BHP Billiton (BHP) shares rose strongly yesterday despite the news that the company and Vale had reached agreement on the first of the costly claims involving last November’s Samarco dam disaster.
An announcement yesterday before the start of trading said that Samarco, the iron ore joint venture between Vale and BHP Billiton, has done a deal with the Brazilian government that could cost it as much as Real 30 billion ($US7.7 billion, or more than $A10 billion).
The news didn’t hit BHP shares which rose 3.1% to $17.25 on the ASX as they reacted more to a new four month high for iron ore, a three month high for copper, and a solid rise in global oil prices.
Brazil’s President, Dilma Rousseff said that as part of the settlement of the country’s lawsuit against the company, Samarco would pay R4.4 billion over the next three years to fund the clean-up operation. After 2019, Samarco will spend an estimated R1.2 billion a year, paying out as much as R20 billion.
Samarco will also have to pay out R4.1 billion over 15 years in compensation for the disaster, which killed at least 17 people and unleashed a flood of waste-filled mud across two states.
But the President warned there was no limit or ceiling for how much the company would have to pay to fix the socio-economic and environmental damage of the dam’s collapse in Brazil’s Minas Gerais state.
Australian analysts say the size of these payments or fines are much lower than the sort of figures being bandied around in the wake of November’s tragic dam collapse and flood.
Samarco, which is a 50-50 joint venture between BHP and Vale, will set up a foundation that will run reparatory and compensatory programs in the areas affected by the dam spill.
Samarco will pay the foundation the equivalent of $US500 million over the remainder of this year, the equivalent of $US300 million in 2017 and the equivalent of $US300 million in 2018, with those payments being made in Brazilian currency.
With the Brazilian economy in deep recession and the Real weak against the greenback, BHP will probably pay even less than it seems on paper.
The company will pay no more than $US400 million in each of the years between 2019 and 2021, and potentially as little as $US200 million in each of those years. It all depends on the currency movements. BHP and Vale will be liable for the payments if Samarco cannot meet them.
BHP chief executive Andrew Mackenzie welcomed the deal in a statement.
"The agreement demonstrates our commitment to repairing the damage caused and to contributing to a lasting improvement in the Rio Doce," he said.
The agreement does not prevent Samarco, BHP and Vale facing further claims for damages arising from the dam spill.
