Murder charges have steeled BHP’s resolve over Samarco response

The charges levelled at current and former BHP executives are hardening the miner’s response to the dam disaster.

Aerial view of the damage caused by the bursting of the tailings to the village of Bento Rodrigues, in Mariana, Minas Gerais state, Brazil. (AFP PHOTO/CHRISTOPHE SIMON)

The position of BHP in the aftermath of the Samarco disaster could so easily have been much worse. In 2012-13, BHP had three good candidates for the position of chief executive to replace Marius Kloppers.

One of those candidates was Marcus Randolph who sat on the Samarco board as part of his BHP executive duties. Andrew Mackenzie was chosen as CEO and, as is normal in such situations, Marcus Randolph left the company and stepped down from his position at Samarco.

Now he is charged with murder (it is referred to as ‘qualified homicide’) although he was absent from the Samarco board for well over two years before the tailings dam burst.

Understandably, the bizarre situation of having current and former top executives charged with murder — an offence that in Brazil can carry a 54-year jail penalty — is having a profound effect on Australia’s second largest company. And the fact that one of the people charged could easily have been the BHP chief executive adds to the intensity.

But, just as bizarre is the story of Tony Ottaviano who is a middle-ranking executive in BHP’s Perth office who was appointed to the Samarco board in 2015. Ottaviano attended just one board meeting before the dam burst and at that board meeting there was no discussion of any tailings dam danger.

Nevertheless, Ottaviano gets charged with murder along with four other serving BHP executives and three past executives including Randolph.

Brazilian iron ore producer Vale was and is BHP’s partner in Samarco and a string of its executives have also been charged with murder along with Samarco executives.

Given that cracks are appearing in the BHP-Vale relationship, plus the charging of a former BHP executive who has not sat on the Samarco board for well over two years, I decided to look more closely at what is happening in Brazil.

First I want to take you back to the start.

We now know a lot more about what caused the Samarco disaster. The technology of tailings dams carries considerable scientific controversy. The Samarco board hired one of the world’s leading tailing dam consultants to report on the Samarco tailings dam three or four times a year.

Over the years, they made a series of recommendations all of which were either implemented or were being implemented at the time the dam burst. Because they were regular visitors to the tailings dam, consultants knew exactly what was taking place and at no time warned the board that there was risk of a collapse. Accordingly, the BHP people on the Samarco board had no inkling of the danger.

We know now that what actually happened was that the dam was designed so that there would be a large area of sand between the dam wall and what are called ‘slimes’ or waste liquids. In the construction of the dam, not all the draining systems worked as planned and a series of alterations were made — all approved by the independent consultant. In addition, the dam wall was made bigger to accommodate more tailings.

What nobody knew was that at the bottom of the dam the slimes were seeping below the sands towards to the wall and eventually hit that wall and began to permeate through the wall’s lower levels.

There was no way this could be seen from the surface and, meanwhile, the amount of tailings was increasing along with higher iron ore production.

The dam wall was made higher and there were other alterations. Again, what nobody knew, and certainly not the independent consultants, was that these changes, including the higher dam wall, would put extra pressure on the bottom of the dam where the slimes had seeped and this would burst the dam.

In most operating situations, if directors go to the operations site and talk privately to the people who work there, directors can usually find out what is going wrong because the reports from the people on the ground are often far more accurate than those that go to the board table. In this case, I am not sure that is right, given the role of the independent consultants.

Surprisingly, the independent experts have not been charged with murder but rather been enlisted as witnesses, so this account of what happened will be a major issue in any trial. BHP will say that if the world-renowned tailings dam experts could not see the looming problem, then the directors certainly would not have.

The Brazilian government has a poor reputation and, rightly or wrongly, is seen by many as being to be corrupt. The heroes in Brazil are the so-called ‘prosecutors’ who are funded by the government but are completely independent of control from the government.

They are public heroes because they bring to account drug lords and criminals and, like similar Australian organisations, they know how to play the publicity game. And, so, charging current and former executives from BHP and Vale with murder over the Samarco affair has increased the popularity of prosecutors.

In this case, the pre-trial preliminaries may extend over many years.

Meanwhile, the murder charges faced by current and former executives adds a new dimension to any corporate relationship, so it’s not surprising that strains in the BHP-Vale relationship are coming to the surface. The BHP strategy is straightforward. The Big Australian has decided to invest whatever it takes to defend its people and, in the process, a new steely resolve appears to have risen, not only towards the prosecutors $US48bn damages case, but also to what happens next at Samarco.

BHP now wants to complete the restoration of the village and restore the river (a much more complex task). It is likely that the cost will be higher than the$2.4 billion expected but the difference will not be substantial.

When that repair and restoration is finished the damages case may be seen in a different context but what about the Samarco operation and its debt?

BHP is adamant the $US4bn loaned by banks and others non-recourse to Samarco will only be paid from proceeds of production restoration. I have pointed out that the deeper BHP gets into the Samarco situation the more dangerous it is that these Samarco debts will become BHP debts (Pressure to build on BHP over Samarco, October 24). This appears to be part of the difference with Vale.

Meanwhile, there are two pits in the Samarco operation, which can be used for tailings without any major outlays. They are safe and deep enough to allow production to last for about five years. No doubt Vale has its own views on what should happen.

In BHP’s view, if production doesn’t start then Samarco’s $US4bn in non-recourse lenders will have lost their money (BHP does not plan to fund the Samarco debt). The villagers are currently being employed with BHP and Vale money. If production does not resume they may have houses but will lose their employment.