BHP's Samarco agrees $8bn compensation programme

A compensation framework agreement between local authorities and Samarco Mineração, in which BHP and local mining giant Vale each own a 50% stake, stated that a newly set up foundation will support clean-up costs and damages over a 15-year term, beginning with payments of $1.1bn of payment over the next three years, starting with around $500m in 2016.

If Samarco does not meet its funding obligations, each of Vale and BHP Billiton Brasil is liable to make the payments directly in its stead.

In 2017 and 2018 Samarco will fund the foundation with 1.2bn real in both 2017 and 2018, with annual contributions in each of 2019, 2020 and 2021 varying between a minimum of 800m real and 1.6bn real depending on the remediation and compensation projects which are to be undertaken in the particular year.

The agreement is subject to court approval.

BHP Billiton chief executive Andrew Mackenzie said: "This agreement is an important step forward in supporting the long-term recovery of the communities and environment affected by the Samarco dam failure. It provides a platform for the parties to work together to support the remediation of affected areas.

"This agreement demonstrates our commitment to repairing the damage caused and to contributing to a lasting improvement in the Rio Doce."

However, according to press reports, the agreement does not cover all potential civil or criminal claims, so there could still be potential for further claims on top of the compensation framework.

The disaster was linked to the deaths of at least 17 people, with two men also missing and presumed dead.

Some Samarco executives already facing criminal charges over the incident, while police are carrying out a criminal investigation into the environmental impact of the incident.

President Dilma Rousseff said on Wednesday night that there was no ceiling for how much the company would have to pay to fix the socio-economic and environmental damage of the dam’s collapse.

"In our view, the deal reflects the common perception that the best way to settle claims would be to have Samarco back in production," said Yuen Low at Shore Capital.

"It is positive for BHP also in that it provides better clarity on potential liabilities to 2021, although we are unclear as to what happens thereafter."