MS Morgan Stanley

SYDNEY—Investors continued to dump shares in mining giant BHP Billiton Ltd. Monday following the deadly dam burst last week at its jointly owned iron-ore mine in Brazil, even as the company sought to clarify responsibility for the disaster that has already claimed the lives of three people.

The mining giant said Monday it still hasn't determined what caused one dam to fail and another to be "affected" last Thursday at the mine in Minas Gerais state. It said its chief executive Andrew Mackenzie and the head of its iron ore business, Jimmy Wilson, would head to Brazil later this week to assess what further support it could provide for the response effort.

BHP also stressed in an emailed response to questions from The Wall Street Journal that Samarco, the company it 50:50 owns with Brazil's Vale SA, was "responsible for the entirety" of the operations at the iron ore mine.

BHP appoints half of the directors on the board of Samarco, and receives "regular reports" on its operations, the company said. However, it declined further comment on the nature of its oversight of the Samarco company.

Nonetheless, as more information about the extent of the damage caused by the dam burst emerges, analysts are trying to tot up the potential bill for both BHP and Vale SA. The dam breach was the largest-ever spill of its kind, according to Robert Chambers, president of the nonprofit Center for Science in Public Participation, whose group has tracked these types of failures back to 1915.

The cost to the companies, including for cleanup and rebuilding, could top US$1 billion, said Paul Young, a Sydney-based analyst at Deutsche Bank, who estimated the mine could be closed until about 2019. He described the dam burst as "catastrophic."

BHP's Australian shares ended the day down 5.6%, taking total losses since news of the accident broke to more than 7% and the stock to its lowest level in seven years. BHP is dual-listed in Australia and the U.K.

"The uncertainty regarding cleanup and legal costs is likely to be an overhang on" shares, according to Jefferies analyst Christopher LaFemina, who said the reputations of both BHP and Vale, which have relatively good safety records, would emerge damaged.

BHP said there are three so-called tailings dams used to store mineral waste and water at the mining operation. One burst, spilling the contents into the collection of waste held back by a second—as well as across a rural swath of southeastern Minas Gerais, where it inundated the village of Bento Rodrigues. The third dam is being monitored by Samarco Mineraç ã o S.A, the mine's operator, BHP said.

"At this time, there is no confirmation of the causes of the tailings release," BHP said in its regulatory filing.

Morgan Stanley analysts said it was unclear whether insurance will cover part of the cost for Samarco, which operates as an independent company. Samarco was holding US$700 million of cash and US$4.9 billion of debt on its balance sheet at the end of June, it said.

"Potentially, the Samarco joint venture will have to reapply for its operating and environmental licenses," it wrote in a note.

Brazilian officials on Sunday raised the death toll to three people, two of whom were found in the path of the mud flow, and a third who died while receiving medical treatment. That number is expected to rise, as at least 28 people are now confirmed missing.

Samarco said the state Civil Defense authorities are in charge of the rescue operations, but that it is supporting those efforts. The company said in a statement it has rented seven helicopters for use by rescuers, delivered food and water and found housing for 588 residents left homeless.

"BHP Billiton will continue to work with Samarco, Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident," BHP said.

The shutdown will reduce BHP's iron-ore production this fiscal year—cutting into profits at a time when falling commodity prices already are already making it more difficult for the company to keep its promise to maintain or lift shareholder dividends. Samarco last year accounted for roughly 3% of BHP's underlying earnings.

Analysts also expressed concern that any costs borne by BHP for cleaning up after the dam spill could eat into its ability to pay a dividend, a key attraction of the stock for investors. BHP aims to either maintain or grow its dividend each year.

"This accident will add further pressure to BHP's cash flow, growth and safeguarding of the progressive dividend," said Deutsche Bank's Mr. Young.

The Anglo-Australian miner said it is now reviewing its full-year iron-ore projections. Samarco had only recently ramped up output after an expansion that included the construction of a new processing plant. The mining operation has the capacity to produce 30.5 million metric tons a year of iron-ore pellets, used in steel production.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Andrew Peaple at andrew.peaple@wsj.com

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(END) Dow Jones Newswires

November 09, 2015 08:05 ET (13:05 GMT)

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