BHP Billiton to Take $1 Billion Profit Hit From Brazil Dam Charges
July 27 2016 - 11:30PM
Dow Jones News
SYDNEY—BHP Billiton Ltd. said its annual net profit will be
crimped by charges of more than US$1 billion relating to last
year's deadly dam failure at Brazilian iron-ore mining operations
it jointly owns with Vale SA.
BHP, the world's largest mining company by market value, said it
would record a provision of between US$1.1 billion and US$1.3
billion, roughly half the estimated funding needed by the Samarco
Mineraç ã o S.A. joint venture under an agreement signed with
Brazilian authorities in March. In a separate statement, Vale said
it booked a 3.7 billion-real ($1.2 billion) provision.
The Samarco dam spill released an avalanche of sludgy mine waste
that killed 19 people, destroyed villages and polluted more than
400 miles of rivers before spewing into the Atlantic Ocean. It is
widely considered to be Brazil's worst-ever environmental
catastrophe.
"The recognition of the provision demonstrates our support for
the long-term recovery of the communities and environment affected
by the Samarco tragedy and the belief we have that the agreement is
the most appropriate mechanism to do this," BHP Chief Executive
Andrew Mackenzie said in a statement.
Under the agreement, BHP would spend a minimum of 9.46 billion
reals through 2030 via a foundation. However, the outlook for the
agreement is in doubt. Last month, Brazil's Superior Court of
Justice issued an interim order suspending its ratification,
effectively reinstating an earlier 20-billion real civil claim.
BHP filed an appeal against that decision two weeks ago.
On Thursday, BHP said it would also record direct costs of
roughly US$100 million after tax. The miner is scheduled to publish
annual financial results in August.
In its first-half earnings report in February, in which the
miner posted a huge net loss and abandoned its progressive dividend
policy, BHP recorded US$1.2 billion in before-tax charges over the
dam failure.
BHP said there is "ongoing uncertainty surrounding the nature
and timing of a potential restart of Samarco's operations."
Separately, Vale said there is a "reduced likelihood of resuming
operations in 2016, given the current status of the licensing
process."
In June, Brazil's Federal Police requested formal charges
against eight company officials and said top executives at Samarco
were for years aware of cracks and drainage problems at the Fundã o
tailings dam that collapsed on Nov. 5. Samarco has previously said
it "always operated with high safety standards in all of its
processes."
BHP and Vale each own 50% of the Samarco business.
BHP said its board has approved US$134 million of funding for
repatriation and compensation programs that will be offset against
the US$1.1 billion-US$1.3 billion provision. It will also offer a
short-term facility worth up to US$116 million to Samarco, which
was one of the world's biggest producers of before the November
spill halted operations.
Vale said it would similarly lend Samarco up to US$100 million
in the short term. Both said the funds will be linked to certain
milestones, without providing details.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
July 27, 2016 23:15 ET (03:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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