BHP shares rally as it nears Fundao dam settlement
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More news: BHP shares lifted on the ASX as the mining giant said it was continuing to negotiate a settlement proposal of around $44.8 billion to address damages caused by the 2015 collapse of its co-owned Fundao dam in Brazil.
BHP shares were up 1.4% to $42.63 by 11:55am AEDT.
RBC Capital Markets analyst Kaan Peker noted that while the total amount of the settlement is still uncertain, BHP has indicated that its share of the settlement proposal is "broadly aligned" with its existing US$6.5 billion ($9.7 billion) provision.
What they said: "As no final agreement has been reached between the parties, there could be possibility that some financial obligations may be pulled forward/or deferred, which could impact the provision for Samarco, but given BHP still believes the provision to be "broadly aligned", the quantum of the impact will likely be limited, in our view," Peker said.
"As this is in-line with our view, we see this announcement as being neutral, but it does provide clarity on an overhang on the stock,."
BHP and Vale near $45b settlement over 2015 dam collapse
The news: Mining giant BHP said that it is continuing to negotiate a settlement proposal that would provide a total financial value of around $170 billion Brazilian reals ($44.8 billion) to the people, communities and environment impacted by the collapse of the Fundao dam in southeastern Brazil in 2015.
The numbers: The financial settlement is expected to:
- Establish a new compensation and indemnification system to provide compensation for eligible people in the affected regions, with those who agree to opt-in to the settlement compensated R$30,000 per person and eligible individual water damage claims of R$13,000 per person;
- Provide compensation and performance obligations to complete the community resettlements and other socioenvironmental programs, including environmental remediation; and
- Provide R$8 billion to eligible Indigenous peoples and traditional communities following a consultation process led by the Federal Government.
BHP said the settlement proposal incorporates amounts already invested to date plus future payments and obligations as follows:
- R$38 billion in amounts already spent to 30 September 2024 on remediation and compensation since 2016;
- R$100 billion in instalments over 20 years to the public authorities, the relevant municipalities and Indigenous peoples and traditional communities; and
- Additional performance obligations for an estimated financial value of approximately R$32 billion that will be carried out by Samarco in accordance with the terms of the settlement, which will provide direct benefits to the people, communities and environment affected by the dam failure.
The context: The Fundao dam is owned by Samarco — a joint venture between BHP and NYSE-listed miner Vale. Its collapse killed 19 people and caused a giant mudslide that uprooted homes and villages and triggered Brazil's worst environmental disaster.
BHP said that negotiations in Brazil between the companies, the federal and state governments, and public prosecutors and defenders are ongoing. No final agreement has been reached on the settlement amount or terms, it said.
Under the final settlement agreement, BHP Brazil and Vale would each be required to pay 50% of any obligation that the joint venture cannot fund or perform.
The sources: ASX announcement, RBC Capital Markets research
