Good news for Vale does not improve its prospects

In 2015, a dam was destroyed at one of Vale's Brazilian mines to contain waste from an iron ore mining process. Another Brazilian dam was destroyed earlier this year. Casualties were lost in both cases, but understandably, the Brazilian government is getting tougher with the company after the second crash. However, following a widespread closure, Vale was allowed to increase production at a key mine in the country. But if you take a step back and look at the big picture, most investors should be wary of Vale stock despite this good news. That's why:

After a joint venture between Vale Samarco and the BHP Group destroyed a dam to contain the mine's waste in 2015, the Brazilian government stepped in and hit the couple with heavy fines. However, when a similar disaster struck the company's Brumadinho mine earlier this year, the company and the government were faced with a bigger question: were there broader concerns about the safety of Vale's facilities? When it emerged that Vale may have been aware of the risks at Brumadinho, the best course of action was clear — with caution.

Thus, Brazil has suspended work at a number of Valais mines pending a more thorough site analysis. (Other miners have voluntarily followed suit to ensure the safety of those living near mining assets.) Vale announced that the forced shutdown would cut iron ore production by about 20% in 2019. This is a huge drop, representing a reduction of about 75 million tonnes of iron ore. Iron ore prices rose on the news. The company also decided to part ways with some of its top executives, including the CEO, as it hoped to hit the reset button.

The company has now announced that it has been allowed to resume some of its operations. The move will ultimately mean the return of some 30 million metric tons of iron ore to Vale's operations. Investors reacted to this by lowering iron ore prices. While the change is noticeable to the industry and is likely to benefit Vale's business, it does not address the common challenges the miner faces today.

The first real sign that the restart isn't as rewarding as it might seem is the simple fact that Vale hasn't increased its production numbers over the year. This supports the downgraded range he announced following government-imposed closures. It is possible that the new leadership is simply taking a conservative stance, but in reality it must proceed with caution in the light of the circumstances.

Two similar mine disasters in such a short period of time indicate big problems in the company. Posco