BHP raises provision for Brazilian dam disaster by US$2.8 billion

BHP raises provision for Brazilian dam disaster by US$2.8 billion

The Brazilian town of Bento Rodrigues following the disaster in 2015. Photo: Rogério Alves/TV Senado, via Creative Commons.

The Brazilian subsidiary of Australian mining giant BHP (ASX: BHP) has increased its provision relating to the 2015 Samarco dam disaster by 75 per cent to US$6.5 billion ($10 billion), following a court decision late last month against the company and its joint venture partners.

Following a claim by Brazil's Federal Public Prosecution Office, the country's Federal Court found that Samarco, Vale and BHP Brasil were jointly and severally liable to pay collective moral damages of US$9.75 billion ($15 billion) when any and all appeals are finally determined.

The findings concern the catastrophic failure of the Fundão tailings dam at an iron ore mine in Minas Gerais which collapsed, killing 19 people and causing damages to downstream villages and contaminating an estimated 668km of watercourses.

The Samarco project was not operated by BHP Brasil, but it did have a 50 per cent ownership in the joint venture with its partner, Brazilian mining company Vale.

The Federal Public Prosecution Office's claim was brought against the three parties in May 2016 seeking approximately US$32 billion ($49.2 billion) for reparation, compensation and moral damages relating to the Samarco dam failure.

To date the Renova Foundation set up by the three companies has spent US$7.2 billion ($11 billion) on comprehensive reparation and compensation, including more than US$3.4 billion ($5.2 billion) in indemnities and emergency financial assistance to approximately 430,000 people - around US$7,906 ($12,170) per person on average.

BHP reports that approximately 84 per cent of the resettlement cases for the communities impacted by the Samarco dam failure have been completed.

In today's announcement, the group notes that at the start of this month the three parties in the Samarco venture filed a clarification motion with the Federal Court of Brazil "in respect of certain factual inaccuracies in the decision, including the calculation of damages".

"A decision remains pending. BHP Brasil also intends to appeal the decision, challenging the merits and amount of damages. The appeal process is estimated to take approximately two to five years," BHP states.

"Samarco, Vale and BHP Brasil have been engaging in negotiations with the Brazilian State and Federal Government and other public entities to seek a settlement of obligations under the Framework Agreement, the Federal Public Prosecution Office Claim, and other claims by government entities relating to the Samarco dam failure."

The multinational highlights significant uncertainty around the resolution of the Federal Public Prosecution Office Claim and the Framework Agreement obligations, noting "a risk that outcomes may be materially higher or lower than amounts reflected in BHP Brasil’s provision for the Samarco dam failure".

BHP shares are down 1.49 per cent at $45.265 in morning trading.

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