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Five years after Mariana, Samarco strikes back

. Dec 17, 2020
Samarco disaster The 2015 Samarco disaster left long-lasting effects in the Rio Doce. Photo: Felipe Werneck/Ascom/Ibama

Five years ago, the city of Mariana in the southeastern state of Minas Gerais was the stage of one of the worst environmental disasters ever recorded in Brazil. After an iron ore tailings dam collapsed in the town — some 65 kilometers from state capital Belo Horizonte — the equivalent of 25,000 Olympic swimming pools of toxic sludge was spilled, destroying entire towns and resulting in 19 deaths. It also devastated the Rio Doce, one of the region’s most important waterways. Thousands of animals were killed and experts at the time reckoned that it would take decades to reverse the catastrophic damage caused.

The tragedy was the result of a series of mistakes and negligence by Samarco, the mining company which owned the dam, as well as Brazilian public institutions that failed to enforce the country’s already-lax environmental legislation.

</p> <p>As punishment for its part in the disaster, Samarco had its operations suspended — a sanction which has now expired. The company will now resume its activities at the same complex where the 2015 disaster took place, as well as in an iron ore pellet plant in Anchieta — a 29,000-people town in the state of Espírito Santo, which was also affected by the mining catastrophe.</p> <p>Last week, Mariana Mayor Duarte Júnior <a href="https://www.facebook.com/duartejrdu/">rejoiced</a> with the news, saying that Samarco is important for &#8220;job creation in the region,&#8221; adding that the company&#8217;s return will &#8220;reflect positively for thousands of families,&#8221; as opposed to being a grim reminder of the tragedy.</p> <p>After initially denying the reports, Samarco said it will indeed resume activities at 26-percent capacity, generating around 8 million tons of iron ore per year and&nbsp;reaching full capacity within nine years. It also claims to have altered its processes to &#8220;make it more sustainable.&#8221;</p> <h2>Reparation efforts not up to scratch</h2> <p>Created in 2016 by mining firms <a href="http://www.vale.com/brasil/EN/Pages/default.aspx">Vale</a> and <a href="https://www.bhp.com/">BHP</a> — Samarco&#8217;s parent companies — the Renova Foundation was put together to manage negotiations and reparations procedures in the wake of the Mariana disaster. However, the organization has been mired in controversy, accused by victims and their families of favoring the interests of mining companies, setting up a series of barriers blocking assistance to local residents affected by the tragedy.</p> <p>In a case filed in October, federal prosecutors and the prosecution service of Minas Gerais stated that Samarco&#8217;s parent companies did not fulfil agreements to hire technical consultants to assist families affected by the Mariana disaster. As a result they request the companies be liable for a BRL 155 billion (USD 30.6 billion) fine.</p> <p>In its defense, the Renova Foundation claimed that BRL 10 billion have been spent on recovery actions and that the organization is committed to repairing the damages caused by the tragedy.</p> <p>&#8220;The resettlements in Bento Rodrigues and Paracatu de Baixo have had their first houses finalized, roads paved (&#8230;) streets illuminated and infrastructure works well on their way to completion. Construction was adapted to the Covid-19 situation and around 470 families have an active participation in the process,&#8221; said the foundation.</p> <p>It also claims that the water of the Rio Doce is safe for consumption once more, and 40,000 hectares of Atlantic Forest will be reforested in the river basin.</p> <h2>Samarco: not good for PR</h2> <p>From a revenue perspective, Samarco resuming its operations could be good news for both Vale and BHP. However, when observing investor behavior, the return of Samarco could cause <a href="https://brazilian.report/business/2019/02/18/effects-brazil-vale-mining-disaster/">image problems</a> for the two parent companies, particularly at a time when ESG (Environment, Social, Governance) principles hold utmost importance in the market.</p> <p>The Mariana disaster and the <a href="https://brazilian.report/business/2020/03/10/mariana-brumadinho-mining-remains-unsafe-brazil/">subsequent dam failure in the nearby town of Brumadinho</a> four years later — also involving Vale — served as a trigger to boost the ESG agenda in Brazil. Major fund managers JGP and Constellation believe that the two tragedies served as watershed moments for the Brazilian financial market.</p> <p>JGP sold two-thirds of the stake it held in Vale, and in a letter to investors it explained that it had suffered negative repercussions due to its equity position in Brazil&#8217;s biggest mining firm.</p> <p>In the same letter, JGP cites research carried out by Natixis Investment Managers, in which 70 percent of institutional investors said they only adhered to codes of ethics because of &#8220;concerns about image and reputation.&#8221;</p> <p>The fund manager issues a mea culpa, saying it &#8220;empirically observed&#8221; two main errors that negatively impacted the returns of its funds over time: investment in problematic but &#8220;cheap&#8221; companies in the hope of speedy returns, and low exposure to high-quality companies that have &#8220;always been expensive.&#8221;</p> <p>In order to spark confidence among investors, Vale <a href="https://brazilian.report/society/2019/01/31/vale-dangerous-dams/">set aside BRL 18.6 billion</a> to clean and restore the environment and provide support to the families of the 270 victims of the 2019 Brumadinho tragedy. So far, the company has spent BRL 10 billion of this total, and its efforts to address ESG issues persuaded ratings agency Moody&#8217;s to reinstate the company&#8217;s investment grade in October.</p> <p>JGP and other Brazilian funds say that the reduced value of Vale reflects investors&#8217; doubts about whether the company can fulfill ESG targets without seeing a drop-off in production. The return of Samarco, meanwhile, does nothing to assuage these concerns.

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Renato Alves

Renato Alves is a Brazilian journalist who has worked for Correio Braziliense and Crusoé.

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