BHP faces US$9.7 billion fine over Brazil dam disaster

BHP (ASX: BHP) received a formal notification from Brazilian judges over the weekend to pay 47.6 billion reais (US$9.7 billion) in damages over the 2015 dam disaster, one of Brazil's worst environmental disasters which spilled 40 million cubic meters of toxic sludge. But BHP says it has yet to receive a formal notification.

The fine is part of a broader claim filed in 2016, seeking 155 billion reais (US$31.5 billion) for collective moral damages in relation to the dam failure.

BHP's Response

"BHP Brazil has not been served with a decision by the Court and will review the decision to assess its implications, the potential for an appeal and any potential impact to the Group’s provision related to the Samarco dam failure," the company said in a statement.

"Since early CY2021, the parties have been engaging in negotiations to seek a settlement of obligations under the Framework Agreement and $155bn (reais) Federal Public Prosecution Office claim."

Negations are expected to resume in February 2024 and BHP has currently logged US$3.7 billion in provisions relating to the Samarco dam failure, according to the company's 2023 Annual Report.

The Dam Disaster

The lawsuit is the largest group litigation in legal history, involving over 700,000 victims. The dam disaster occurred in November 2015, when the tailings dam suffered a failure and the resulting flood devastated downstream villages, killed 19 people and eventually spilled into the Atlantic Ocean around two weeks later.

“Yet again we see the world’s two biggest mining companies squabbling in court rather than facing up to their responsibility as owners of the mine and dam that caused Brazil’s worst-ever environmental disaster,” said Tom Goodhead, CEO at Pogust Goodhead, the legal firm that represents the victims, mining.com reported.

A Stock Perspective

BHP shares are down around -1.7% in afternoon compared to peers like Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG), down -0.5% and up 0.8% respectively. This may indicate that the news is placing some degree of downward pressure on BHP.

Late last year, Goldman Sachs valued BHP at $46.5 per share. The modelling included provision and rehab costs of US$12.1 billion for all assets and projects, or a negative -$3.4 per share impact on BHP's valuation.

The potential for an additional US$6 billion (US$9.7 billion fine less current provision) in damages would likely weigh on the above share price/valuation assumptions. But as we all know, these legal proceedings have the tendency to drag out for quite some time.

“No amount of money will be enough but hiring the most expensive lawyers in the world to fight each other in court is a huge kick in the teeth for all those who are continuing to suffer on a daily basis due to this crime," said Goodhead.