MELBOURNE - A nickel processing plant owned by Metallurgical Corp of China (MCC) that spilled mine waste into Papua New Guinea's Basamuk Bay faces compensation claims and possibly closure, the head of the country's mining authority said on Thursday.

MCC's Ramu nickel plant located in Madang, on the country's northeastern coast, spilled waste into the bay over the weekend which caused the surrounding ocean to turn red and left a muddy residue on the rocky shoreline, according to locals and photographs of the incident.

The spillage occurred when a plant operator did not notice a pump failure during a maintenance shutdown, causing a tank to overflow and mining waste to disperse into the ocean, Jerry Garry, managing director of PNG's Mineral Resources Authority (MRA) said.

"From an environmental point of view, obviously the slurry discharge... has already caused damage to the ocean and the livelihood of the people because they will not be swimming and they will not be fishing in the area any more," he said.

"There will be summons to pay compensation. There will be other punishment imposed by CEPA. I’m really not too sure as to what the nature of the penalties may be," he told Reuters.

CEPA is PNG's Conservation and Environment Protection Authority.

The MRA's inspector found no immediate safety concerns and no reason to shut down the mine. However, residue samples of the spill have been sent to Australia for testing and results are expected in under a month, said Garry. The environment minister has the authority to shut the mine, he added.

MCC's Basamuk Bay plant produces a mixed nickel and cobalt hydroxide product for the battery industry from ore sent by pipeline from the Kurumkukari nickel and cobalt mine about 135 km (81 miles) away.

Environment Minster Geoffrey Kama said in a report on Thursday by local newspaper The National that he would go to the site of the plant this Monday.

"If I see the situation is devastated I will close the mine," he said, according to the report.

"We need to see the report first and then make a decision," Kama said, according to the newspaper.

Reuters could not immediately reach the CEPA or Kama for a comment. MCC did not immediately reply to a request for comment.