Shares of BHP Billiton Limited (ASX: BHP) have been crushed today amid reports that one of its dams in Brazil has burst, tragically killing as many as 16 people (according to some early reports).
In a brief update from the miner, it said it "understands that a serious incident has occurred at the Samarco Mineracao S.A's iron ore operation in Minas Gerais, Brazil." BHP owns 50% of that entity, with Brazil's Vale holding the remaining 50%, where Samarco operates the Germano iron ore mine.
It added that "BHP Billiton is concerned for the safety of employees and the local community… We are in the process of obtaining more details from Samarco Mineracao S.A."
Although the details from the miner were brief, various media reports are saying that a dam holding back water waste from the Germano mine had burst. It is not yet clear how or why the dam burst, nor is it clear how severe the damage is at this stage.
However, The Age reported that 600 people were being evacuated to higher ground. Given that the dam was holding 'tailings', which is a mining waste product of metal filings, and potentially chemicals as well, it is also feared that the disaster could contaminate a nearby river. Some of the damage can be seen in the image below:
Of course, the impact on the Brazilian community and its people cannot be understated, nor can the impact the disaster could have on the environment. From a pure business standpoint, however, it could also become a financial disaster for BHP and Vale as a result of the damage caused and the clean-up bill and remediation costs that could follow.
Given the cause of the incident is also unclear, it remains uncertain whether the miners would receive any insurance coverage for the disaster.
Indeed, this tragedy puts BHP Billiton under even greater financial pressure. Already it is battling against falling commodity prices, which acted as an enormous drag on earnings in the 2015 financial year, while it is also desperate to maintain its progressive dividend policy for shareholders.
As highlighted by The Australian, the Samarco mine was expected to produce 27 million tonnes of iron ore pellets and concentrate in 2015.
The shares hit a low of $22.02 earlier in the session, down 5.4% and wiping billions of dollars from the miner's market capitalisation. Further information will be provided by BHP Billiton when it is in a better position to do so.
