BMO Capital Markets has cut Vale’s (NYSE: VALE) iron ore production estimate this year by a further 30 million tonnes due to the continued suspension of the miner’s Brucutu mine, and the recent suspension of the Timbopeba mine.
A Brazilian court on March 15 ordered Vale to stop production at Timbopeba and the Doutor dam, which stores tailings from the mine in Minas Gerais state.
Production at its Brucutu mine in February was halted followed the dam breach at its Brumadinho operation on Jan. 25 that left more than 300 people dead or missing.
“Both operations have been impacted by court suspension orders,” Edward Sterck of BMO Capital writes of the Brucutu and Timbopeba mines.
“We have updated our estimates mostly to take into account the extended suspension of the Brucutu mine (~30 million tonnes per year), Southeastern System,” he notes. “We had previously assumed that Vale would be able to quickly overturn the Feb. 5 court order suspending tailings deposition, but it is clear that the appeals process is not being rushed. We now expect a restart in 4Q19, which removes 23 million tonnes of fines from 2019 production. Added to which, the Timbopeba operation has now also been ordered to suspend operations, which removes another 8 million tonnes from our forecasts.”
As a result, Sterck has reduced his EBIDTA estimates for Vale in 2019 and 2020 by 6% and 1%, respectively.
While Sterck has taken 30 million tonnes of production out of his 2019 estimates, he has not made any changes to his iron ore equilibrium price estimates or changed Vale’s market perform rating and his target price of US$13 per share.
Vale said in a press release that it was “important to highlight that the Doutor dam has its declaration of stability in force and was inspected on March 14, 2019, by technicians of the National Mining Agency, who verified that the structure does not present any relevant irregularity or any condition that compromises the safety of the dam.”
Timbopeba produces 12.8 million tonnes of iron ore annually.
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