‘De-risked’ Vale seeks to reclaim iron ore crown

When Eduardo Bartolomeo officially took the helm of Vale in April 2019, the Brazilian miner was in turmoil. Rocked by a deadly dam disaster that killed 270 people, mainly its own employees and contractors, the company was facing open-ended fines and a boycott from international investors.

Two years on and Vale, a $109bn company employing 186,000 people, is “totally investible” again, according to Bartolomeo. Now he wants to win back the miner’s crown as the world’s biggest iron ore producer and boost its stock market valuation.

“People need to regain trust in Vale and you don’t regain trust just by speech but by concrete actions,” he told the Financial Times. “People need to see we are walking the talk.”

Bartolomeo, who holds a degree in metallurgical engineering, reeled off a list of moves taken since the catastrophe near the town of Brumadinho that he said had helped “de-risk” the company.

They include February’s $7bn settlement with Brazilian authorities, a slate of new risk policies, the appointment of a safety and operational excellence officer and a project to decommission waste storage dams similar to the one that burst with such devastating effect at the Córrego do Feijão iron ore mine. Work on five dams is already complete.

“We said we would repair Brumadinho entirely. We are doing that,” said Bartolomeo, pointing out that Vale had already paid out $500m to people directly affected by the tragedy. “People, reparation and safety — that’s our mantra.”

Bartolomeo, who was in Canada running Vale’s industrial metals business when the accident happened, said he had little alternative but to accept the role of chief executive after he predecessor, Fabio Schwartzman, was pushed out.

“I’ve been 17 years at this company, with some ins and outs. I love this company and it was a duty,” he said. “You could say nobody would know [if I rejected the job offer] but my pillow would know and I wouldn’t sleep if I didn’t take the chance. I’d fail myself if I didn’t commit to my employees.”

Reflecting on his first two years as chief executive, Bartolomeo said the Brumadinho crisis had been a “driving force” behind changes that would have been impossible in normal circumstances.

Under his leadership, Vale has announced plans to withdraw from the thermal coal business and became the first big miner to set a target for reducing its scope 3 emissions — the carbon dioxide generated when customers burn or process its raw materials. It has also divested its lossmaking nickel operation in New Caledonia as part of a drive to shed cash-draining assets and reshape the company.

Dividends have resumed and Vale recently announced plans to repurchase 5.3 per cent of its shares, which have soared in the past year on the back of booming Chinese demand for iron ore, its main commodity. That drove the price of the steelmaking commodity to a record high above $230 a tonne this month before retreating to $188 on Monday.

Big iron ore miners need a price of just $50 a tonne to break even. Vale could generate more than $20bn of excess cash this year, a fifth of its market value, if prices hold up.

Bartolomeo insists the buyback is the best thing Vale can do with its excess cash because its shares are so lowly rated. Based on consensus forecasts, Vale trades on a forward price-to-earnings ratio of just 4.6 and at a discount to its peers.

“Who’s the biggest investor in Vale now? The buyback. It’s the evidence that we perceive we are the best option for investment,” he said.

Vale’s low share price is something Bartolomeo is determined to fix, although he says this will not happen unless investors are convinced that the company can reclaim from Rio Tinto its crown as the world’s biggest iron ore producer.

Following Brumadinho, Vale was forced to curtail production. Planned output of 400m tonnes a year fell to about 300m tonnes in 2019 and 2020 and it was overtaken by Rio, which produced about 330m tonnes in each of the past two years.

“One of the problems we have is that people think we are going to be a 330m tonne producer,” Bartolomeo said. “We have to tell them, ‘no: we can go back to 400m if needed’.”

Vale has made positive steps but there is still work to be done

But while Bartolomeo believes there is clear path to 400m of capacity by the end of 2022, many investors say Vale needs to do more before they consider owning it shares again.

“Vale has made positive steps but there is still work to be done,” said John Howchin, secretary-general of the Council on Ethics of the Swedish National Pension Funds. Referring to an earlier fatal dam accident involving Vale in November 2015, he noted that “the rebuilding of the villages around Mariana is still nowhere near finished, after five and half years”.

Adam Matthews, chief responsible investment officer of the Church of England Pensions Board, said that until Vale could demonstrate its tailings, or waste storage, dams adhered to a new global standard and had been independently verified, it would not own the company’s shares.

“There is a still path to be travelled. Ultimately they need to become an exemplar of best practice on tailings management, climate change and community relations,” he said.

Joceli Andrioli from the Movement of People Affected by Dams lambasted the Brumadinho accord as a “scandal”, pointing out that the final settlement sum of $7bn, which it is challenging in the courts, was lower than the $10bn originally sought by authorities.

“We hope that the struggle of those affected will one day achieve justice, that this crime will be punished in fact, that Vale will be placed in the dock,” he said.

“And not as a company engaged in so-called sustainable development, which is a big deception: marketing and advertising to sell and increase its market value.”

Bartolomeo said Vale was working hard to be more transparent and to make sure it is aligned with society.

He also had another message for nervous investors: Vale will not use the windfall generated by record iron ore prices to make overpriced acquisitions, something the company has been guilty of in the past.

“There’s no M&A on our radar,” he said. “We have a platform to grow. We can come back to 400m tonnes of production in iron ore. We can double our copper operation in Carajás [in Brazil], we can increase our nickel operations in Canada and Indonesia. We have these options and they don’t demand huge amounts of money.”