Two dams at the Sarmarco Mineracao SA iron mine, jointly owned by BHP Billiton Ltd and Vale SA, ruptured on Thursday, triggering a mudslide that engulfed the village of Bento Rodgrigues. The flow was estimated to be eight kilometers long and 2.5 meters deep. The dams held tailings, mining waste, from ore operations. Samarco issued a statement saying the waste is not toxic and contains mostly silica.
According to local media reports up to 15 people were killed and 45 missing in the village of approximately 600 people. Villages downstream of the flow were also being evacuated.
“We cannot at the moment confirm the causes or the extent of the incident or the number of victims,” said Samarco CEO Ricardo Vescovi. “Our focus is on assuring people’s safety and protecting the environment.” The dams, called Fundao and Santarem, were located between the towns of Mariana and Ouro Preto.
Operations have been halted at the mine which has an annual capacity of 30.5 million tonnes and represents about 20-25 percent of the total seaborne market for iron ore pellets. Samarco provides pellets used in steel production to about 20 countries with primary sales in the U.S. and Europe.
Although a break in production is not expected to have much impact on earnings projections, it may support the current premium for pellets or create a short term spike.
Bank of America Merrill Lynch analysts said that “given the relevancy of Samarco’s production to the seaborne Pellet market and the uncertainty about potential production disruptions, quality premiums for all materials could rise in the short term, including pellet, lumps and fines.”
According to BofAML, “Vale’s Brazilian blend premium has recently declined to US$1.5/t from US$3-4/t, pellet premiums remain pressured at close to US$14/t and lump premiums are settling around $5c/dmtu.”
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