BHP confirms $US9.7bn ’moral damages’ order only part of the amount at stake in legal battle

BHP and Vale still face the bulk of a massive claim in the Brazilian courts related to the Samarco dam failure in 2015, after being ordered to pay $US9.7bn damages last week.

The village of Bento Rodrigues in Brazil pictured in 2023, showing the reconstruction work on a town that was devastated in 2015 as the result of the failure of a tailings dam owned by Samarco.

BHP could still be on the hook for far more than the $US9.7bn ($14.7bn) in “moral damages” ­ordered by a Brazilian federal court last week, with the company confirming over the weekend its belief that the decision is only a partial ruling on a far larger claim by Brazilian prosecutors.

BHP and Vale say they have not been formally issued with the decision of federal judge Vinicius Coubucci, reportedly made on January 25, Brazilian time, which ordered the two companies and jointly owned subsidiary Samarco pay 47.6 billion reais ($14.7bn) over the collapse of the Fundão tailings dam in 2015.

But BHP said at the weekend it believed the decision was the outcome of a skirmish in the far larger claim for 155 billion Brazilian reais (worth $US43bn at the time, and about $US32bn at current exchange rates) brought in 2016.

In October last year, amid settlement negotiations over the case, Brazilian prosecutors asked the court to make an early ruling on “collective moral damages” in the case – one of the categories in the total claim that under Brazilian law relates to reparations for anguish, pain and suffering of the victims of the Samarco dam disaster in 2015.

The court also reportedly ordered that interest and inflation should be added on from the date of the dam failure – potentially taking the total payable to as much as $US19bn, according to some reports.

But claims for property losses – including actual physical damage, and the loss of income and earnings from the tailings dam failure – is still to be adjudicated, leaving BHP, Vale and Samarco exposed to the overwhelming majority of the 155 billion reais claim.

The collapse of the Fundão tailings dam, near Mariana in Minas Gerais province, caused a mudslide that killed 19 people, destroyed villages and devastated the Rio Doce river basin, the second-largest river system in Brazil.

The village of Bento Rodrigues near Mariana in November 2015 after the collapse of a tailings dam at a mine owned by Samarco. Picture: AFP

BHP, Vale and Samarco had been trying to negotiate a settlement of the case, with Bloomberg reporting last month that the iron ore giants had offered a 42 billion reais settlement, with federal prosecutors reportedly seeking as much as 126 billion reais.

BHP last week said it was “absolutely committed to repair and compensation actions related to the collapse of the Fundão dam”.

“BHP Brasil continues to work in close collaboration with Samarco and Vale to support the reparation and compensation pro­grams implemented by the foundation under the supervision of the Brazilian courts. By the end of 2023, such programs cost around 34 billion reais. This includes more than 17 billion reais paid in compensation and emergency financial aid to around 440,000 people,” the company said.

At the weekend BHP said it was still waiting to be formally served with the court’s decision and would “review the decision to assess its implications, the potential for an appeal and any potential impact to the group’s provision related to the Samarco dam failure”.

BHP recorded a $US3.7bn provision in its 2023 annual accounts related to the Samarco dam disaster, but noted in its December quarter report that that figure was likely to be updated when the company delivered its half-year results in February.

BHP, Vale and Samarco set up a foundation, Renova, in the immediate aftermath of the tragedy to deal with environmental remediation and compensation claims on the ground in Brazil.

The three companies say Renova has so far spent 34 billion reais on its own compensation and remediation work, and that the Doce river system has been remediated to close to historical conditions before the disaster. About 80 per cent of families displaced by the dam failure are now resettled and 85 per cent of compensation claims registered with Renova have been dealt with, Renova says.

BHP also faces a separate lawsuit in the UK on behalf of 700,000 Brazilian victims of the disaster that is claiming as much as £36bn ($69.4bn).

The claim has been brought by UK law firm Pogust Goodhead and is set to be heard in October.

Pogust Goodhead principle partner Tom Goodhead said the company’s clients would welcome the decision in Brazil, but it would have no impact on the UK lawsuit. He said the judgment was “a positive step in holding BHP, Vale and Samarco liable”.