NewsBite

Nick Evans

BHP estimates it will spend $65m on lawyers in Brazil dam case

Nick Evans
The deadly mudslide unleashed after a tailings dam owned by BHP and Vale collapsed in 2015.
The deadly mudslide unleashed after a tailings dam owned by BHP and Vale collapsed in 2015.
The Australian Business Network

It’s been billed as the legal blockbuster of the century, and the $US36bn ($55bn) case against BHP over the 2015 Fundao Dam disaster in Brazil is certainly living up to its name – or BHP’s $65m in legal bills are, at any rate.

The case itself is bogged down in internecine warfare in the UK High Court, as upstart law firm Pogust Goodhead – which represents Brazilians affected by the disaster – jousts with the mining giant’s legal team.

The first stage of the trial was heard last year, to decide “threshold liability issues”, and both parties are still waiting on the results of that hearing.

The latest round has partly been partly focused on the eye-watering costs in the case so far.

Goodhead’s funding has been coming from a £454m ($932m) financing deal with US fund manager Gramercy. But, with the law firm also involved in other high-profile cases and its 2022 accounts – released late in the UK – showing a £290m loss for the year, BHP clearly has a sniff that money is getting a bit tight. Redundancies late last year at the law firm might have helped that impression.

So BHP is demanding Pogust Goodhead put up costs in the UK, in case it doesn’t win.

The figure the mining giant is asking for, £23.4m – for 80 per cent of BHP’s incurred and estimated costs until the end of 2025 – speaks to the staggering size of the legal bills on both sides.

It’s probably not that much in comparative terms, given the size of the $55bn claim at stake. But it will buy quite a few sports cars for the partners of the law firms involved, you’d imagine.

Remember, only the first part of the trial has so-far been heard. If Pogust Goodhead gets to stay in after the first round, on whether BHP has a case to answer at all, another two-week trial will begin in 2026.

The UK High Court won’t make a decision on whether the law firm will need to stump up security for BHP’s costs until later this year, but a decision released late on Friday does offer the prospect of more problems for Pogust Goodhead, and possibly for Gramercy.

Ahead of her final decision on security Justice Finola O’Farrell ordered the law firm to provide a list of the “identities, addresses and contact details of all individuals, companies or other entities that have provided funding to the claimants”.

Gramercy’s funding arrangement with Pogust Goodhead is a matter of public record. But it’s not entirely clear whether that’s the entirety of the law firm’s funding source for the case.

Gramercy raised the cash for its deal with Pogust Goodhead in a specific fund. Who knows what names among the rich and famous – attracted by a promise of potentially extraordinary returns from the fund – might be thrown up by the full disclosure of the law firm’s funding sources, which BHP is sure to pursue.

Rearguard action

The inevitable takeover of bumbling Platinum Asset Management might be the main game for L1 Capital, but an entertaining sideshow is playing out at Platinum Capital (PMC) as its board fights a rearguard action against L1’s Rafi Lamm and Mark Landau.

L1 ignited a brawl over the future of the listed investment company when the fund manager bought up a 16 per cent spoiler stake in PMC and declared they intended to oppose the board’s plan to shift shareholders to a Platinum-run ETF.

The L1 founders got asked about their plans for PMC when presenting their merger plans to Platinum shareholders. They’ve got a plan, apparently, and it will be great. But they declined to divulge further details.

From left: Platinum Asset Management CEO Jeff Peters, L1 Capital co-founder Rafi Lamm, COO Joel Arber and co-founder Mark Landau, and Platinum chairman Guy Strapp.
From left: Platinum Asset Management CEO Jeff Peters, L1 Capital co-founder Rafi Lamm, COO Joel Arber and co-founder Mark Landau, and Platinum chairman Guy Strapp.

The problem for the PMC board is that L1’s 16 per cent holding will almost certainly be enough to block other shareholders agreeing to shift their holdings to an ETF – which would at least bring them closer to recognising the net asset value of the underlying shares, rather than the 10 per cent discount on current trading prices.

But 75 per cent of shares need to run the board’s way for the plan to take effect, and that almost certainly won’t happen if L1 votes against the plan – first floated around a year ago after a lengthy review led by PMC chair Margaret Towers.

Margin Call hears that Towers was none-to-pleased by the L1 intervention, and has hatched a little spoiler plan of her own in response.

PMC released its full plans to shareholders late on Friday, outlining the board’s case to shift shareholders to an ETC at an August 12 meeting. But in the face of L1’s opposition, there’s a little sting in the tail. If the board’s preferred position fails, as it probably will, they intend to immediately hold a second meeting to seek approval for an on-market buyback of half of PMC’s shares. That will only require a 50 per cent majority – far more likely to get up on the day.

Which will effectively allow PMC to liquidate a big portion of its $450m portfolio of international stocks to buy back the shares of holders that don’t want to jump on to the L1 bandwagon.

Those shareholders probably won’t get the full asset value of the stock as they would in a shift to an ETF, but might get a bit closer than otherwise. And, at the same time deliver a nice little backhander to L1 by reducing the total pool under investment – and therefore the management and performance fees that might be collected after L1 takes control of Platinum down the track.

And the kicker? Despite spending much of the past 18 months weighing up the options for PMC and its shareholders, Towers and the other PMC directors – Joanne Jefferies and Ian Hunter – have waived their right to ask for any additional fees for their considerable work in trying to get the best outcome for PMC shareholders.

Contrast that, if you will, with the $670,000 bonus payment handed to Platinum boss Jeff Peters for the woeful deal Platinum Asset Management shareholders are being asked to accept in the merger with L1.

Read related topics:Bhp Group Limited
Nick Evans
Nick EvansMargin Call Columnist and Resource Writer

Nick Evans has covered the Australian resources sector since the early days of the mining boom in the late 2000s. He joined The Australian’s business team from The West Australian newspaper’s Canberra bureau, where he covered the defence industry, foreign affairs and national security for two years. Prior to that Nick was The West’s chief mining reporter through the height of the boom and the slowdown that followed.

Original URL: https://www.theaustralian.com.au/business/margin-call/bhp-estimates-it-will-spend-65m-on-lawyers-in-brazil-dam-case/news-story/b1862f9f3ad905ec9da874894f03cda0