By Tatiana Bautzer and Aluísio Alves
SAO PAULO, Nov 10 (Reuters) - Insurers covering risks for a
Brazilian mine where two dams burst last week, killing at least
six people, could pay up to $600 million in claims, a source
with direct knowledge of the matter said on Monday.
A property policy held by the dams' owner, Samarco Mineração
SA, could cover up to $90 million in related claims, said the
source, who requested anonymity because terms of policies remain
confidential.
A separate policy for so-called business interruption events
could pay as much as $510 million if the joint venture between
BHP Billiton (L:BLT) Ltd BHP.AX and Vale SA VALE5.SA proves that it
lost that much in profits, the source added. It is unclear how
the miner agreed on the $510 million figure with its insurers,
led by ACE Ltd ACE.N .
Samarco, which operates as an independent mining firm in the
Brazilian iron one-rich state of Minas Gerais, earned 2.8
billion Brazilian real ($747 million) in net income last year.
The venture produces 30 million tonnes of iron ore annually, or
about 2 percent of global capacity.
Experts could take at least 90 days to investigate the
causes of the disaster in southeast Brazil, a second source
said, adding that the owners face a lengthy process of
calculating lost profits from the flood, which left 21 people
missing.
The lead underwriter of the combined property and business
interruption policies is Zurich-based ACE, which is liable to
pay 80 percent of the amount covered, the source added. Spain's
Mapfre SA MAP.MC and Canada's Fairfax Financial Holdings Inc
FFH.TO also form part of the team of underwriters, the source
added.
Germany's Allianz SE ALVG.DE provides the venture with a
separate policy for civil liabilities, which had a coverage of
about 70 million reais as of June 2014, according to a Samarco
bond prospectus. The second source said that such coverage could
be "too small" to pay for extensive environmental damage, let
alone what courts decide as compensation for families of the
victims.
That potential shortcoming could fuel investors doubts about
whether Samarco has enough insurance to cover all of the
disaster costs. It also remains unclear whether there is any
scope for the cost of the damages to spread to other entities
such as builders or state entities, as well as BHP and Vale.
urn:newsml:reuters.com:*:nL1N1341YD
While the size and extent of damages are still to be
determined, the dam collapse will have a "meaningful impact" on
insurers and reinsurers operating in Brazil, said Diego
Kashiwakura, an analyst with Moody's Investors Service.
Moody's on Tuesday cut Samarco's bonds to junk, saying they
remain on review for further downgrade.
A spokesman for ACE in São Paulo said the company does not
comment on "specific risks," while Allianz declined to comment.
Fairfax and Mapfre confirmed they are in the pool of
underwriters, but declined to elaborate.
Willis Group Holdings Plc WSH.N confirmed to Reuters that
it acted as the broker for the Samarco policy.
Samarco did not comment on insuring policies.
BONDS PLUNGE
The extent of the dam burst and subsequent flooding, which
wiped out a nearby village and still risks flooding neighboring
towns, raises questions about the future of Samarco's ore
operation in Brazil, where two of the mine's three
waste-containment dams burst.
The price on Samarco's 5.375 percent bond maturing in
September, 2024 USP84050AC02=R slumped to 60 cents on the
dollar on Tuesday from 87 cents on Nov. 5, a day before the
collapse.
Large insurers have tried to increase their presence in
Brazil, where large oil and infrastructure projects took off at
the start of the decade. Last year, ACE paid 1.5 billion reais
for the high-risk insurance portfolio from Itaú Unibanco Holding
SA ITUB4.SA , Brazil's largest bank by market value, in a bold
move toward raising exposure to Latin America's largest economy.
The operating license for the mine has been revoked by the
Minas Gerais state government. The flooding has forced more than
600 people to be evacuated.
($1 = 3.7489 Brazilian reais)
(Editing by Guillermo Parra-Bernal and Christian Plumb)