BHP in Brazil dam disaster deal
A deal signed by the owners of a BHP joint venture could allow them to pay far less than originally sought by Brazil.
Mining companies responsible for a disastrous dam failure in Brazil last year have signed an agreement with authorities that could allow them to pay far less than the 20.2 billion Brazilian reals ($US5.2 billion) originally sought by government lawyers.
Samarco Mineração SA and its parent companies, BHP Billiton and Brazilian mining giant Vale, reached the settlement after weeks of haggling with federal and state authorities that had joined the lawsuit.
The deal represents a major milestone in the miners’ efforts to move past the November 5 collapse of Samarco’s Fundão tailings dam, described by activists as the biggest accident of its kind. The dam released an avalanche of mud and mine waste that left 19 people dead and hundreds more homeless, as well as polluting hundreds of kilometres of rivers in southeast Brazil’s Rio Doce basin.
According to a summary provided by Vale, the settlement requires the companies to spend a minimum of 9.46 billion reals ($US2.4bn) through to 2030 — less than half the damage estimated by federal and state regulators in November.
A foundation that will be set up to manage most of those funds is to be governed by a board of directors dominated by the companies themselves, with Brazilian authorities having the right to nominate only one of the board’s seven members. The other six will be appointed by Samarco, Vale and BHP Billiton.
BHP (BHP) said the 15-year agreement provides a long-term remedial and compensation framework for responding to the tragedy.
“This agreement demonstrates our commitment to repairing the damage caused and to contributing to a lasting improvement in the Rio Doce,” chief executive Andrew Mackenzie said in a statement.
Samarco would fund the foundation with contributions of $US500m in 2016, $US300m in 2017 and $US300m in 2018. The amount for annual contributions for each of 2019, 2020 and 2021 would vary between $US200m and $US400m, BHP said.
“To the extent Samarco does not meet its funding obligations, each of Vale and BHP is liable in proportion to its 50 per cent shareholding in Samarco,” BHP said.
BHP said the 15-year agreement was renewable for periods of one year until all its obligations have been met.
BHP shares were up 5.2 per cent at $17.60 at 10.30am (AEDT).
Activists have criticised drafts of the agreement in recent weeks for apparently granting the mining companies too much say in how the clean-up and compensation funds would be allotted.
Nevertheless, President Dilma Rousseff praised the deal in a ceremony in Brasília, saying it would allow for “full restoration of the socio-economic and environmental conditions” of the Rio Doce basin.
“We are making history with this accord,” Ms Rousseff said, adding that she expects “about 20 billion reals ($US5.1bn) will be invested” over the 15-year term of the deal.
“There will be complete restoration of socio-economic conditions and of the affected environment. And I want to emphasise: there will be no financial limits until there is full reparation,” she said.
“We want to build a new life on the ruins.”
Vale’s shares in São Paulo surged 8.1 per cent after the deal was signed, closing at a nine-week high of 9.99 reals. Samarco’s publicly traded bonds due in 2024 recently traded 6.4 per cent higher at 50 cents on the dollar.
Federal Attorney Renato Rodrigues Vieira, who led the federal government’s negotiations, said the agreement doesn’t revolve around a dollar figure.
“We are not worried about the money, we want them to do the job,” Mr Vieira said of the mining companies.
Samarco’s operations were shut down indefinitely after the accident. If it runs out of cash before meeting the deal’s funding requirements, BHP Billiton and Vale agreed to step in and share any costs.
It wasn’t immediately clear what mechanisms will be available if the companies want to spend only the minimum amount specified in the settlement.
After dropping its $US6.5bn ($9bn) progressive dividend commitment last week, BHP had its cherished “A” credit rating reaffirmed by Standard & Poor’s (Fitch was expected to affirm an A+ rating overnight).
But S & P warned that an agreement costing more than 20 billion reals and not including an eventual restart of Samarco could contribute to downward pressure on the rating.
“When we include the proposed penalty of 20 billion reals requested by the government, we forecast BHP Billiton’s funds from operations-to-debt ratio would weaken to about 34-37 per cent by June 2017, subject to different excess fund payouts,’’ S & P said.
Despite the overnight agreement, Brazilian police last week said they would be seeking arrest warrants for six Samarco employees and a consultant to the BHP and Vale-owned company.
The targeted seven were being accused of qualified homicide, the Brazilian equivalent of involuntary manslaughter. The move followed the police receiving a technical report into the disaster.
It concluded that the cause of the dam collapse was liquefaction, with seven contributing factors. They included alleged failures in water-level monitoring, monitoring equipment failures and rapid increases in the dam’s height.
BHP and Vale said at the time that the police had made serious allegations that needed to be fully considered. The companies have previously ordered an external investigation into the accident, led by a panel of geotechnical experts and US lawyers Cleary Gottlieb.
“Until it is completed, we will not speculate about the cause, or causes, or talk about what may or may not have contributed to the failure of the dam,’’ BHP and Vale said.
BHP made a preliminary assessment of the financial impact of the Samarco disaster in its interim profit report, released last week.
It took an exceptional charge of $US1.2bn before tax ($US860 million after tax) in the interim results, with the charge split into three two components.
There was a $US655m loss covering BHP’s 50 per cent share of Samarco’s $US1.3bn provision for costs relating to the dam failure and a $US525m impairment to reduce the value of BHP’s investment in Samarco to zero.
Then there was an offsetting $US330m write-off of deferred tax liabilities to reflect the reduction in undistributed earnings.
With Barry Fitzgerald