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Heavy rains force miners to halt operations in southeast Brazil

Stock MarketsJan 10, 2022 04:31PM ET
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2/2 © Reuters. FILE PHOTO: The logo of the Brazilian mining company Vale SA is seen in Brumadinho, Brazil January 29, 2019. REUTERS/Adriano Machado 2/2

By Gabriel Araujo

SAO PAULO (Reuters) -Heavy rainfall in southeastern Brazil has prompted miners including Vale SA (NYSE:VALE) to suspend some operations, they said on Monday, after downpours caused deadly floods in the northeast and threatened to delay harvests in the midwest.

Rainfall is expected to remain heavy this week in most of top mining state Minas Gerais, after runoff closed roads and railways.

The rains may also have contributed to the dramatic collapse https://www.reuters.com/world/americas/death-toll-brazil-waterfall-rock-face-collapse-rises-10-2022-01-09 of a canyon rock face in the state on Saturday, killing 10 people visiting a waterfall on boats.

In the northeastern state of Bahia, flooding https://www.reuters.com/markets/commodities/christmas-our-dreams-turns-nightmare-brazil-floods-level-homes-2021-12-28 displaced about 50,000 families and killed some two dozen over the holidays.

Vale said on Monday it has partially suspended operations at its Southeastern and Southern iron ore systems due to the bad weather, but reaffirmed its 2022 production target as the Northern system was not affected.

Samarco, a joint venture between Vale and BHP, also cut back operations in its Germano complex, producing at an estimated 50% of capacity until weather allows it to ramp up.

Brazilian steelmakers Usiminas (OTC:USNZY) and Companhia Siderurgica Nacional (CSN) also halted operations of their mining units.

Anglo American (LON:AAL) said its Minas-Rio system continued to operate as planned during the rainy season.

Over the weekend, France's Vallourec paused its Pau Branco mine after heavy rainfall caused a dike to overflow.

"We see the news as potentially negative for the entire mining sector, as it could result in new regulations to suspend existing operations or delay new projects," analysts at XP (NASDAQ:XP) Investimentos said in a research note.

BTG Pactual analysts said economic impacts could be muted if normal operations are restored quickly, but noted it all depends on how long the heavy rainfall will last.

"We estimate there could be more than 100 million tonnes of annualized iron ore supply at risk at this stage in Brazil, which is a relevant number (roughly 7% of seaborne supply and about 30% of Brazilian supply), so clearly the stakes are high and we could see impacts on short-term iron ore movements," they said.

INTERRUPTED RAILWAYS, CLOSED HIGHWAYS

Vale said in a securities filing that train circulation at its Vitoria-Minas railway was partially interrupted by the rains, halting output at the Brucutu mine and the Mariana complex due to a lack of transportation.

Both mines are part of Vale's Southeastern system, along with the Itabira complex, where production was not affected.

In the Southern system, Vale said all of its complexes had to halt production because key highways BR-040 and MG-030 were closed.

Vale said its Northern System is still operating as planned, and maintained its 2022 iron ore production forecast at 320-335 million tonnes. It noted its production plan takes into account the seasonal rainfall impact.

The miner also said the rains had not changed the alert level for any of its tailing dams which are under constant, "real-time" monitoring.

"While Vale did not change its production guidance for 2022, we believe that the market could start to project volumes closer to the low end of the range," Itau BBA analysts said, noting that iron ore prices could be supported at their current high levels.

Vale's two halted operations accounted for about 31% of its output in the first nine months of 2021, the Itau BBA analysts said. A two-week halt in these operations could represent an impact of about 3 million tonnes for the company, according to their preliminary calculations.

Steelmaker Usiminas announced a stoppage at its mining subsidiary Mineracao Usiminas (MUSA) due to weather, but said it had enough inventory of raw material to avoid disruption.

The company also said its Barragem Central tailings dam, which has been inactive since 2014, reached alert level 1 - an initial warning that does not mean a safety breach was noted.

CSN and its steel mining subsidiary CSN Mineracao SA announced a halt to operations of the Casa de Pedra mine, but said they are expected to resume in coming days.

They said port operations at the Itaguai coal terminal, located in the neighboring state of Rio de Janeiro, were also suspended due to excessive rains.

On Sunday, Brazil's regulatory National Mining Agency (ANM) suspended operations at French steel pipe maker Vallourec's Pau Branco iron ore mine in the state after a dike overflowed, cutting off a federal highway. There were no reported injuries.

"After the dam incidents of the past, we welcome the zero tolerance approach that miners are taking in the country to minimize operational risks, which we consider the prudent approach," BTG Pactual said.

Heavy rains force miners to halt operations in southeast Brazil
 

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