Kumba Iron Ore jumped 7 percent on the JSE on Monday on supply concerns after the deadly tailings dam burst at a Vale mine. Photo: Supplied

JOHANNESBURG – Kumba Iron Ore jumped 7 percent on the JSE on Monday on supply concerns after the deadly tailings dam burst at a Vale mine, the world’s biggest iron ore producing company.

The Corrego de Feijao iron ore mine in Brazil has ground to a halt after a dam burst on Friday spilt a torrent of mud in the town of Brumadinho, claiming 58 lives.

Kumba, an Anglo American subsidiary, traded 6.98 percent up at R311.14 a share at midday as panic on iron ore supply mounted following the fatal dam burst. The share price closed at R309.

Seleho Tsatsi, an investment analyst at Johannesburg-based Anchor Capital, said yesterday that the strong Kumba share price was linked to the dam accident. He said the Corrego de Feijao mine only produced 8 million tons (Mt) of iron ore a year.

“In terms of demand and supply fundamentals, Feijao’s annual production is small in the context of a 1 300Mt global seaborne iron ore market. Iron ore prices have, nevertheless, shot up in reaction to this event,” said Tsatsi.

The Corrego de Feijao dam burst comes three years after a fatal dam burst at the Samarco iron ore mine, the world’s second-biggest iron ore mining operation, which Vale owns jointly with BHP Billiton.

“The Samarco incident happened three years ago, they (Vale and BHP Billiton) are still dealing with the legal and reputational damage of that disaster,” said Tsatsi.

The Brazilian mining authority ordered the suspension of operations at Corrego de Feijao while the country’s prosecuting authority announced plans to freeze 5 billion reais (R18bn) in Vale’s accounts for handling damages. 

S&P Global Platts senior editor for steel raw materials and metals analysis, Hector Forster, said in a note that iron ore prices might react next week after the dam burst. “The expected hit on supply may be seen in deliveries to China and other markets in March, when some participants expected there may be stronger steel-related demand as Chinese plants restock and operate at higher capacity,” said  Forster.

“Such mining accidents typically lead to production halts and inspections, with the mine lying in the main iron ore quadrangle and part of Vale’s southern system iron ore operation,” he said.