Shares in BHP Billiton (ASX:BHP) fell sharply on Sydney Monday, touching a seven-year low, as the mining giant took an additional hit from the tailings dam disaster at the Samarco iron ore mine in Brazil, which co-owns with Vale (NYSE:VALE).
The company dropped 5.64% on the ASX closing at $21.42, its lowest since the midst of the global financial crisis, as it announced it might cut its iron ore output in the wake of the disaster.
BHP added it still has not confirmed what caused the dams to burst, unleashing a wall of sludge that killed at least three people and left a further 28 people missing.
Some of the victims are believed to be mine employees, with at least one of BHP employees confirmed to be among the dead. Others are from the small town of Bento Rodrigues, downstream from the dam, which was inundated by water and mud.
“Words cannot describe the impact of this tragedy on the employees and contractors of Samarco, their families and the community,” BHP Chairman Jac Nasser said in a statement.
While the causes of the dam failure are not yet known, its effect on the two companies that equally own the mine in the state of Minas Gerais has been profound, and is likely to worsen as investigations get underway.
Speaking to the Australian Financial Review, Deutsche analyst Paul Young said the “catastrophic tailings dam failure” is likely to keep the mine shut until financial 2019, and clean-up costs could exceed US$1 billion, with each firm forking out about $500 million each.
“This accident will add further pressure to BHP’s cash flow, growth and safeguarding of the progressive dividend,” he said.
The Samarco operations have the capacity to produce 30.5 million tonnes per annum of iron ore pellets and to process 32 Mtpa of concentrate, BHP said. In the 2015 financial year, the miner’s share of production was 14.5 Mt and the contribution from Samarco was approximately 3% of the group’s underlying EBIT, it added.
Chief executive Andrew Mackenzie and the head of the iron ore division, Jimmy Wilson, are scheduled to arrive in Brazil later today to see first-hand the impact of the collapse of the dam disaster and the recovery operation.