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Mudslides swamp Brazilian homes as BHP, Vale dams rupture

By Andrew WillisDavid Stringer and James Poole, Bloomberg News
Published: November 6, 2015, 10:47am

Dams at a Brazilian iron ore project owned by two of the world’s biggest miners burst on Thursday, flooding a valley in the nation’s southeast, and burying dozens of homes in mudslides. At least 15 people were reportedly killed with many missing.

Samarco Mineracao, a joint venture between BHP Billiton and Vale, said teams were working to help the injured and limit environmental damage in the traditional mining town of Mariana in the state of Minas Gerais. Brazil’s Defense Ministry readied troops to assist, as television footage showed cars, trucks and trees swept away and torrents of muddy water hurtling down a mountainside.

“When day does break, our biggest imperative is to secure the safety of the community and of our workforce,” BHP Chief Executive Officer Andrew Mackenzie told reporters Friday in Melbourne, adding that he couldn’t confirm the number of fatalities or people missing. “It’ll be clearer when we can see what has happened and the extent of the damage.”

Footage on the Globo news website showed extensive mud flows had engulfed dozens of homes in a nearby village and left a car precariously balanced on top of a wall of a ruined house. The website reported that many of the 200 homes in the village had been covered with mud. At least 50 workers were on the dam when it broke, Globo news said, citing a mining union. A local hospital confirmed one death and a mining union reported 15 to 16 fatalities and 45 people missing.

“We cannot at the moment confirm the causes or the extent of the incident or the number of victims,” Samarco Mineracao’s CEO Ricardo Vescovi said in a video posted on the company’s Facebook page, saying dams called Fundao and Santarem had ruptured between the towns of Mariana and Ouro Preto. “Our focus is on assuring people’s safety and protecting the environment.”

BHP shares fell as much as 5 percent to the lowest in a month in London. They traded down 3.6 percent by 8:39 a.m. local time. Rival Rio Tinto Group gained 2.1 percent. Melbourne-based BHP fell 2.5 percent in Sydney trading. Vale declined 1.6 percent in Sao Paulo on Thursday. Vale referred questions on the incident to Samarco.

The wall of mud hit Bento Rodrigues, with about 600 inhabitants, and the number of people affected in the area could rise to 2,000, Globo said, citing estimates from the prefecture. More than 200 rescue workers were searching for victims. The mud flow is eight kilometers (five miles) long and 2.5 meters deep, Globo said, citing military police.

The disaster may support some iron ore prices, though the effect could be less pronounced on benchmark iron ore, which has slumped 32 percent this year as expansions by the biggest suppliers, including Vale and BHP, overwhelm faltering demand in China, the largest consumer. Samarco provides pellets, used in steel output, to about 20 countries, with dominant markets in the United States and Europe, researcher AME Group says.

Any disruption may support the current premium for pellets of about $30 a dry ton, Caue Araujo, iron ore industry director at AME Group in Sydney, said by phone Friday. “Unless there’s a stoppage for a significant period, I can’t see this having an impact” on benchmark prices, he said.

Samarco, which churned out 25 million metric tons of mostly pellets last year, uses water-filled pipelines to transport ore from its mines in the states of Minas Gerais and Espirito Santo to processing plants near its port.

Vale, the world’s biggest iron-ore producer, and BHP, the largest mining company, each own a 50 percent stake in Belo Horizonte-based Samarco. Mining at Samarco’s Germano mine began in 1977, according to BHP filings.

The incident raises the question of why people were living in the area, Saleem Ali, a professor at the University of Queensland’s Center for Social Responsibility in Mining, said by phone Friday. Dams bursting at mines are more likely in places with significant rainfall and landslides, he said.

Dams in the mining industry are “hazards we all have to accept to some degree,” Ali said. “The hazard becomes a risk when you’ve got communities living downstream. That’s what I was surprised by. You had a town downstream of this tailings dam which should never have been there.”

BHP’s Mackenzie said a full investigation would be required to establish the cause of the incident in Brazil, and the company would fully cooperate with local authorities.

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