Brazilian miner Vale has agreed to a $7bn settlement with authorities over a dam breach that killed hundreds of people and caused an environmental catastrophe.

Almost 12m cubic metres of mining waste burst from a storage dam in the state of Minas Gerais in January 2019, destroying everything in its path. The disaster killed 270 people, mainly Vale employees and contractors.

The disaster at the Córrego do Feijão mine near the town of Brumadinho was one of the worst disasters in mining history and came only four years after a similar event at a nearby mine jointly owned by Vale and BHP.

It led to Vale being blacklisted by big investors, particularly in Europe, and the introduction of an international standard for tailings dams in an effort to avoid a repeat of the collapse.

Vale’s share price and performance has also suffered, with the company forced to lower output to meet new safety standards, although the impact has been offset by higher prices for iron ore, the main ingredient in steelmaking.

“Vale is committed to fully repair and compensate damage caused by the tragedy in Brumadinho and to increasingly contribute to the improvement and development of the communities in which we operate,” chief executive Eduardo Bartolomeo said on Thursday.

The Minas Gerais Court of Justice, which conducted the mediation process, described the settlement as “historic and with global repercussions”, adding that it was the largest in Latin America.

However, the figure is lower than the $10bn the authorities were originally seeking.

“The amount that was negotiated does not cover the damage caused to all families, deaths and environmental destruction in the basin,” said Joceli Andrioli of a campaign group called the Movement of People Affected by Dams.

"[In] this agreement it’s Vale who comes out winning, who will profit by billions, because an action that should have paid R$54bn ($10bn) is being negotiated to R$37bn, which is absurd.”

Vale said it had already paid more than $440m in indemnities through agreements signed with 8,900 individuals, while more than 100,000 people had received emergency aid payments totalling $330m.

The dam that burst at Brumadinho was 86m high. It was built in 1976 by Ferteco Mineração — a company acquired by Vale in 2001 — using an “upstream design” whereby waste mining slurry was pumped into a storage pond behind a starter mud wall. New upstream tailings dams have now been banned in Brazil.

Of the $7bn settlement announced on Thursday, $1.5bn has already been paid out within the scope of the settlement. The company will recognise an additional charge of $3.7bn in its 2020 results.

“While this settlement does not include individual damages, it is likely to reflect most of the total obligation for Vale and is therefore a positive development,” said Jefferies analyst Christopher LaFemina. “It should be a positive for Vale shares as uncertainty regarding the settlement amount had been a major overhang.”

Vale’s US-listed shares were down 2 per cent at $16.56 in late-morning trading in New York. They hit $11 in the wake of the dam breach.

Additional reporting by Carolina Pulice