BHP, Vale Flag Charges of More Than $2 Billion on Dam Spill

BHP to Take a Charge of More Than $1B on Dam Spill
  • Spill at iron ore venture in Brazil killed as many as 19
  • Restart of Samarco operations now seen unlikely in 2016

BHP Billiton Ltd. and Vale SA will book charges totaling more than $2 billion after last year’s tailings dam spill at their joint venture in Brazil that killed as many as 19 people.

BHP expects to book a charge of $1.1 billion to $1.3 billion for the six months to June 30, along with direct costs of about $100 million, the world’s biggest miner said Thursday in a statement. Separately, Rio de Janeiro-based Vale said it will book 3.7 billion-real ($1.2 billion) in its second-quarter results to be released later Thursday.

The provisions come as hopes fade for a restart at the iron ore mine this year and relate to the Samarco joint venture’s funding obligations under an agreement with Brazilian authorities signed in March. A rupture in a tailings dam in November sent billions of gallons of sludge into the Rio Doce river basin, in an incident described by authorities as Brazil’s worst ever environmental disaster.

Investors had been anticipating charges after BHP and Vale struck the accord with Brazilian authorities, Ric Spooner, chief market strategist at CMC Markets Asia Pty said by phone.  “If it’s only recognizing the agreement that they’ve already set, then it’s probably not a big deal,” he said. “If it was signaling that they are concerned that ongoing litigation is going to cause a worse outcome or a greater liability, then there might be concern.”

Melbourne-based BHP rose 0.6 percent to A$19.97 in Sydney, extending its advance this year to 12 percent. BHP reports full-year earnings on Aug. 16. Vale’s shares closed 3.4 percent higher Wednesday at 15.08 reais in Sao Paulo before the company issued the statement.

Credit Lines

BHP in February recorded a $1.2 billion pretax writedown related to the dam failure and last week flagged it expected to book any financial impact from the spill as an exceptional item. Samarco was the world’s second-largest producer of iron ore pellets and had an annualized output rate of about 30 million metric tons in September.

BHP has approved additional funding of $134 million to support repatriation and compensatory programs, while Vale expects to contribute about $150 million in the second half of the year, the companies said. The funding would be offset against their provisions, they said.

“The recognition of the provision demonstrates our support for the long-term recovery of the communities and environment affected by the Samarco tragedy,” BHP Chief Executive Officer Andrew Mackenzie said in his company’s statement. In February, the Melbourne-based miner recorded a $1.2 billion pretax writedown related to the dam failure.

Vale intends to offer as much as $100 million in short-term credit to Samarco to support its operations, while BHP said it would provide a similar funding facility of $116. The mine is looking at its options for restructure bank debt and bonds, according to people with knowledge of the matter.

“Funds will be released on an as-needed basis and will be subject to Samarco achieving certain milestones,” Vale said in its statement.

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