Brazil's Vale says Samarco costs already exceed insurance

(Adds comments from prosecutors on estimated payout by Samarco, paragraph 3)

By Stephen Eisenhammer and Marta Nogueira

RIO DE JANEIRO, Nov 16 (Reuters) - The cost of a deadly dam burst at an iron ore mine in Brazil run by Samarco has already exceeded the insurance cap for civil damages, co-owner Vale SA said on Monday.

Samarco, owned by Vale and BHP Billiton (NYSE: BBL - news) , has been fined 250 million reais ($65.5 million) and forced to pay for accommodations for the dispossessed, after a dam burst earlier this month, killing at least seven people, with 15 still missing.

Brazilian state and federal prosecutors said on Monday that Samarco had agreed to pay a preliminary 1 billion reais ($262 million) to cover the cleanup costs and compensation.

"In terms of civil damages, Samarco's insurance policy is well below even the initial values being discussed in terms of costs," Vale's chief financial officer, Luciano Siani, said on a conference call, adding the 250 million-real fine was already larger than the cap on the policy.

Insurance to cover the suspension of production and cost of rebuilding elements of the mine, such as the dams, is higher, Siani said, without giving details.

Samarco, Vale and BHP are scrambling to control the fallout from the disaster, which has polluted the Rio Doce river across two states.

Vale, the world's largest producer of iron ore, said it could take years for the river to recover and refused to speculate on how much the cleanup costs and fines could reach or give a time frame for when the mine might reopen. "That is dependent on society," Siani said, because getting permission to reopen will take longer than the technical repairs needed.

The company has drawn criticism for its delayed public response to the disaster, but it sought on Monday to stress its involvement in the recovery plan and support for Samarco. Vale Chief Executive Officer Murilo Ferreira was largely absent from the two analyst calls, with Siani answering most questions.

Just after the call, dozens protested outside Vale's offices in downtown Rio de Janeiro, dressed up as the Rio Doce and painting Vale's logo with mud-like paint.

The accident, which also took out a conveyor belt at one of Vale's nearby mines, will affect Vale's production by about 19 million tonnes next year, including 9 million to 10 million tonnes of production that was usually sold to Samarco.

The company did not offer a new forecast for 2016 output but said it would give a new figure in December.

($1 = 3.816 reais) (Reporting by Stephen Eisenhammer; Editing by Steve Orlofsky and Peter Cooney)