BHP Billiton sinks on Brazil dam suit
BHP shares plunged yesterday as the miner faced one of Brazil’s largest ever lawsuits over a dam disaster last year.
Fresh concern over BHP Billiton’s financial exposure to last November’s deadly tailings dam failure in Brazil has led to an over-sized share price fall for the group in the broader belting served out to the resources sector yesterday.
BHP shares plunged $1.94 or 9.3 per cent to $18.79 after Brazil’s Federal Public Prosecution Service said it had started civil proceedings against the mine operator Samarco and its 50-50 owners, BHP and Brazil’s Vale, for $US43 billion ($57bn) in environmental and economic compensation.
BHP’s market drubbing overshadowed Rio Tinto’s 7.5 per cent fall to $47.80, South32’s 8.3 per cent fall to $1.54, and Fortescue’s 4.8 per cent fall to $3.13, on general commodity price weakness.
The fall could have been expected given BHP alone has exposure to oil prices, which were also weaker overnight.
But the sheer size of the Brazilian claim — it was priced with reference to BP’s Deepwater Horizon oil disaster in the Gulf of Mexico — was enough to spook some in the market.
Macquarie said that “uncertainty over the impact of ongoing litigation and financial liabilities stemming from the Samarco tragedy continues to overhang’’ BHP shares.
The prosecution service operates independently of the Brazilian government, with its freedom based on the guiding principles of acting on conscience and convictions under the law.
But the Samarco proceedings do fly in the face of the March 2 settlement (still subject to court approval) between the companies, the federal Brazilian government, and the two states most affected by the disaster, for $US1.7bn-$US2.3bn to be spent on remedial action and compensation. The original claim was for $US5bn.
Implicit in the March agreement was that the 30 million tonne-a-year Samarco iron ore operation in Minas Gerais state eventually resume production, possibly as early as next year. With its cash on hand, a restart of the operations could see Samarco itself cover the $US1.7bn to $US2.3bn remedial and compensation agreement.
Should Samarco not be able to cover the cost of the settlement, BHP and Vale will be liable for any shortfalls on a 50-50 basis. There is no upper cap on the payments, but $US1.7bn-$US2.3bn to be spent over the next six years is expected to all but cover the remedial and compensation costs.
Nineteen workers and nearby residents were killed when the Fundao tailings dam collapsed on November 5, sending a tsunami of red sludge down on the valley floor below and wiping out the town of Bento Rodrigues.
The tailings plume travelled 600km down the Rio Doce river system to the Atlantic and has been described as Brazil’s worst ever environmental disaster.
In a statement yesterday, BHP said it had not received formal notice of the $US43bn claim.
“We believe that the agreement (once approved by the court) provides the long-term remedial and compensation framework for responding to the impact of the Samarco tragedy and the appropriate platform for the parties to work together,’’ BHP said.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout