Brazilian court backs earlier BHP Samarco dam agreement

Brazil’s Federal Court ratifies an earlier Samarco dam collapse agreement, as BHP shares recover from recent losses.

BHP Billiton has received a boost as it looks to avoid a giant payout over the tragic Bento Rodrigues tailings dam collapse in November, with a March agreement ratified by the Federal Court of Brasilia overnight.

The agreement will see Samarco and its two joint venture partners — BHP and Vale — pledge $US2.3 billion ($3.1bn) over the next six years, as part of a 15-year recovery proposal.

It was settled with two Brazilian states and the federal Attorney General of Brazil on March 2, but had not received a court endorsement until last night.

The deal is seen as crucial to BHP avoiding a higher payout and follows on the heels of this week’s $58bn lawsuit, which was filed against Samarco and its owners by federal prosecutors in Brazil after a near six-month investigation.

The $58bn suit sought to challenge the initial March agreement, with news of court approval for the original settlement having the potential to weaken the case.

“The agreement provides a framework that Samarco, its shareholders and the Brazilian Authorities agree is the best way of managing the ongoing response to the Samarco tragedy,” BHP said in a statement.

“The agreement creates a foundation that will put in place a comprehensive range of programs to address the social, economic and environmental consequences of the dam failure.”

The miner followed up with a brief on its actions in response to one of the worst’s environmental disasters in Brazil’s history, adding Samarco had started the process toward a restart of operations.

“The response has been comprehensive and swift,” BHP’s chief commercial officer Dean Dalla Valle said.

“While we cannot bring back the lives that were lost, we continue to focus on ensuring that the families and communities impacted by this tragedy are supported.”

Ratings agency Standard & Poor’s has since weighed in on the development, noting the new lawsuit has not yet impacted on the credit outlook for the Samarco JV partners.

“We understand that the same court, which ratified the March 2016 agreement, will decide whether the new lawsuit proceeds or not,” the ratings agency said.

“The decision will also likely take into account the identified damages and restoration costs that

were covered by the agreement, as well as addressing new claims (if any) under the new suit.”

The agency added it would wait on future judgments to determine whether ratings come under pressure.

Earlier in the week both BHP and Vale expressed disappointment with the size of the new suit, stressing their view the March deal still represented the best way forward.

“Vale clarifies that … the stated value is not based on the Samarco dam accident, but rather on an unjustified comparison with the Deepwater Horizon oil spill in the Gulf of Mexico,” the iron ore miner said in a statement yesterday.

“Vale will take all necessary steps to defend itself.”

BHP stock has been in free fall this week, with the overhang from the legal issues weighing heavy in a market already impacted by worries over commodity prices.

On Wednesday its shares tanked almost 10 per cent in the most severe sell-off since the financial crisis.

There was some respite this morning as its stock rose 0.9 per cent to $18.60 at 11.05am (AEST), outperforming the broader market’s 0.9 per cent drop.