Vale's key role in waning Brazil

AS Brazil’s semi-public oil giant Petrobras struggles through the murky waters of corruption allegations, the country’s formerly state-run mining giant Vale is keeping out of the spotlight and quietly going about its business.

Simon Tarmo

Brazil, just like its “national” oil company, is struggling. Each day seems to bring new political and economic problems, creating fresh structural speed humps for an economy already on the ropes following a stagnant 2014.

Social (and social media) repercussions are increasingly noticeable as high inflation, rising unemployment, worker protests, water supply outages, potential energy shortages and public service deficiencies, amongst other issues, blend with steadily evolving corruption horror shows, giving even the staunchest Brazilian flag-wavers cause for concern.

Vale, the third-largest mining company in the world and Brazil’s top exporter, with annual revenues of about $US40 billion ($A51.15 billion) and exports of $20 billion in 2014, is managing to ride through this tough period thanks largely to a number of its long-running, low-cost mines, providing some welcome respite from the barrage of bad news involving Petrobras, the miner´s primary sector big brother ($130 billion in annual revenue and $13 billion in exports).

In recent months Vale has generated positive news stories, expanding a mine here, investing in new technology there, which has provided some much needed counterbalance to the negativity of Brazil´s general business environment and, no less importantly, that of the mining sector.

Further to the latter, Vale is certainly taking its fair share of knocks, chiefly because of low commodity prices, particularly that of iron ore, and its stock prices on various global exchanges are either close to or at all-time lows.

Furthermore, the company has been cancelling a number of lesser projects and laying off workers around the country in recent months, albeit in small groups so as not to attract too much heat from doomsday media outlets.

There is also the long and messy case of Simandou, with Vale currently staring down a $US100+ billion law suit courtesy of Rio Tinto in a tit-for-tat dispute that looks likely to drag on for years to come.

Yet Vale has made sure that there is also plenty of good news to go around: the ongoing development of its leading edge S11D “truckless” mine project, on track for a late 2016 kick-off; a reduction in overall spending on S11D by around $US3 billion; record production of iron ore (320 million tonnes) and copper (208,000 tonnes) and a big upswing in nickel (275,000t) for 2014; investments in new technologies including satellite tracking systems for its Carajas mining complex in the Amazon; the opening of a new, 40ha city park close to its operations in Governador Valadares, in Minas Gerais, to cite but a few.

All the while Petrobras has been lurching from one expose to the next and it looks increasingly likely that a sizeable chunk of the federal government, including some at the very peak, will suffer some type of fall from grace thanks to all manner of dirty dealings with Brazil´s biggest company.

While it would be naive to think that Vale, with its 200,000-plus employees and contractors and 1500 odd projects and ‘social actions’ around the world, is corruption free, the 18 years since its 1997 privatisation have no doubt increased transparency and tightened up its dealings to such an extent that there is simply no longer enough room for a mega-scale Petrobras-style collusion and kickbacks scheme.

In today´s Brazil of unremitting bad news and deteriorating prospects, Vale´s steady going and reasonably clean reputation offers a glimmer of hope for the country, and leaves the company well placed for when the mining market returns to form.

Simon Tarmo is country manager, Brazil, for Aspermont Ltd, publisher of EnergyNewsBulletin.net, Miningnews.net, Mining Journal and Notícias de Mineracao Brasil (Mining News Brazil), among other leading business-to-business publications. The launch of an English language version of Mining News Brazil is planned for mid-2015.

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