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BHP, Vale shares sink on huge Brazil mining lawsuit

Aerial view of the village of Bento Rodrigues in Brazil after a dam burst on November 5, 2015

Share prices in mining giants BHP Billiton and Vale skidded sharply Wednesday after Brazilian prosecutors filed a US$43.4 billion lawsuit over a mine accident that killed 19 people and wreaked environmental havoc.

Brazilian iron ore leader Vale saw its share price tumble 5.34 percent at the close of the day's trading in Sao Paulo.

Prices in shares of Anglo-Australian BHP also took a big hit after news of the lawsuit.

In European early trading, it was down seven percent on the London stock exchange before closing down 5.8 percent. It had already closed 9.36 percent down in Sydney, with a fall in iron ore prices adding to the selling pressure.

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Prosecutors in the state of Minas Gerais on Tuesday filed the suit for the accident at the Vale-BHP co-owned Samarco iron ore mine last November 5, estimating "the preliminary value for repairs to be 155 billion reais."

"This has quite rightly spooked investors into pricing in the prospect of long and protracted litigation," said Mike van Dulken, head of research at Accendo Markets.

The two companies had already agreed to a separate settlement of US$6.2 billion with the Brazilian government in March.

Those funds were ordered to go toward compensating for social and environmental damage and to be paid over 15 years. But the deal was criticized by prosecutors, who said that the amount of money was not calculated realistically.

The accident near Mariana in Minas Gerais began when a tailings dam at Samarco mine failed, unleashing a flood of polluted water and mud into the River Doce, one of the biggest in Brazil.

A village was destroyed and drinking water supplies for hundreds of thousands of people were severed.

The damage reached as far as the river's mouth on the Atlantic coast, with wildlife, tourism and fishing all suffering.

In February, police announced homicide charges against seven people, including six Samarco executives -- one of whom was the chief executive at the time of the accident.

- Historic disaster -

Paulo Hartung, governor of Espirito Santo state, which also straddles the River Doce, said the toxic flood marked "the biggest environmental disaster in the history of Brazil."

The civil suit filed Tuesday called on Samarco's co-owners to "completely" compensate for the disaster.

Prosecutors said they calculated the US$43 billion figure based on charges faced by BP after the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

"The overnight news of a fresh legal challenge echoes that suffered repeatedly by BP and suggests that the March settlement between BHP, its domestic partner Vale and the Brazilian government was just the beginning of the road," Accendo's Van Dulken said.

BHP said in a statement to the market that the lawsuit filed Tuesday was for "social, environmental and economic compensation."

"BHP Billiton remains committed to helping Samarco to rebuild the community and restore the environment affected by the failure of the dam," it said, adding that it was still awaiting formal notice of the claim.

Vale had no immediate response.

Referring to the previous settlement reached with the Brazilian authorities, BHP said that this ensured "the long-term remedial and compensation framework for responding to the impact of the Samarco tragedy and the appropriate platform for the parties to work together."

At the time, Brazilian President Dilma Rousseff had said the deal would help heal "a tragedy without precedent."

However, she had also warned of further costs for BHP and Vale.

"There will be complete restoration of socio-economic conditions and of the affected environment. And I want to emphasize: there will be no financial limits until there is full reparation," she said.

Prosecutor Jose Adercio Leite Sampaio was among those who immediately criticized that settlement, saying: "Where did they get this number? For us, it's a magic number... It could be 23 or 24, 30, 40 billion."