BHP’s dam disaster dealings leave a bad taste

Damage control. BHP's tactics in Brazil may be going too far. On Friday, the miner, partner Vale and their Samarco joint venture in the country outlined a potential 132 billion reais ($23 billion) settlement with Brazilian authorities over a catastrophic dam failure in 2015. Problem is, it's essentially an optical illusion. Meanwhile, the Australia-listed company run by Mike Henry is in hot water trying to hinder a related class-action lawsuit in London.

The potential Brazil deal unveiled last week simply defers when and how BHP and Vale would take the financial hit from the collapse of a dam that unleashed arsenic, mercury and other toxic waste, killing 19 people and polluting almost 700 kilometres of waterways.

In theory, the amount implies BHP would be directly on the hook for up to $12 billion, and Vale, the remaining amount, after deducting compensation already paid out. Instead, both companies plus Samarco are in discussions to pay 75% of the potential damages over 20 years. That would allow Samarco to fully recover - it only restarted mining in 2020 and is operating way below capacity - and pay for the damages using profit that would otherwise go to its two parents.

True, the impact for shareholders at the two miners would be minimised. BHP, for instance, reckons it won't need to add to the $6.5 billion it has already set aside. But that deal would prioritise Samarco's financial health rather than the needs of states, municipalities and other groups which have already been waiting almost nine years for a broader settlement beyond the $8 billion already paid. And BHP has the financial firepower to offer an immediate solution: it'll generate $9 billion of free cash flow in its current financial year, per LSEG, and its net debt is just 30% of EBITDA.

Moreover, BHP has been called out for hindering a related class-action lawsuit in London seeking up to $47 billion for more than 600,000 claimants, including 46 Brazilian municipalities. In July, the law firm representing the claimants, Pogust Goodhead, discovered the miner had paid a Brazilian lobby group to file a case with the country's supreme court that argues local governments should be barred from pursing suits abroad. The $146 billion miner now risks being held to be in contempt of the English court if it helps the lobby group pursue the case.

It's right and proper for companies to try to protect their shareholders. But BHP's tactics add other risks, play a role in victims remaining uncompensated for too long and leave a bad taste.

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BHP on Oct. 18 said in a regulatory filing that it, Vale and the joint venture they own, Samarco, are discussing with Brazilian authorities paying 130 billion reais ($23 billion) in compensation to settle litigation related to the collapse in 2015 of a dam containing mining waste. Of that amount, 100 billion reais would be paid out over 20 years. A deal could be signed on Oct. 25, sources told Reuters. In separate statements and securities filings, Vale, BHP and Samarco said the version of the agreement currently being discussed would include a total compensation of 170 billion reais. That includes the 38 billion reais already paid out. BHP goes to trial in the High Court in London on Oct. 21 in a class-action lawsuit brought on behalf of some 620,000 claimants seeking around 36 billion pounds ($47 billion)in damages over the same disaster. The collapse of the dam sent more than 40 million cubic metres of toxic sludge, including arsenic, lead and mercury, flowing out into the surrounding areas. It killed 19 people, polluted 668 kilometres of watercourses, killed 11 million tons of fish, and destroyed 1,469 hectares of riparian forest.