×

No date for Samarco reopen after deadly mudflow

Christophe Simon | AFP | Getty Images

BHP Billiton said it said was reviewing its iron ore production guidance for fiscal 2016, following a deadly mudflow and flooding disaster at a mine in Brazil, which analysts described as a severe blow for the world's biggest miner.

At least two people died and as many as 28 are missing after a dam ruptured at the Samarco Mineração mine and unleashed floods and mud that swept as far as 100 km (60 miles) from the mine.

Samarco, a joint venture between BHP and the world's biggest iron ore miner, Vale, said it had set no date to restart the mine, which produced 29 million tonnes of iron ore last year.

Read MoreBHP maintains FY guidance as Q1 iron ore production jumps 7%

BHP's share made up about 6 percent of its total iron ore output in the year to end-June 2015 and contributed about 3 percent of underlying earnings before interest and tax, although analysts said the potential liability from the disaster would be more significant for the company.

"It's probably the last thing the company needs, given it's struggling to generate earnings, it's on track to pay dividends out of debt, and then they've got this liability," said Ric Ronge, a portfolio manager at Pengana Capital. "In dollars and in terms of their ability to operate as a responsible citizen, it's very material," Ronge added, declining to put an estimate on how large the liability might be.

BHP's shares fell 3.5 percent to A$21.90 a share by midday trading on Monday to a six-week low.

BHP had been planning production of 247 million tonnes in the year to June 30, 2016 prior to the disaster, up 6 percent on a year earlier, ranking it behind Vale and Rio Tinto.

Samarco has the capacity to produce 30.5 million tonnes a year of iron ore pellets and to process 32 million tonnes of iron concentrate annually.

Read MoreHere's why iron ore prices aren't rising anytime soon

The operations in the southeastern state of Minas Gerais include a three-tiered tailings dam complex. It was the Fundao dam that failed on Nov. 5.

"This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream," BHP said in a statement to the Australian Securities Exchange.

A second dam has also been affected, according to the company, which did not make clear the extent of damage, while a third dam was being monitored by Samarco, it said.

Read MoreWhy miners may want to rethink high iron ore output

Andrew Mackenzie, chief executive of Melbourne-based BHP, will travel to the mine this week to get a better understanding the disaster, according to the company, which reiterated the safety of Samarco's workforce and local communities remained its top prioirty

"There's no way to dress this up as anything other than an ugly and sad thing," said Morningstar analyst Mark Taylor. "It's particularly disappointing for them (BHP) as it's not really a core asset."