BHP Group to Face the First Step of Trial Over Brazilian Dam Failure

Summary

• A lawsuit of £5 billion have been filed against BHP Group Plc, in Britain
• Fundao tailings dam, which was owned by the Samarco had collapsed in 2015, killing 19 people
• The case can be heard in Britain or not will be decided after the initial eight-day hearing

A group of 2000,000 Brazilian people comprising of individuals, businesses, churches municipalities and indigenous communities, filed a lawsuit of £5 billion against the Anglo-Australian mining company, BHP Group plc, in Britain. The case will be opening in Manchester on 22 July 2020 and is believed to be one of the largest in the history of British law.

Initially, an eight-day hearing trial will take place, depending on which decisions will be taken whether the case can be heard in Britain or not. Though, it is anticipated that the judge will restrain the judgment until later in the year. The success of the initial trials will be the deciding factor which will determine the liability and quantify damages.

Neil Burrows, the spokesperson of BHP, said that the claim belongs to Brazil and not to Britain. He also added that the BHP Group and its partners had formed an organisation in order to look into the managing of the damages and repairs.

What is the issue all about?

The issue is related to Fundao tailings dam, which was owned by the Samarco, a joint venture between BHP Billiton and Vale, a Brazilian iron ore mining company. The dam used as storage of mining waste, collapsed in 2015 killing 19 people. The accidents led to spillage of toxic sludge of approximately 40 million cubic metres into communities, the Rio Doce River and the Atlantic Ocean 650 km away. It was called one of the biggest environmental disaster in the world mining industry.

The suitors have accused it of having disregarded the cracks that appeared before the falling of the dam while also pointing that it has not taken note of the safety warnings by raising the height of the dam because of the increased capacity.

Tom Goodhead, who is a partner at law firm PGMBM, representing the claimants, commented that the Brazilian legal system is protecting the public companies which are responsible for the disaster. He also said that the environmental law of Brazil had imposed strict liability for damage caused to the environment.

Let us delve deep into the proceedings so far-

Brazilian Proceedings

• 5 November 2015: Collapse of two mining dams operated by Samarco, in Brazil releasing 40 million cubic metres of toxic iron ore, taking lives of 19 people.
• Two weeks into the accident, an agreement of $262 million was signed by Samarco with the Brazilian Government to provide funds for alleviating and adopting remedial measures for the damage caused to the environment.
• 2 March 2016: A settlement of $6 billion was reached by Samarco for restoring the affected communities.
• 3 May 2016: A civil lawsuit of $44 billion was filed by the prosecutors for charges involved in cleaning and restoring.
• 20 October 2016: Homicide charges were filed by the Brazilian prosecutors against 21 top executives of Samarco, Vales and BHP, holding them responsible for the deaths of the people who died in the accident.
• 16 March 2017: A lawsuit which was filed to facilitate negotiations of a settlement between the Government and the companies was suspended by a judge.
• July 2017: The criminal case filed on 20 October 2016 was suspended by the federal court.
• 25 June 2018: An agreement of $ 5.3 billion was signed by BHP Billiton and Vales with the Brazilian authorities for settling the lawsuit filed in relation to the 2015 dam collapse.
• 2 October 2018: A final compensation deal was signed by Samarco, Vales and BHP to compensate the relatives of the 19 people that died in the accident and also to those who underwent the damage or loss of property, as announced by the Brazilin prosecutors.

Australian Proceedings

• May 2018: A lawsuit was filed by the US shareholders against BHP Billiton in Australia, accusing the companies of and misleading them and having ignored the safety risks, even after being aware of it.
• August 2018: The company agreed to pay $67 million in settlement of the above lawsuit.

The UK Proceedings

• November 2018: A lawsuit of $US5 billion was filled against BHP Billiton by approximately 240,000 plaintiffs, including Brazilian municipalities and Krenak indigenous communities seeking compensation for damages caused by the collapse of the dams. The same was filed at the UK High Court in Liverpool.
• May 2019: The claim was fully served.
• April 2020: The proceedings which were supposed to take place in the High Court of Justice of England and Wales got postponed by a British judge on the grounds of the travel restrictions imposed by the British Government due to the Coronavirus infections.
• A decision whether BHP Group Plc can be sued in England for £5 billion or not will be taken in the hearing to be held on 22 July 2020.

BHP Group PLC

Company Profile

BHP is an international resource company, serving the world since 1996. It operates in across 90 locations with a workforce of over 72,000 employees. It has its headquarters in Melbourne, Australia. The company is into the business of extracting and processing minerals, oils and gases. It is featured as one of the world's top producers of commodities such as iron ore, metallurgical coal and copper. The company operated under a Dual Listed Company Structure, i.e., BHP Group Limited and BHP Group Plc. BHP is considered to be the largest mining company in the world, in terms of market value.

Financial Highlights

According to the half-yearly results for the period ending 31 December 2019, the company had a net income (EBITDA) of US$12.1 billion. It was among the cheapest producer of iron ore. The production levels of copper increased by 7 per cent, and it remained the largest seaborne supplier of metallurgical coal. The company also proposed an interim dividend of 0.65 cents per share.

Stock Performance

BHP Group PLC (LON:BHP) stocks were trading at GBX 1,782.60 at 12:23 PM on 15 July 2020, up by 3.87 per cent from its previous close of GBX 1,717.60. The 52-week low price of the stock was GBX 939.80, and the 52-week high price was GBX 2,042.50. It was having a market capitalisation (Mcap) of £36,276.95 million. The volume traded at the time of reporting was 2,065,247. The company delivered a negative return on price, which was 4.07 per cent on a YTD (Year to Date) basis. The Beta of the company was 1.3, indicating that the volatility of the stock is higher than the benchmark index.

Conclusion

Fundao tailing dam was the major environmental disaster of the world mining industry. It was a major setback for BHP Group as well, now if the latest hearing establishes that the case can be heard in UK then further trials would quantify the damages and determine the liability for the company, which could hurt financially, but would send a positive message to the environmentalist community that no one is insulated from the consequence of the environmental damage.