Materials

BHP may have to cough-up substantially more on previously settled Samarco disaster in Brazil

Mon 11 Jul 22, 11:12am (AEST)
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Key Points

  • BHP plans to defend a potential $8.8bn UK class action
  • Class action relates to the collapse of the Fundao dam (Brazil) in 2015
  • BHP estimates that BRL30bn would have been spent on reparation and compensation by the end of this year

BHP’s (ASX: BHP) share price was -1.84% lower at the open following its note to the ASX today advising investors of plans to defend a potential $8.8bn UK class action - one of the largest in British legal history - in relation to the Samarco Dam failure in Brazil that occurred seven years ago.

Overturning a previous High Court decision to dismiss the application, The UK Court of Appeal's decision last week allows the appeal by 200,000-plus Brazilian litigants seeking compensation for individuals, municipalities, private businesses and other institutions in Brazil following the Samarco dam failure.

The collapse of the Fundao dam in 2015 – which released 39.2 million cubic meters of tailings waste into the Rio Doce Basin - resulted in 19 fatalities and left hundreds homeless.

As a result, Samarco, the joint venture between BHP and Vale was shuttered for five years.

Class action in the UK

While BHP contemplates whether to appeal the judgment to the UK Supreme Court, the mining giant also reminded investors that its subsidiary BHP Brasil remains committed to continue supporting the local remediation efforts in Brazil through the Renova Foundation.

"The judgment is not a decision in relation to the merits of the claims made in the group action,” BHP noted.

“It is concerned with the preliminary question of whether the group action can continue against BHP in the United Kingdom."

Double-up

It’s understood litigants have turned to the English legal system due to slow and inadequate redress through the Brazilian courts.

BHP argues that the UK group action is an unnecessary duplication of matters already covered by the existing and ongoing work of the Renova Foundation which was established together with joint venture partner Vale to remediate damage and compensate affected individuals.

In short, BHP has already provided BLR9.8bn (GBP1.5bn) in compensation and direct financial aid in relation to the dam failure to over 376,000 people.

Current remedies deemed inadequate

However, judges believed the court case should proceed because the remedies on offer in Brazil were “not so obviously adequate that it can be said to be pointless and wasteful to pursue proceedings” in England.

The ruling alluded to a realistic prospect of a trial yielding a real and legitimate advantage “for the claimants such as to outweigh the disadvantages for the parties in terms of expense and the wider public interest in terms of court resources.”

Meantime, between the Renova Foundation and Brazilian court settlements, BHP estimates that BRL30bn would have been spent on reparation and compensation by the end of this year.

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BHP share price over 12 months.

 

What brokers think

BHP’s share price is down -11% over the past 12 months, and since early June has fallen by around -20% from $47.38 to $38.60.

Consensus on BHP is Moderate Buy.

Based on Morningstar’s value of $40.12 the stock appears to be fairly valued.

Goldman Sachs has Buy and target price of $49.40.

Based on the five brokers that cover BHP (as reported on by FN Arena) the stock is trading with 13% upside to the target price of $44.33.

In a note today, Credit Suisse highlighted near-term downside risks for iron ore and EV battery materials with spot prices for base metals having now fallen below the broker's forecasts.

The broker retains a Neutral rating and $40 target.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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