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BHP's Brazilian subsidiary has increased its provision for the 2015 Samarco dam disaster by 75% to US$6.5 billion ($10 billion) after a recent court decision against the company and its joint venture partners. The Federal Court in Brazil found Samarco, Vale, and BHP (ASX:BHP) Brasil jointly liable for collective moral damages of US$9.75 billion ($15 billion), subject to final determination pending any appeals.
The disaster resulted from the collapse of the Fundão tailings dam at an iron ore mine in Minas Gerais, claiming 19 lives and causing extensive damage to downstream villages while contaminating approximately 668km of watercourses. Although BHP Brasil did not operate the Samarco project directly, it held a 50% ownership stake in the joint venture with Vale.
The Federal Public Prosecution Office's claim, filed in May 2016 against the three parties, sought around US$32 billion ($49.2 billion) for reparation, compensation, and moral damages stemming from the dam failure. To date, the Renova Foundation, established by the companies, has allocated US$7.2 billion ($11 billion) toward comprehensive reparation and compensation efforts, including indemnities and financial assistance to affected individuals.
BHP reports that 84% of resettlement cases for impacted communities have been completed. However, the company, along with Samarco and Vale, filed a clarification motion with the Federal Court of Brazil to address factual inaccuracies in the decision, including damage calculations. BHP Brasil intends to appeal the decision, challenging both the merits and the amount of damages, with the appeal process expected to last two to five years.
Meanwhile, negotiations with the Brazilian State and Federal Government, as well as other public entities, are ongoing to settle obligations under the Framework Agreement and other claims related to the Samarco dam failure. BHP acknowledges significant uncertainty surrounding the resolution of the Federal Public Prosecution Office Claim and Framework Agreement obligations, highlighting the potential for outcomes to deviate materially from the provisions made by BHP Brasil.
