200 people missing after Brazil dam owned by mining giant Vale bursts

  • Shares of mining giant Vale plunge after the company reports a dam breach at an iron ore mine in southeastern Brazil.
  • Photos and videos show torrents of mud flowing in the area near the Feijao mine and damage to buildings.
  • AFP reports there are "several" deaths in the area, but Vale said there is no confirmation of any injuries.
Fabio Schvartsman, chief executive officer of Vale SA, speaks during the Brazil Investment Forum in Sao Paulo, Brazil, on Tuesday, May 29, 2018.
Patricia Monteiro | Bloomberg | Getty Images
Fabio Schvartsman, chief executive officer of Vale SA, speaks during the Brazil Investment Forum in Sao Paulo, Brazil, on Tuesday, May 29, 2018.

Shares of mining giant Vale plunged after the company reported a dam breach at an iron ore mine in southeastern Brazil that sent mud flowing into a neighboring community.

The stock came under renewed pressure after the local fire brigade said it was still searching for 200 people. The brigade said scores of people are trapped in the area due to sludge flows, Reuters reported.

Vale CEO Fabio Schvartsman later said most of the missing are Vale employees. Schvartsman said bout 300 people were working at the site when the dam burst, and about 100 of those workers have been located, Dow Jones reported.

The number of people still unaccounted for raises the prospect of casualties in the region, which was devastated by a fatal 2015 dam break at a mine owned by Vale and BHP Billiton.

AFP reported there are "several" deaths in an area outside of the city of Belo Horizonte, citing a local fire service official. CNBC could not immediately confirm the report of fatalities. A statement by Vale — which has not been updated since the company issued it several hours ago — said there is no confirmation of any injuries.

The stock price for the ADR traded in the U.S. ended Friday's trading session down 8 percent at $13.66 a share. It fell as low as $12.85 earlier in the session, still firmly above its 52-week low at $11.93.

The incident occurred at Vale's Feijao mine in Brumadinho in Minas Gerais, the state that neighbors Rio de Janeiro. According to Vale, byproducts from the mining process have reached the company's administrative area and part of the community of Vila Ferteco.

"Vale's overall priority at this time is to preserve and protect the lives of employees and members of the community," the company said in a statement.

Byproducts from mining, known as tailings, are often kept in ponds near mines specifically made to contain the rock particles, chemicals and water.

Photos and videos on Brazil's G1.com news site show torrents of mud flowing near the site and damage to buildings. Brazil's Civil Defense said residents in the lower district of Brumadinho are being evacuated, according to the news portal.

Friday's dam breach comes three years after a larger dam owned by Vale and BHP Billiton ruptured in Minas Gerais, spilling the contents of a tailings pond. The incident killed 19 people and created what is widely considered Brazil's worst environmental disaster.

The Feijao mine is part of Vale's Southern System operations, which includes three mines and two ports and accounts for about 25 percent of the company's iron ore production, according to RBC Capital Markets.

RBC says it is too soon to tell how the incident will affect production, but added that unconfirmed reports of deaths "suggest this could be another unfortunate issue with tailings management."

"This incident is all the more pertinent following the 2015 Samarco Dam breach," RBC analyst Tyler Broda wrote in a research note. "We continue to take a cautious approach on Vale shares and this dam failure could add to the challenges facing the company, but at this juncture it is too early to tell on any impact."

The Feijao incident is likely to lead to higher compliance hurdles and financial fines, according to J.P. Morgan.

"The tragedy is likely to generate higher scrutiny over the regulatory framework of the mining industry, especially over the usage of dams," J.P. Morgan analysts Rodolfo Angele and Julio Arantes said in a research note.

"The accident could lead to further delays in granting new licenses, but also lifting existing permits."

J.P. Morgan estimates that settlement costs for the Samarco disaster have reached $20 billion.

Investment bank Jefferies said the incident could have implications for the broader mining sector.

"While we hope the reports of fatalities are inaccurate, we do believe this is a material negative for Vale and a positive for other iron ore miners due to upside risk to prices resulting from less supply," Jefferies equity analysts said in a note.