Leaders of Brazil Mining Giant Vale Step Down as Criminal Inquiry Widens

Leaders of Brazil Mining Giant Vale Step Down as Criminal Inquiry Widens

RIO DE JANEIRO — The top executives at Vale, Brazil’s largest mining company, agreed over the weekend to step aside temporarily at the request of prosecutors who are building a case of criminal negligence following a dam collapse at a Vale mining complex that left hundreds dead in January.

In a court document issued on Friday, federal and state prosecutors urged Vale to suspend its chief executive, Fábio Schvartsman, and eight other top executives, while the probe into the Jan. 23 disaster in the town of Brumadinho in Minas Gerais state continues.

The legal filing, which contends that officials at Vale ignored warning signs and had inadequate safety protocols, made the unusual request that the company bar the top officials from company facilities and force them to cease all business operations.

Vale announced late Saturday night that its board of directors had agreed to heed the suggestion, saying Mr. Schvartsman and the other top officials would step down temporarily.

Prosecutors have said Vale’s relationship with contractors hired to monitor safety standards created a conflict of interest because the outside firms stood to gain by certifying that mining sites were operating safely.

Last September, for instance, Vale cut ties with a safety auditor after it raised flags about the dam. It subsequently got a clean bill of health from a different firm, according to prosecutors.

Prosecutors added that the evidence they have reviewed suggests that as a matter of policy Vale misled government officials about the risks of its dams. This was done, they wrote, to “guarantee economic activities at the company without being exposed to questions” by regulatory and law enforcement officials.

Analysts credit Mr. Schvartsman for ably running the company during Brazil’s recent recession, which was aggravated by declining demand for commodities.

“He was putting that company back on track,” said Paul Gait, a mining analyst with Bernstein Investment Research and Management. “There were question marks about whether the company would even survive the commodity crisis, but he brought it back from the brink and, some would argue, saved the company.”

Mr. Gait said industry analysts had broadly assumed that the company’s chief executive would hold on to his job after he did not resign in the immediate aftermath of the diaster.

“He seemed to have weathered the storm, and the last thing the board or Vale needed was more disruption to the leadership of the firm,” Mr. Gait said.

Moody’s Investor Service last week downgraded its outlook for Vale, citing the money the company will need to spend in response to the disasters and the uncertainty created by the ongoing criminal investigation.

A main concern for Vale is “the magnitude of the potential fines, penalties and compensation the company will have to pay out,” said Carlos De Alba, a basic materials analyst with Morgan Stanley.

Mr. De Alba added that the mining industry has become increasingly attentive to safety issues since the dam burst.

“Companies have been much more forthcoming about their own situation; they want to be more transparent,” he said. “This is going to have a dramatic impact in the industry in terms of how you build and disclose information about tailing dams. Everyone is looking at any potential risk in their own companies.”

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