Last month in Brazil, the Fundao dam at the Samarco iron ore mine failed, and a mudslide of iron-ore tailings that were being held back rushed forth and destroyed the town of Bento Rodrigues in the state of Minas Gerais, killing 17 people, leaving hundreds homeless, and polluting a 275-mile stretch of the 500-mile long Rio Doce river.
The Samarco mining company is a joint venture of BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE), two of the world's biggest iron ore miners, and a judge held the parent companies, as controlling partners of Samarco, responsible for the damage.
With the government suing for 20 billion reais, or $5.2 billion, to pay for the cleanup, the judge issued a freeze on the Brazilian assets of the mining companies to ensure funds are available to pay.
Does it matter?
Vale contests the judge's ruling, saying Samarco is an independent company with a substantial presence in its own right that should be wholly responsible for any damage caused and fines assessed, but the prosecutor has said Samarco doesn't have enough assets to pay more than half of what the government was seeking.
Samarco has 30 days to post a 2 billion reais deposit or face fines of 150,000 reais per day for each day past the deadline that it fails to comply, while the three mining companies have just 10 days to contract with a company to evaluate the level of contamination and the potential risk to humans. Samarco has agreed to pay $260 million as temporary compensation to the victims and has had its license to operate suspended.
While the judge didn't specify the value of the assets, as a Brazilian company Vale would seemingly be far more at risk than BHP Billiton, which is based in Australia. Vale is appealing the decision.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.