Hundreds missing as mining dam breaks, echoing 2015 Brazil tragedy

A tailings dam owned by miner Vale SA broke in the state of Minas Gerais on Friday, hitting a local community near the capital and echoing a similar accident that became Brazil’s biggest environmental disaster three years ago.

Sea of mud

Approximately 200 people are missing, a spokesperson for emergency services in Minas Gerais state told Bloomberg, adding that poor mobile phone service in the area is making it difficult to get updates. No casualties have been confirmed. Helicopter footage from local television showed several buildings leveled by a slide of mining waste, and a sea of mud blocking roads.

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Minas Gerais has formed a crisis management group and sent first responders to the affected area, according to a statement. Aircraft are doing flyovers as part of rescue operations, it said, without mentioning any deaths or injuries.

President Jair Bolsonaro intends to visit the disaster zone on Saturday, according to a spokesman. Earlier, the president said he had sent a team of high-ranking officials to the area, including the ministers of environment, and mines and energy. “Our biggest concern at the moment is to attend to possible victims of this serious tragedy,” he posted on his twitter account.

Possible victims include mine employees

In an emailed statement, Vale said there are possible victims among employees who were at an administrative facility hit by the mud. It added there’s no information about the cause of the accident.

Vale’s ADRs fell as much as 14% in New York. Shares of the company weren’t trading in Sao Paulo due to a local holiday. Vale’s bonds due in 2022 fell to the lowest price since 2017.

The failed dam serves the Feijao mine, one of Vale’s smaller operations that produced 7.8 million tons of iron ore in 2017, according to the company.

2015 catastrophe resulted in 19 deaths

In Brazil’s largest-ever environmental catastrophe, another tailings dam collapsed near the municipality of Mariana, also in Minas Gerais state, in November 2015. It spilled the equivalent of 25,000 Olympic swimming pools of toxic mud that destroyed entire towns, contaminated waterways and resulted in 19 deaths. The dam was owned by Samarco, a joint-venture between Vale and BHP Billiton Ltd.

While the images of mud burying houses and cars are reminiscent of the 2015 disaster, the scale should be quite different. The Feijao dam’s capacity is no more than 2 million cubic meters, while the Samarco dam spilled 50 million cubic meters into the surrounding environment, according to a committee that gathers 110 groups advocating for greater mining regulation.

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“The type of waste is similar to Mariana’s, but the volume is significantly lower,” said Katia Visentainer, a spokeswoman for the committee. “Also, the Mariana disaster happened during a raining season, which augmented its impacts. It’s not the case now.”

“At first glance, it appears the dam failure at the company’s Corrego de Feijao (about 7-8 million tons of production) won’t be Samarco 2.0, according to Andrew Cosgrove, BI Senior Analyst at Bloomberg. “We estimate the mine produced about $300-$350 million of Ebitda. The market is saying Vale will be on the hook for over $4 billion after taking into consideration almost $6 billion loss in market cap and a 5x multiple on Ebitda at the mine. That number seems high (for now) given the total cash outlay between both Vale and BHP Billiton for the Samarco disaster has totaled $3.3 billion.”

Greater scrutiny

Samarco has not been able to restart operations for more than three years. The Feijao mine belongs to a bigger system of Vale-operated mines, which may also come under greater scrutiny in the wake of Friday’s spill. The 2015 spill came at a time when Vale and other major iron ore miners sought to increase production and squeeze out competition.

Vale’s reliance on its mines in Minas Gerais has dwindled in recent years as it focuses on its lower-cost, high-grade reserves situated in the Amazon rainforest. The Rio de Janeiro-based company has not even finished ramping up its crown jewel project there, known as S11D, and already has plans to expand the original planned capacity.

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