BHP Billiton ordered to reserve &pound;330m for dam disaster

BHP Billiton and Vale, the mining giants and joint venture partners of Samarco Minerao S.A. have been ordered by a Brazilian court to reserve £330m ($491.5m) of funds currently frozen in assets within Brazil, with potentially billions more to follow, it was reported today. This is the penalty for their part in Brazil’s worst ever environmental disaster, when one of the company’s dams recently collapsed, causing 17 fatalities so far. The partners have also been instructed by the courts to undertake extensive remediation plans to aid the environmental and socio-economic recovery of the area. Recommendations include consultancy evaluations of fish contamination, prevention of waste leakage, implementation of pest control measures, river bank mud removal and lagoon sludge prevention plans. Samarco Minerao S.A. also hired New York law firm Cleary Gottlieb Steen & Hamilton LLP to investigate exactly what led to the disaster. BHP Billiton has committed itself to helping relocate displaced communities before 25 December 2015.

Protestors perform lying in muddy water which they splashed at the entrance to Vale headquarters on November 16, 2015 in Rio de Janeiro, Brazil. Mario Tama/Getty Images

A Brazilian court has ordered BHP Billiton and Vale to set aside £330 million ($491.5 million) with the possibility of billions more, frozen the mining giants' assets in the country, and ordered it to carry out extensive environmental and social work in the region hit by a dam burst at its joint venture.

In short, Brazil is throwing the book at the pair.

The action against the two mining goliaths relates to the catastrophe that hit the Samarco iron ore operation in Minas Gerais, Brazil, on November 5. BHP and Vale each own 50% of Samarco.

The disaster saw a dam collapse and release 60 million cubic metres of mud downstream into the water systems of hundreds of towns and cities. Brazil's President has compared the disaster to the 2010 BP oil spill in the Gulf of Mexico and dubbed it Brazil's worst ever environmental disaster.

BHP confirmed in an update on Tuesday that the death toll for the collapse has risen to 17, from an earlier estimate of 13. Two people remain missing.

Brazil's government is suing BHP and Vale for "at least" 20 billion Brazilian reals (£3.3 billion, $4.9 billion) and, as part of the proceedings, a Brazilian court has made some preliminary demands of the pair.

In its update on Tuesday, BHP says it has been ordered to:

Deposit BRL 2 billion (£330 million, $491.5 million) to a Court-managed bank account within 30 days. That's 10% of the total reparations the government is after. Samarco faces a daily fine of BRL 1.5 million (£250,000, $370,000) for non-compliance with this deadline;

Restrictions have been placed on the mining exploration concessions held by Samarco in Brazil, meaning the mining rights can't be sold or transferred — in other words, the assets are frozen;

The pair must undertake extensive remediation plans including: "preventing leakage of waste from the Fundão tailings dam, engaging a consultant to evaluate contamination of fish and implement pest control, removal of mud from the Rio Doce banks, adoption of measures to prevent sludge from reaching the lagoon, and presentation of a comprehensive plan for environmental recovery and socio-economic recovery."

The Bento Rodrigues district is pictured covered with mud after a dam owned by Vale and BHP Billiton burst in Mariana, Brazil. REUTERS/Ricardo Moraes

BHP says in its update that additional water quality testing shows the material leaked into the water system is non-toxic, although it does contain traces of heavy metals.

The company has also drafted in a veteran executive to lead its Brazilian team on the ground and hired New York law firm Cleary Gottlieb Steen & Hamilton LLP to investigate just what went wrong with the dam.

BHP says in the statement:

Samarco continues to work with the government authorities in Brazil to relocate displaced people from temporary accommodation to rented housing and to distribute living wage debit cards to those who have been impacted. All displaced people will have been given the opportunity to relocate before 25 December 2015. Community access bridges are being rebuilt and public service centres have been established in affected communities. Planning for the reconstruction of impacted communities has also commenced.