MAC: Mines and Communities

BHP signs deal to suspend $55 billion Samarco lawsuit for two years

Published by MAC on 2018-06-27
Source: ABC, Bloomberg

BHP signs deal to suspend $55 billion Samarco lawsuit for two years

By business reporter David Chau

26 June 2018

Samarco and its owners BHP and Vale have signed a deal for the Brazilian government to drop a $7 billion civil lawsuit against the mining companies over a 2015 disaster at the Samarco iron ore mine.

For the settlement to be binding, it also needs to be signed by Brazil's federal government and the states of Minas Gerais and Espírito Santo, then ratified by a court.

The disaster saw a dam burst, which unleashed millions of tonnes of muddy, toxic mine waste in November 2015.

It resulted in 19 deaths, the destruction of several small communities, and widespread environmental damage — in particular, the pollution of the Rio Doce, a major river system.

The agreement to drop the lawsuit will buy the parties more time to negotiate the settlement of a larger $55 billion civil claim.

The more expensive court action was brought by Brazil's federal prosecutors, who are seeking social, environmental and economic compensation.

It will be suspended for the next two years, during which time the parties will try to reach another settlement.

In return, BHP and the other parties have also agreed to give the local community a bigger say in running the Renova Foundation — a relief program formed after the 2015 disaster to administer clean-up costs, remediation and compensation.

Renova is overwhelmingly represented by BHP and Vale, which appointed six out of its seven board members.

Two additional members will join the board under this deal, and will be selected by the community.

A deal … to agree on a second deal

"The signing of this agreement is a good step forward," BHP chief external affairs officer Geoff Healy said.

"It settles the 20 billion real ($7 billion) claim brought by the [Brazilian] federal and state government completely, and that is now terminated.

"We have a framework that brings all of the parties together, where we can work toward improving and refining the remediation and compensation process."

An investigation into the disaster commissioned by BHP, Vale and Samarco found the dam collapse was due to a range of construction and design flaws.

It is considered to be the largest environmental disaster in Brazil's history.

In addition to the civil claims, 21 current and former staff were charged with manslaughter and environmental crimes in late 2016, including BHP's former president of iron ore Jimmy Wilson.

BHP took multi-billion-dollar writedowns because of the Samarco disaster and operations remain suspended at the mine.

The companies are currently in talks with Brazilian government authorities to obtain the necessary environmental licences and re-open the mine.

However, no time frame has been given on when the Samarco mine will be operational again.

Back in July 2016, the company doubled its provisions for the disaster to well in excess of $3 billion.

However, the company has yet to disclose exactly how much this settlement will cost shareholders.

At 1:00pm AEST, BHP shares had fallen 1.9 per cent to $32.36.

Samarco is said nearing settlement with Brazil prosecutors

Bloomberg News -

15 June 2018

Vale and BHP have already secured four court extensions to negotiate the settlement of a multibillion-dollar claim stemming from a fatal tailings dam disaster in 2015. (Image from archives)

(Bloomberg) — After a year of back and forth, the owners of the Samarco iron-ore mine are close to signing a definitive settlement with Brazilian prosecutors that will clear the way for restart preparations and debt talks to begin, people briefed on the matter said. Bonds jumped.

Joint venture partners Vale SA and BHP Billiton Ltd. have already secured four court extensions to negotiate the settlement of a multibillion-dollar claim stemming from a fatal tailings dam disaster in 2015.

This time the two sides are on track to meet the deadline, which now stands at June 25, the people said, asking not to be identified because talks are private. Final details probably will be ironed out in the coming days, including a request by prosecutors to have community representatives on the board of a foundation that administers ongoing reparations, the people said.

The prosecutor’s office had no comment. The press departments of Vale, BHP and Samarco declined to comment.

The settlement would bring together two separate claims: 155 billion reais ($41 billion) sought by federal prosecutors and 20 billion reais sought by the southeastern state of Minas Gerais in a civil suit.

"Vale’s best case is a limited restart in the first half of 2019. "Resolving the legal cases will allow talks with creditors to begin as the company starts to draft its long-term business plan, although any restructuring deal would still require a firm restart date, the people said. Vale’s best case is a limited restart in the first half of 2019. Wood Mackenzie predicts 2020.

In a note to clients Wednesday, Exotix reiterated a buy rating on Samarco bonds, predicting a fine that’s in line with the venture’s future ability to pay.

"We expect them to seek not to jeopardize Samarco’s future operations and/or profitability, and allow it to become profitable enough to take care of bondholders and other creditors," wrote Rafael Elias, a director for Latin American research at Exotix.

Samarco notes due 2022 rose the most in five weeks on Friday to 69.3 cents on the dollar at 9:15 a.m. in New York. Still, without a restart, they’re worth zero, said Patrik Kauffmann, who helps manage $11 billion in assets at Solitaire Aquila in Zurich.

In December, Samarco obtained permits to use the Alegria Sul pit for depositing waste, but has held off preparatory work until settling with prosecutors. Other restart permits are pending.

(Written by Paula Sambo and R.T. Watson)



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