BHP joint venture to be hit with £3.4bn lawsuit over dam breach

Legal action against BHP Billiton’s joint venture with Vale is expected to be launched on Monday to extract compensation after two tailings dams were breached at the beginning of the month.

The Fundão tailings dam and the and Santarém water dam at the Samarco Mineração iron ore mine in Minas Gerais, Brazil were breached on 5 November, killing 13 people and leaving six people unaccounted for.

The company confirmed that the Brazilian Federal Government and state governments intend to commence legal proceedings against the Samarco joint venture and its two owners, Vale and BHP Billiton, for clean-up costs and damages.

The suit will demand the companies to establish a fund of BRL20bn (£3.4bn) to be spent on environmental recovery and compensation.

BHP Billiton, which has recently refuted claims that waste from the burst dam were toxic, said it has not received formal notice of the action at this stage.

Meanwhile, Samarco said tests on the sediments carried out by the Brazilian Geological Service in the Rio Doce river system in mid-November do not significantly differ from the results from 2010.

It said that based on Brazilian standards, analysis by SGS Geosol showed the tailings are not hazardous to human health.

Reports that Vale had found toxic materials such as arsenic in the water days after the Samarco dam burst, implied these materials were not at dangerous quantities, analysts said.

Samarco said it is working with local authorities to continue to assess and monitor water quality in the Rio Doce river system, with Samarco supplying alternative water supplies where water quality has been affected.

BHP has put its iron ore production guidance for the 2016 financial year under review after the disaster, with Samarco contributing 14.5m tonnes and approximately 3% of the group's underlying earnings before interest and tax in the last financial year.

Analysts at Investec said: "There are a number of large numbers being bandied around in the name of rehabilitation, compensation and retribution. Unfortunately, a tragedy of this scale will be politically charged and BHP now has to balance doing all it can to repair the damage, while also protecting its own interests and those of its shareholders."

Broker SP Angel noted that fatalities have gone up from 9 to 13 and missing people have come down from 19 to 6 people, with the size of the fund required for damages having oscillated.

"There has been speculation that the tailings contains some contaminants but as would be expected given they were iron ore tailings, no hazardous materials have been found. This should help Samarco and its JV partners.

"It is in the interest of BHP and Vale to push forward on this and clear up their reputations."

Shares in BHP were down 4.2% to 773.9p just before midday on Monday.