BHP Billiton gets two years to finalise £31bn Samarco claim

BHP Billiton's Samarco joint venture has agreed a two-year deadline to settle a civil claim for 155bn reais (£31bn) with Brazilian authorities relating to the 2015 bursting of a tailings dam that killed 19 people.

BHP and Vale, Samarco's fellow parent company, agreed on a process to dismiss all other public civil actions which cover the same claims as the larger claim, which included extinguishing a separate 20bn reais (£4bn) civil claim.

During the two year period, Samarco, BHP, Vale and the local governments and federal legal bodies have agreed to work together to design a single process for the renegotiation of remediation and compensation programmes, with enhanced community participation in decisions, in order to reach a final settlement deal.

The agreement means the public civil action of 155bn reais will continue to be suspended until settled through the acceptance of the Renova Foundation’s programs, or a renegotiated version, and allows for greater participation of those affected by the dam failure and establishes a process for a possible renegotiation of the programs.

There was no indication given about when Samarco operations will come back on line after three years off the market, but BHP directors have suggested to analysts recently that it could be in the first half of next year.

Credit Suisse has reported that BHP's chief financial officer indicated that the dialog with the Brazilian authorities was progressing well and environmental licensing should conclude in December this year. Analysts expect volumes will return to the market in a phased manner with around 10Mt in 2019 and about 15Mt in 2020, though full capacity of 30Mt is unlikely to be achieved.

In the view of broker Shore Capital, Tuesday's development "is positive in that increases the chances of Samarco being able to resume operations, possibly in 2019 but more likely in 2020, we think. Consequently, Samarco will continue to cast a cloud over BHP’s skies for at least a couple more years."

Analysts at RBC Capital Market said that although this was not a definitive agreement it does provide a context for eventual resolution.

"It does not appear as if there will be a punitive aspect which should be a relief (if not already inline with market expectations). We would expect this agreement clears the path for a renegotiation of ownership structure and the eventual restart of the Samarco operations. We continue to maintain a cautious short term approach to BHP and Vale with potential for lower iron ore prices."