Samarco and its 50:50 owners, BHP and Vale, entered into a 15-year agreement with the Federal Attorney General of Brazil, the states of Espirito Santo and Minas Gerais and other authorities for the restoration of communities and the environment following the November 5 dam collapse that killed at least 17 people.
A foundation will be formed to carry out reparatory and compensatory programs and will be governed by a seven-member board featuring two members each from Samarco, BHP’s Brazilian subsidiary and Vale, and one from the Brazilian authorities.
Samarco will fund the foundation to the tune of up to 9.2 billion real ($A3.2 billion or $US2.4 billion) until 2021, though BHP and Vale will be required to chip in Samarco’s funds if it cannot meet its obligations.
Around $US500 million will be spent this year, followed by $300 million each in 2017 and 2018.
Depending on the progress of remediation, annual contributions between 2019 and 2021 will be $200-400 million annually.
The agreement settles the 20 billion real ($US5.1 billion) civil public claim against Samarco initiated in November by the Brazilian authorities.
“This agreement is an important step forward in supporting the long-term recovery of the communities and environment affected by the Samarco dam failure. It provides a platform for the parties to work together to support the remediation of affected areas,” BHP Billiton CEO Andrew Mackenzie said.
“This agreement demonstrates our commitment to repairing the damage caused and to contributing to a lasting improvement in the Rio Doce.”
RBC Capital Markets analyst Paul Hissey said the news should resolve some of the uncertainty around the financial impact of the Samarco dam failure.
“The company appears careful to state that it will be the local arm of BHP which is involved (a curious distinction given the corporate's pledge to make good), although clearly BHP Billiton (the global entity) would provide the financial backing of up to $US1.8 billion if required (we think it is likely that BHP will be contributing at least some of this quantum given Samarco's lack of current earnings given the operation is suspended),” he said this morning.
“Our estimates suggest BHP could comfortably fund the total share of its obligations in the event that Samarco cannot – especially given recent revisions to its dividend policy which would mean that even under spot prices, the company could maintain the current state of its balance sheet and build free cash over the next 3-4 years.”
Hissey warned that other potential reported civil and criminal lawsuits would continue to provide some minor overhang on the stock.
RBC has a sector perform rating on BHP with a $A16 price target.
The news pushed BHP shares as high as $17.73 this morning, but they last traded 2.8% higher at $17.21.
