VALE Vale SA

By Paul Kiernan 

RIO DE JANEIRO -- Brazilian mining giant Vale SA has slashed spending on waste storage even after a catastrophic dam failure at its Samarco joint venture last November killed 19 people and triggered tens of billions of dollars in lawsuits.

Vale, the world's largest producer of iron ore and nickel, reduced maintenance capital expenditures on waste dumps and tailings dams by 51% in the first nine months of 2016 from the year-ago period to $86.7 million, according to its financial statements. That followed similarly large cuts in 2014 and 2015 as Vale doubled down on belt-tightening measures in a bid to shore up cash reserves and pay down debt amid the commodity downturn.

The company didn't immediately respond to requests for comment on the spending cuts, which were substantial even after accounting for a weaker Brazilian currency.

Inadequate maintenance of mining waste can be disastrous. The collapse of Samarco's Fundão tailings dam in southeast Brazil released at least 32 million cubic meters of mine detritus -- enough to fill the Dallas Cowboys' AT&T Stadium 11 times -- which destroyed villages and polluted more than 400 miles of rivers before spewing into the Atlantic Ocean.

Vale and joint-venture partner BHP Billiton Ltd. are defendants alongside Samarco in a nearly $50 billion environmental lawsuit filed by Brazilian prosecutors as a result of the damage. Federal prosecutors also charged 21 officials from the three companies with homicide last week, alleging that they repeatedly put economics ahead of safety by continuing to deposit waste into Fundão after it developed chronic structural problems as far back as 2009.

Citing internal company documents, prosecutors said Samarco reduced by 29% the budget for its division responsible for dam management between 2012 and 2015, a period in which mine output -- and tailings -- rose.

"A severe regime of continuous reduction in spending on dam safety was discovered," federal prosecutors wrote in the 272-page charge sheet filed last week. "The search for cost cuts was incessant."

Vale's output has also risen steadily in recent years. The company expects to produce at least 340 million metric tons of iron ore this year, up from 300 million tons in 2013, when it budgeted a whopping $809 million for tailings dams and waste dumps. Production of copper and nickel, two other metals that generate substantial volumes of waste, is set to rise 28% and 25%, respectively, from 2013 levels.

Some of Vale's savings on tailings disposal likely came from an agreement with Samarco whereby it was allowed to deposit so-called "slimes" -- or fine-grained mine waste -- from its nearby Alegria iron-ore mine into Fundão. Slimes are considered a particularly risky form of tailings because they drain poorly and are less stable than a coarser type of waste known as "sands," engineers say.

Vale accounted for 27% of the volume of slimes in Fundão. Prosecutors say this likely accelerated the dam's collapse, which an official review panel partly attributed to the fact that a section of the dam's embankment rested directly on top previously deposited slimes.

The dam's original design called for sands and slimes to be strictly separated in the dam.

"Slimes from Vale had a large influence on the rising level of the reservoir," the prosecutors said. "Without its contribution...the level of the slimes reservoir wouldn't have surpassed the level of the sands reservoir, causing the mud to advance over sandy tailings."

Vale and BHP Billiton say they weren't responsible for the Fundão accident because Samarco was independently operated. Samarco has said it didn't know the dam was at imminent risk of failure. The three companies have committed to remediating the damage.

Both BHP Billiton and Vale have had previous spills. BHP Billiton withdrew from Papua New Guinea in 2002 after finding that waste from its Ok Tedi copper mine, which was being dumped into a local river for lack of a cost-effective alternative, had caused widespread environmental damage. BHP Billiton Chief Executive Andrew Mackenzie said last year that his firm helped clean up the damage from Ok Tedi's tailings by creating a sustainable development fund when it left.

In 2009, Vale's Alunorte alumina refinery in the Brazilian Amazon leaked a toxic waste product known as red mud into a local river.

Alunorte attributed the incident to a "1,000-year rain." Vale sold the operation, which is the largest alumina refinery in the world, to Norsk Hydro ASA in 2011.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

October 28, 2016 11:52 ET (15:52 GMT)

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