Fortescue share price shines as rivals risk $38 billion hit

This iron ore miner might be catching a boost as investors come to terms with a disaster's financial impact.

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The Fortescue Ltd (ASX: FMG) share price is lifting today despite no news of its own.

Heading into lunch, shares in the Andrew 'Twiggy' Forrest-led iron ore miner are up 1.6% to $26.08 apiece. The ascension puts the Western Australia mining giant on track to be the best-performing iron ore major on Tuesday, outrunning BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).

Part of the increased positivity toward Twiggy's pride and joy today might stem from the financial cost of a lingering disaster for its competitors. A tragedy that claimed the lives of 19 people in 2015 is set to take a financial toll on two iron ore heavyweights.

$38 billion dent could boost Fortescue share price

In 2015, the Somarco dam — operated by a joint venture between BHP Brazil and Vale — created large-scale devastation to the surrounding area. The Brazilian Government and affected families have been negotiating compensation with the miners.

The two companies involved in the joint venture had been ordered to pay A$14.2 billion earlier this year. Furthermore, the payment would need to be adjusted for inflation, adding interest on the nine years since the disaster occurred.

BHP has cleared the air on what it now expects the total damages to be after much media speculation.

As per the release, a non-binding, indicative settlement proposal amounting to A$37.9 billion. The payment stipulates Samarco — the joint venture — as the primary obligor, responsible for 100% of the tabled amount. If Samarco can't foot the bill entirely, BHP Brazil and Vale will split the remainder 50:50.

Importantly, this settlement has not yet been agreed upon, with negotiations ongoing.

By now, you're probably thinking: What does this have to do with the Fortescue share price?

Well, one could assume it has a lot to do with money. If two of the biggest iron ore miners in the world have billions of dollars tied up in a settlement, less capital is available for exploration and developing new projects.

In short, it might give Fortescue a leg-up in shoring up new supply.

Similarly, some investors wanting exposure to the iron ore sector might be jumping ship. There's always the risk of dividends taking a hit when other expenses pop up. That's not a worry that comes with the Fortescue share price, for now at least.

Not settled yet

While a $38 billion offer has been made, there's still a chance it could get worse. Reports suggest the Brazilian Government has previously demanded more than $60 billion be paid.

Where the final amount ends up landing is anyone's guess. However, BHP notes the amount it's willing to offer includes payments already made. These include US$7.7 billion worth of remediation and compensation provided to date.

Another point. At 12% of BHP's market capitalisation, the remaining payments will not be made in one go. Instead, most of it would be made over a decade.

Nevertheless, the Fortescue share price is pushing ahead on the possibility of an advantage.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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