RIO Rio Tinto Plc

SYDNEY—Shares in BHP Billiton Ltd., the world's biggest mining company by market value, fell by up to 5.4% Friday as investors fretted about the damage to a Brazilian iron-ore operation it jointly owns caused by a major dam burst there.

Australia-based BHP said it "understands that a serious incident [had] occurred" at Samarco Mineraç ã o SA's iron-ore operation in the Minas Gerais state. BHP holds a 50% interest in Samarco, with the rest owned by Brazil's Vale SA.

A local network reported that as many as 16 people may have died in the flooding following the accident at the dam, which occurred at 4.20 pm local time on Thursday. Television images from Brazil showed footage of heavy trucks being overturned and homes awash in red mud around the area close to the dam.

The structure that failed is what is known as a tailing dam, used to hold water and discarded minerals from a nearby iron-ore mine. The dam is operated by Samarco.

While the cause and full impact of the accident are as yet unclear, investors feared it could shut down the mine for some time, said Angus Nicholson, a Melbourne-based analyst at broker IG. BHP's Australia-listed shares were recently down 2.8%, compared with a 0.3% rise in the broader Australian market. The company is dual-listed in Sydney and London.

"It could be a significant amount of time before it [Samarco] gets back to production, so I am only surprised we haven't seen a bigger selloff," said Mr. Nicholson.

Samarco is an important business for BHP, accounting for roughly 3% of annual earnings and 5% of valuation—a meaningful unit for such a large company, said Australian bank Macquarie.

In the year through June, the venture contributed US$695 million to BHP's underlying earnings and generated a total US$1.41 billion in revenue. Macquarie values Samarco at US$6.2 billion.

"The dam failure is a major concern and could have a material impact on the near-term production outlook for Samarco," it said in a client note. BHP is one of the world's biggest producers of iron ore globally. Its earnings have been hit by a slump in prices for the commodity since the start of last year, although both it and fellow mining giants Vale and Rio Tinto PLC have continued to increase their output.

Samarco produces about 29 million metric tons of iron ore, and is one of Brazil's biggest deposits of the steelmaking commodity. It has enough reserves to last for more than three decades, at current rates of production.

"We are in the process of obtaining more details from Samarco Mineraç ã o" about the incident, BHP said in a statement. Samarco isn't directly run by the global mining giants, but is operated as a separate company, with BHP and Vale joint shareholders.

BHP said it was concerned for the safety of employees and the local community and that it would provide more information as soon as it can.

A spokesman for Vale declined to comment, pointing to a statement by Samarco that said the venture was prioritizing helping people and mitigating damage to the environment and that it wasn't yet possible to confirm the cause of the incident.

Mining accidents aren't uncommon in the region. In January 2007, the collapse of a tailings dam owned by Mineraç ã o Rio Pomba Cataguases Ltda. resulted in catastrophic flooding that left thousands homeless in the cities of Miraí and Muriaé .

But such events are a rarity for mining giant BHP, which prides itself on high safety standards. Still, in the year through June it recorded five worker fatalities, compared with none the 12 months prior. It said it had since implemented a new company-wide safety program.

IG's Mr. Nicholson said the market reaction was closely tied to worries BHP would produce less iron ore this year, rather than any issue with group management. "BHP has a much better [safety] track record than many smaller miners," he said.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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(END) Dow Jones Newswires

November 06, 2015 01:05 ET (06:05 GMT)

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