BHP reaches interim Samarco settlement

BHP Billiton has reached a near $1bn preliminary deal with Brazil’s federal prosecutor to settle a civil claim.

Brazilian 76-year-old farmer Jose Pascual walks through a devastated area in Paracatu de Baixo village -which was been ruined by the flood following the collapse of Samarco's iron ore waste reservoir. Picture: AFP.

BHP Billiton says its troubled joint venture Samarco has reached a preliminary agreement that appears to lay the groundwork for the settlement of a $US47.5 billion ($63.1bn) civil case relating to a tragic tailings dam collapse in 2015.

The deal with the Federal Prosecutors’ Office in Brazil relates to compensation for the Fundão tailings dam failure on November 5, 2015, which claimed the lives of 19 people and wiped out several small communities.

Samarco has curbed operations ever since, with both joint venture partners BHP and Vale suggesting mining could resume this year.

Last March, the companies agreed a $US2.3bn settlement with two Brazilian states and the federal Attorney General of Brazil, as part of a 15-year recovery plan.

However, federal prosecutors consequently put forward a separate $US47.5bn claim, a figure analysts have long suspected will not be agreed to by the miners.

Today’s update from BHP says a framework has been developed for the settlement of that latter case.

Within the framework is a plan to appoint experts to advise the federal prosecutors in relation to the complete social and environmental consequences of the dam failure, which will allow for revisions to the separate $US2.3bn settlement that has already been agreed.

Federal prosecutors are currently not party to that deal.

“The expert advisors’ conclusions will be considered in the negotiations of a final settlement arrangement with the federal prosecutors, which is expected to occur by June 30, 2017 under the timeframe established,” BHP said.

Under the new agreement, Samarco, Vale and BHP will provide total security of 2.2 billion reals ($900m) to support the payments for the social and environmental remediation programs.

It also requires Samarco, Vale and BHP to advance 200 million reals ($82.1m) of the funding obligations under the $US2.3bn framework agreement to programs for several municipalities within the next 90 days.

Meanwhile, applications by federal prosecutors for a 7.7 billion reals ($3.2bn) injunction and the 20 billion reals ($8.2bn) asset freezing order in criminal proceedings will be suspended pending negotiations on the settlement.

“If a final settlement arrangement is not agreed by June 30, the federal prosecutors may request reinstatement by the court of the 1.2 billion reals injunction,” BHP noted.

The miner remains of the view there is no timeline for a restart of operations after the Brazilian Government this week hinted at a resumption in two months.

“Any restart of operations at Samarco is subject to a separate set of negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community,” BHP said.

“Resuming operations would require government approvals, the granting of licenses by state authorities, the restructure of Samarco’s debt, and the completion of commercial arrangements with Vale regarding the use of its infrastructure.”