Shares of BHP Billiton Limited (ASX: BHP) have continued to fall today following the tragedy in Brazil on Friday. The stock is down 3.6% to just $21.89 a share, just 28 cents away from hitting a fresh seven-year low price.
Indeed, BHP announced on Friday that a "serious incident" had occurred at the Samarco Mineracao mine in Brazil which is 50-50 owned by BHP Billiton and Vale. The incident is believed to have killed around 17 people with The Australian reporting that authorities were still searching for up to 28 people still missing.
BHP Billiton has today released further information regarding the tragedy. Indeed, the Samarco operations include a three-tiered tailings dam complex. Within this complex, the Fundao dam failed with the downstream Santarem dam also being affected. The Germano dam, which is the third dam within the complex, is being monitored by Samarco, and there is still no confirmation of the causes of the tailings release.
With CEO Andrew Mackenzie travelling to Brazil this week to gain a better understanding of the incident, the company said, "BHP Billiton's immediate priority is the welfare of the Samarco workforce and the local communities… BHP Billiton will continue to work with Samarco (operator), Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident."
While the event is clearly tragic in terms of the lives lost and the potential damage to the environment, it is also a big deal for BHP Billiton and Vale from a business perspective.
What this means for shareholders
BHP said that the Samarco operations have the capacity to produce 30.5 million tonnes per annum of iron ore pellets while the contribution from Samarco was approximately 3% of BHP's underlying earnings (before interest and tax, or EBIT). BHP will now review its iron ore production guidance for the year.
In addition to that, however, BHP Billiton could also wear the clean-up bill and remediation costs which result from the incident. Based on various images and videos broadcast by the media, those costs could be substantial — some estimates suggest hundreds of millions of dollars — and may or may not be covered by insurance, depending on the determined cause of the incident.
Notably, BHP Billiton's shares have likely also come under pressure today as a result of further falls in the iron ore and oil prices, both of which are expected to fall further in the coming months. Rio Tinto Limited (ASX: RIO) has also fallen 2.6% while energy producer Woodside Petroleum Limited (ASX: WPL) is down 1.9%.
BHP Billiton said that further updates regarding the Brazil disaster will be provided as soon as more information becomes available.
