Dam Breach at Brumadinho: Devastation from Minas Gerais to the World Iron Ore Market

Dam Breach at Brumadinho: Devastation from Minas Gerais to the World Iron Ore Market

Executive Summary

  • From steel manufacturing to biomedical industries, iron ore remains a highly demanded raw commodity, and Brazil remains a notable supplier to the world market.
  • Vale is a flagship in Brazil’s iron ore market. It bases its Brazilian operations in Carajas in Para, and throughout the mineral-rich state of Minas Gerais (MG). Both states contributed 83.4% to Brazil’s annual iron ore supply to the world market in 2017. 
  • The Brumadinho, MG dam breach in January 2019 gained notoriety not only for its devastation with 224 dead and 69 missing as of April 9, but also for its impacts to iron ore production. Judicially and administratively-ordered production halts, as well as a public impetus to halt mining activities in light of dangers to the environment, have caused interruption to iron ore supplies.
  • The company has faced criticism since 2012 for poor environmental protection practices, a reputation which was worsened with the Mariana disaster of 2015; it has also been accused of ignoring warning calls leading up to the 2019 breach.
  • As Vale begins the long process of recovering its production capacity, those relying on the iron ore industry and its suppliers must develop contingency plans and proactively monitor developments in the industry to manage the fallout from production halts. 


The Dam Breach in Brumadinho

On January 25, 2019, Dam I at the Corrego do Feijao mining complex, operated by the multinational mining corporation Vale S.A., in Brumadinho, Minas Gerais was breached shortly after noon, releasing a mudslide that reached the Paraopeba River, Belo Horizonte’s primary aquifer, by 3:50 PM (local time) that day. As of April 9, the casualty count has increased to 224 dead and 69 missing, demonstrating the devastating effect the breach had on the local population. Two days after this occurrence, 24,000 residents around Brumadinho were evacuated due to the risk of a second dam within the complex breaching. 

The impact on the surrounding environment has made it an additional, and sizeable, incident in the public eye. Vale S.A. has faced criticism since 2012 for poor environmental protection practices in the pursuit of its mining activities, a reputation which was worsened with the Mariana disaster of 2015, where an iron ore tailings dam suffered a failure and resulted in the deaths of 19 people. It has also been accused of ignoring warning calls related to its upstream dams leading up to the 2019 breach.

Brazil, Vale and the Iron Ore Industry Today

Iron ore is considered the most commonly used metal worldwide. As such, this makes the mining and shipping of iron ore a valuable economic activity. Vale S.A., a Brazilian multinational corporation engaged in metals and mining activities, is a notable player in this market. Similarly, Brazil is the world’s 2nd largest exporter of iron ore and, thanks to its domestic manufacturing capability, is also the 15th largest exporter of steel, an alloy of mostly iron and carbon. 

Iron ore is best known in manufacturing circles as the core component of this critical alloy, employed in shipbuilding, railroad manufacture, construction, tools, and thousands of end-consumer goods. Beyond the more common applications of the element, there are several biomedical utilities to iron as well once processed from ore. Current applications include MRI contrast enhancement and hyperthermia medication delivery.

Vale alone is the single-largest contributor to Brazilian exports of iron ore, producing 83.4% of Brazil’s 440 million metric ton of annual supply in 2017. Such figures place Vale in a league of its own in Brazil, and in international competition with Australia’s BHP Billiton and Rio Tinto. The three combined are the world’s largest producers of iron ore. 

Immediate Consequences

The reverberations from the dam breach

Logistics impact on roads, rail and port

There were two notable logistics impacts as a result of the dam breach. Physically, several bridges surrounding the dam, as well as along the Paraopeba River, were washed out, impeding road access to the disaster site. Additionally, the environmental impacts of Vale drew attention from civil society actors, and members of the Landless Workers Movement (Movimento dos Trabalhadores Sem Teto) conducted a sit-in demonstration along the company’s proprietary railroad in Brumadinho proper, impeding the circulation of freight trains along the country’s dual-use line to the coast, where it exports its products.

Moreover, the dam breach compromised Vale’s ability to get its product to market. From February 7 to February 14, Vale’s port in the Espirito Santo port city of Vitoria was shut down due to a dispute with the municipal authorities over waste water discharge into the city’s bay, impacting Vale’s ability to ship from points along the company’s proprietary railroad into the interior of Minas Gerais, where the majority of its mines are located. By February 14, the company was able to come to an agreement with Vitoria authorities on reopening the port by agreeing to a schedule to pay the settled BRL 35 million (EUR 8.4 million; USD 9.15 million) fine.

Force majeure declared due to production halt

More importantly, however, a Minas Gerais state court issued an order for Vale to halt production. As a result, Vale declared force majeure on its pellet contracts, affecting the production of up to 70 million tons per year, comprising 14% of Brazilian annual production. This development is expected to complicate steel production for those with low-emission and low-cost operations designed for small and/or domestic markets.

Outside of the southeast regions, monitoring Brumadinho with the intent of determining Vale’s ability to meet production targets may also draw concerns from developments in Carajas, PA, where Vale’s second largest mine and dam are located. Concerns revolve around not only the ability of Carajas to meet this need, but also whether it can do so without similar environmental risks. This region, like Minas Gerais, also has a history of production risks that can potentially impact the operational capacity of mining companies. One such case is the Norwegian Hydro Alunorte industrial waste leak of February 2018 and the subsequent force majeure declaration on March 2018. While Alunorte has progressively rebuilt its production capacity impeded by shutdowns stemming from these incidents, the events of 2018 continue to impact aluminum mining in northern Brazil.

Further court orders and regulatory measures

Perhaps the greater impediment to production as a result of the Brumadinho dam breach is court orders, and the prospect of more to come. On January 26, shortly after the initial breach, a Minas Gerais state judge ordered the freezing of BRL 6 billion (EUR 1.44 billion; USD 1.62 billion) worth of Vale’s assets.

Moreover, Vale has announced the shuttering of 10 similar upstream dams in Brazil over the course of 3 years. As the Brumadinho dam employed the upstream model, the stated objective of this decommissioning was to reduce risks at those dams. This decision is noteworthy because of a March 20 subpoena filing by Minas Gerais state prosecutors alleging Vale’s resistance to federal safety auditing efforts prior to the Brumadinho breach. Beyond market standing, the incident also bore risks for Vale’sindustrial cyber security, as anonymous hackers successfully breached Vale to release documents related to the company’s handling of workplace accidents in alleged retaliation for the Brumadinho breach.

Long Term Impact

Global production capacity by Vale and its competitors

In addition to the halt at Vale, a competitor was also ordered to halt its operations in the greater Belo Horizonte region. The Ibirite mine was ordered to halt production on January 31 due to geographical risks in the vicinity of Brumadinho. While Vale commands the majority of the market, competitors include Samarco, Anglo American, CSN, MMX, and Usiminas, and production halts (judicially, administratively ordered, or otherwise) will have reverberating market effects, both nationally and internationally.

On February 18, the National Mining Agency (Agencia Nacional de Mineração) issued an administrative resolution that called for the decommissioning of upstream mines like the one at Brumadinho to proceed until August 15, 2021. According to some sources, this is predicted to increase the per-unit price of iron ore by 16.6%. As for the global iron ore market, the dam breach, fines, and administrative fallouts are anticipated to result in price hikes throughout 2019, and may continue through 2020 and 2021. This is a preview into the potential reverberation across global markets that this incident is anticipated to bring.

Effect on iron ore prices

Worldwide, industry actors are starting to describe a “Vale effect” on global iron ore markets, out of concern that industry actors, including competitors, will be unable to make up Vale’s difference in annual production. Such a difference for Vale amounts to a loss of BRL 4.4 billion (USD 1.2 billion). Some have evaluated two possible directions that may be taken in the Brazilian market:

  1. In order to re-stimulate production, Brazilian iron ore producers will attempt to restore mine operability as quickly as possible.
  2. To increase prices again, based on the Mariana precedent, Brazilian iron ore producers will acquiesce to mine shutdowns until selling prices are acceptable for attaining profits.

The 10-dam decommissioning by Vale is anticipated to impact 10% of the projected 400 million tons of annual production in 2019, with the 5,000 Vale employees at the affected dam-mine complexes to be presumably redistributed among company operations elsewhere.

Higher administrative scrutiny for other Vale sites

The fallout from the Brumadinho breach has demonstrated Vale’s lack of consideration for the environmental impacts of its mining activities, worsened by recent reports alleging that Vale colluded with auditors to prove that the dam was safe and dismissed inspectors who disputed this. Reports have also emerged that Vale executives rejected efforts by Brazilian authorities to audit the dam in Brumadinho months before it collapsed, bringing to light the lack of sincerity demonstrated by the corporation when it comes to safety measures. This will adversely challenge the world iron ore market to the point where it will take several years to make up for the devastation and capacity lost.


The risk in mining operations is apparent from the incidents that have been reported in the country in recent years. The Samarca Mariana tailings dam disaster of November 5, 2015 is an example of this, where a dam breach in Minas Gerais demonstrated the devastation possible with a risky operation. Resulting in 19 fatalities, a BRL 4.4 billion (EUR 1.04 billion; USD 1.55 billion) fine, a production suspension, as well as water shortages and hydroelectric power suspensions, the disaster was the most devastating of its time. Perhaps the most critical effect from a supply chain perspective, however, was the production delay. Due to a combination of the overall physical destruction, reconstruction, activity suspension for the holding company, and the regulatory fine, it took over 2 years for the facility to return to full pre-disaster production capacity.

Mariana was one of several Vale facilities throughout the state. Another similar tailings, or upstream dam, contributing to Vale’s overall production in Minas Gerais was the one at Brumadinho in the Corrego do Feijao iron ore mine complex. The mine saw a net production growth of 8% from 2017 to 2018, comprising 33% of the complex’s production, and 2% of Brazil’s overall iron ore production. All of the above highlights the considerable duty, as well as burden, that Vale faces for meeting production for not just the Brazilian market, but as well for the world market, and a quantity at considerable risk in the event of an adverse occurrence.

Up to the present day, Mariana had been an outlier in mine incidents in Minas Gerais, and indeed in Brazil. There have been regulatory occurrences, such as a shutdown of the Onca Puma nickel mine in Para due to environmental compliance issues in December 2018, a mine train derailment in Vila Americana in October 2018, and miner strikes in Congonhas in September 2018. These, however, resulted in minimal damage compared to events to come.

Vale’s ability to recover from this and restore production to as close as pre-disaster levels as possible will depend on being able to make up the difference with increased production at other facilities. Based on production averages of 2017-18, this would depend on its ability to produce 8.15 million tons or more, to be distributed among its other Brazilian mines and possibly its assets abroad.

In summation, the legal ramifications are anticipated to bring exorbitant costs to Vale following the Brumadinho breach. These have the potential to trickle down to production decisions. Despite taking a hit with administrative prohibitions and the incapacitation of Brumadinho, Vale is likely to bounce back thanks to its size and market dominance. Infrastructural challenges to production due to post- Brumadinho recovery are anticipated to last through at least 2021, and while Vale has assets abroad over which production may be distributed, its ability to match that at Brumadinho and other judicially halted mines for a similar period is unknown for now. While time will tell whether Brumadinho was preventable, more transparency would have been able to provide some basis for mitigation of the production challenges to come.


There are 84 mines similar to Brumadinho in Brazil. It is therefore imperative that those interfacing with the iron ore trade understand how any disruption to the operations at these mines may impact their own supply chains.

Immediate actions to consider

  • Examine safety assessments conducted at mines: A significant aspect of the Brumadinho incident is the recent revelation of Vale’s obstruction of Brazilian federal mining inspections. Customers interested in the iron ore industry are advised to examine safety assessments conducted upstream at raw material suppliers, and ensure that proper evaluations have been conducted and that certifications are in place by independent bodies.
  • Review and ensure that suppliers have necessary stocks in place: Interruptions to the flow of iron ore can impede production activities up downstream. Therefore, it is essential that supply chain managers be mindful of the reverberating nature of these disruptions, and review stock levels where applicable for suppliers upstream.

Long-term recommendations

  • Create visibility of raw material suppliers exposed to operational risks: Knowing and understanding the exposure to operational risks by key raw material suppliers is the first step in assessing mitigation measures. Customers are advised to create visibility, through mapping tools, of where their raw materials are sourced from, and understand what operational challenges must be taken into consideration during sourcing decisions.
  • Develop a robust supplier risk management process: Customers are advised to develop a robust supplier risk management process to help assess supply chain partners upstream, and create contingency plans in case of supply disruptions. This can be done through the use of surveys to gather information on safety and environmental standards, and apply this information to formulate contingency plans on managing supplier failures.
  • Assess supplier sustainability: Evaluate the environmental risks that raw material suppliers assume and understand sustainability measures taken by the private sector or governments in its geographic location to counter these risks. These can assist in strategic planning and help assess production & reputational risks brought on by risky suppliers.

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