BHP, Vale CEOs Committed to Restoring Brazil Iron-Ore Mine

  • Burst dams killed at least six; 21 people are still missing
  • Samarco bonds are worst-performing in emerging markets

BHP Billiton Ltd. and Vale SA aren’t giving up on their stalled iron-ore joint venture in Brazil after key executives of the two miners toured an area devastated by mudslides caused by the rupture of tailings dams.

Melbourne-based BHP, the world’s biggest mining company, and partner Vale will assist the venture and Brazilian authorities with rescue efforts, aid to victims and making the area safe again, Chief Executive Officer Andrew Mackenzie told reporters Wednesday. Rio de Janeiro-based Vale and BHP have health, safety, environment and technical experts on site.

“Don’t doubt our commitment in the longer term, if the permissions are there, to restore this business to health,” Mackenzie said at a press conference, a video of which was posted on the mining venture’s Facebook page.

Two dams at Samarco Mineracao SA’s iron-ore operation burst on Nov. 5, unleashing a torrent of muddy water that killed at least six people in Minas Gerais state. Samarco said 637 people have been placed in hotels and shelters as the army, police and firefighters help search for 21 workers and residents still missing. The site is now indefinitely closed and Deutsche Bank AG said cleanup costs may exceed $1 billion.

“Our thinking is that Samarco will go on, will move forward; that we get to the causes and can understand everything that happened in due time,” Vale CEO Murilo Ferreira said at the press conference. Vale has a “long-term view on Samarco, and we’re very proud of what the company has delivered to shareholders over past years,” he said. Ferreira plans a weekly conference call with Mackenzie, he said.

Shares Tumble

BHP slumped 2.8 percent in Sydney trading to A$20.37 at 10:46 a.m local time Thursday, extending its decline in the past week to about 12 percent. Vale fell 0.2 percent in Wednesday trading in Sao Paulo, taking its drop to about 10 percent.

Investors are concerned a temporary suspension of the joint-venture’s license to operate in the area may become permanent. The company’s $1 billion of bonds due 2022 have plummeted to 59 cents on the dollar from 83 cents before the disaster, contributing to the worst performance in the Bloomberg USD Emerging Market Corporate Bond Index.

Notes dropped to lowest level in more than three years

As the search for victims continues, President Dilma Rousseff may visit the towns of Mariana and Colatina on Thursday, Folha reported. Sludge from the spill flowing into rivers and other water supplies is “our greatest concern,” Minas Gerais Governor Fernando Pimentel told reporters Wednesday.

Police and the public ministry are investigating causes of the disaster and whether emergency responses were adequate, Pimentel said. He called for a review of Minas Gerais’s “old-fashioned” environmental law.

Breach Warning

A 2013 report by the Minas Gerais University-linked Instituto Pristino, commissioned by the state environment ministry, warned about the risk of dams bursting and recommended putting in place a plan to monitor the structural integrity more closely and frequently.

“As you will appreciate, an issue like this will be relevant to any investigations that follow this tragic incident,” BHP said in an e-mailed response to questions. “In those circumstances we need to let those investigations take their course. So it’s just not appropriate to comment any further.”

Samarco said it’s too early to say what caused the accident and that the dams were deemed to be in compliance with safety standards in a July inspection.

Samarco’s insurance coverage totaled more than $1 billion as of mid-2014. A large-scale disaster such as the one it experienced last week is likely to lead to lawsuits and other actions that may take years to resolve, according to Bloomberg Intelligence analyst Kenneth Hoffman. Its structure as a stand-alone company may shield joint owners BHP and Vale from deep losses related to the dam collapse, Hoffman said.

Environmental officials in Minas Gerais said it was the worst catastrophe of its kind to hit the state as they temporarily suspended Samarco’s license to operate. The venture is facing fines of as much as 100 million reais ($26 million) from environmental agency Ibama, Valor Economico reported Thursday.

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