RIO DE JANEIRO—Brazilian mining giant Vale SA was dealt a pair of blows this week, after a judge ordered it to suspend iron-ore shipments from its second-busiest port, and ratings firm Moody's threatened to downgrade the company's debt to junk status.

Federal judge Marcus Vinicius Costa ordered Vale to suspend activities at the port of Tubarã o in southeastern Brazil starting on Thursday because of alleged pollution. Police accused Vale of spilling iron-ore dust into the sea from conveyor belts at a pier from which loads ships.

"For years, society has accustomed itself to the 'black dust' and non-existent bathing conditions in the sea in Vitó ria," Judge Costa wrote, referring to the nearby industrial city. He ordered Vale to suspend operations until it had implemented "effective measures" to prevent emissions.

Vale criticized Judge Costa's decision and said it has equipped the Tubarã o complex with "the latest in environmental-control technology." The company said it was adopting "all applicable legal measures to guarantee the reestablishment of its activities at the port of Tubarã o."

Separately, Moody's Investors Service on Friday put Vale's debt on review for possible downgrade, citing slack demand for prices of base metals, iron ore and other commodities because of slowing growth in China. Moody's currently rates Vale at Baa3, the lowest of investment grades.

The world's top producer of iron ore and nickel, Vale is already struggling with rock-bottom commodity prices and fallout from a Brazilian dam failure that ranks among the mining industry's worst disasters.

The company's notes due 2022 have traded as low as 67 cents on the dollar in recent days, while its preferred shares listed in Brazil have fallen in price by one-third since the beginning of the year, more than any other major mining company.

In what analysts viewed as a sign of growing financial strain, Vale said on Jan. 12 that it would draw $3 billion from its revolving credit lines to "increase liquidity and bridge potential cash flow needs."

The Tubarã o port is a key component of Vale's infrastructure for exporting iron ore from Brazil. In the first nine months of 2015, the port shipped 82.5 million tons, or about one-third of Vale's total production.

Benchmark prices for iron-ore were mixed following Friday's Vale news, suggesting traders are betting that Judge Costa's decision will be overturned on appeal before it affects the market. Vale's shares recently traded 1.75% higher at 6.98 Brazilian reais.

Citing a police investigation last year, Judge Costa cited a "large plume of iron ore" in the sea near Vale's pier as his motive for suspending the company's operations at the port. He also referred to the Nov. 5 dam break at Samarco Mineraç ã o SA, a joint venture between Vale and BHP Billiton Ltd., as an example of "giants of the sector causing disasters that are proportional to their size."

Judge Vinicius Costa also ordered local unit of European steelmaker ArcelorMittal SA to suspend activities at the port of Tubarã o for alleged polluting of the air and water with coal ash.

"Measures of this nature will certainly affect more than ArcelorMittal Brasil and Vale, bringing legal uncertainty to the overall business environment that will certainly diminish the state's competitiveness in attracting new investment," Vale said.

 

(END) Dow Jones Newswires

January 22, 2016 12:25 ET (17:25 GMT)

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