Brazil Mining Disaster to Lead to Stricter Insurance Standards, Oversight

Brazil’s worst mining accident will lead to stricter insurance standards under a revised version of an industry bill first introduced to Congress two years ago.

The cost of damage to communities, loss of life and environmental consequences from the Nov. 5 dam failure at an iron-ore venture owned by BHP Billiton Ltd and Vale SA could reach 30 billion reais ($8 billion), and will be used as an example to set future insurance requirements for mining companies, Leonardo Quintao, the representative who presented the original mining bill in 2013, said in a telephone interview Thursday.

Quintao plans to remove controversial elements from the bill — such as an article that gave communities the right to choose mining over proposed ecological parks — in order to conclude lower-house voting by year end. The revised version will also include a requirement for companies seeking mining concessions to have a plan for recycling residues to reduce material held behind dams, he said.

Images of contaminated waterways and communities destroyed by thick orange mud have galvanized environmentalists, who have long been at odds with mining companies in Brazil, the world’s biggest exporter of iron ore.

“This is an unprecedented catastrophe in Brazil,” Quintao said, who is from Minas Gerais state, where the accident took place. “We’re going to learn from this disaster to strengthen the future mining agency to improve oversight.”

Coverage Shortfall

Insurance at Samarco, the name of the joint venture, covers operational risk and loss of company income, but is not expected to be sufficient to cover civil damages, Vale Chief Financial Officer Luciano Siani Pires said on a call with investors this week.

The venture signed an initial agreement with federal prosecutors to pay 1 billion reais for social and environmental damages. Samarco’s $1 billion in bonds due 2022 have slumped to 47 cents on the dollar from 83 cents before the accident. Its press representative in Sao Paulo didn’t immediately provide a comment when reached by phone Thursday.

“Prosecutors were very timid in calculating 1 billion reais,” Quintao said. “We don’t agree with this calculation. It’s going to be much more than that.”

–With assistance from Yasmine Batista.

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