The Samarco disaster in Brazil may cost parent companies BHP Billiton Ltd. (ASX: BHP) and Vale SA (NYSE: VALE) over US$1 billion [AU$1.4 billion]. The mining giants vowed to help the community following the collapse of the limited liability company’s dams last week, but analysts predict BHP and Vale would struggle to withstand the fallout.

In a joint statement, BHP and Vale offered their sympathies to victims’ family, pledging to support Samarco by creating an emergency fund.

“It is our intention to work with authorities to get this fund functioning as soon as practicable,” CEOs Andrew Mackenzie and Murilo Ferreira, of BHP and Vale respectively, said. They added they had discussions with Samarco and the local authorities about the additional support they can offer.

The fund would aim to provide financial assistance to those affected, but it won’t be enough to save the mining heavyweights from shelling out more. Investors are reportedly now bracing for the worst. According to analysts, the financial repercussion of the tragedy could cost both companies a pretty penny.

Melbourne-based BHP and Brazilian Vale started Samarco Mineracao SA in rural Brazil around four decades ago in a 50-50 share. The limited liability structure of the joint venture would ideally protect both owners from litigation in case of disasters. However, the recent incident, which killed at least three and left 25 people missing, would compel Samarco’s parent companies to pay up.

Samarco would be hard-pressed to cover the hefty clean-up and legal costs of the dam burst; therefore, the Brazilian government could pursue BHP and Vale for the cost. Environmental lawyer Mario Werneck said the government can “go after the assets of the shareholders.” The courts could also let people sue the companies for moral, environmental and property damage, as well as harm to patrimonial heritage.

This is further compounded by the recent theory of Brazilian prosecutors, who said on Tuesday that negligence likely played a role in the collapse of the company’s mine waste dam.

BHP and Vale insisted, though, that they are not responsible for Samarco’s operations. Vale said that Samarco is “completely independent” from its shareholders and therefore responsible for technical and financial matters. It reiterated that under the Brazilian law, it does not have any responsibility for the accident.

In case they are found to be accountable, their bill could rack up over US$1 billion [AU$1.4 billion], Deutsche Bank estimated.

Bloomberg Intelligence analyst Kenneth Hoffman has an opposing thought on the matter. As he noted, Samarco’s over US$1 billion insurance coverage in mid-2014 and its stand-alone company structure may shield BHP and Vale from deep losses. The lawsuits that it is expected to receive from the tragedy could take years to resolve, however.

Vale’s stock fell 8.3 percent on Nov. 4, a day before the disaster. BHP’s shares declined 7.3 percent in the same period.

Two of Samarco’s waste dams collapsed on Nov. 5, causing casualties at nearby towns in Minas Gerais, Brazil. The collapse triggered deadly mudslide and floodwaters that have reached about four miles south of the site. There are concerns that cities from south-eastern states will also suffer from contaminated drinking water as well as from health risks due to iron ore residue in the mud. The company’s mining license has been suspended in light of the incident.

Contact the writer at feedback@ibtimes.com.au, or let us know what you think below.

RELATED STORIES