-scale operations at its new scandium oxide production facility.

"The Rio Tinto development is a game changer for the scandium sector," said Kaiser, who believes the increase in scandium production could help boost the sector.

Secondly, Scandium International Mining filed an application in late 2019 for a patent protecting a method for recovering scandium and other metals from the waste streams of copper oxide leaching operations. In mid-2020, the company announced that copper raffinate tests showed its patent-pending process could recover enough scandium to match the supply being added to the market by Rio Tinto.

"Conditions are finally right for scandium to become the ideal lightweighting solution for aluminum," Kaiser said in his note to investors.

This is an updated version of an article originally published by the Investing News Network in 2014.

Don't forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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