Samarco to Pay $262 Million for Initial Dam Cleanup
November 16 2015 - 5:50PM
Dow Jones News
RIO DE JANEIRO—The mining company responsible for a massive dam
failure in Brazil earlier this month will set aside 1 billion reais
($262 million) to fund initial cleanup efforts, public prosecutors
said Monday.
Samarco Mineraç ã o SA, a joint venture between global mining
companies Vale SA and BHP Billiton Ltd., struck a deal with state
and federal prosecutors to establish a "socio-environmental
escrow." The money will be used to bankroll emergency measures and
preliminary reparations following the Nov. 5 breach of two tailings
dams at Samarco's iron-ore mines in Minas Gerais state.
"The deal establishes a concrete legal guarantee, which didn't
previously exist, that the initial emergency resources are being
safeguarded," said state prosecutor Carlos Eduardo Ferreira Pinto.
"It is still not possible to measure the damage…but by the
extension and gravity, we know the necessary amounts may be much
greater."
The Samarco accident, which experts say was the mining
industry's largest-ever dam failure, sent vast quantities of water,
mud and mine detritus rushing downstream. The ensuing flood wiped
out several riverside communities and killed fish, livestock and
wildlife along hundreds of miles of southeast Brazil's Doce River.
As many as 11 people died as a result of the disaster. Another 15
are missing.
Authorities, investors and the companies are only beginning to
work out the costs of the disaster. The funds announced Monday come
on top of 250 million reais in fines levied against Samarco by
Brazil's federal environmental regulator last week.
Deutsche Bank estimates the companies' final bill could top $1
billion. Vale Chief Financial Officer Luciano Siani said in a
conference call Monday that it could take "several years for a
complete remediation" of the damage.
Mr. Siani also acknowledged that insurance won't cover the whole
cost of the accident.
According to Credit Suisse analyst Ivano Westin, Samarco has a
$1.17 billion insurance policy for "operational risk."
But Mr. Siani said its coverage for lawsuits, fines and other
civil liabilities had already been surpassed by last week's
fines.
"We aren't going to disclose the amounts involved here, but one
thing I can say is that the insurance covered a large value
regarding operational risk, i.e., restoration of material damages
and business interruption," Mr. Siani said. "In terms of civil
responsibility, Samarco's insurance is well below the initial
amounts that are being discussed."
Samarco declined to comment on its insurance policies, citing
confidentiality.
Vale and BHP pledged last week to support the joint-venture in
its cleanup efforts, including in the creation of the emergency
fund.
But the parent companies have steadily denied responsibility for
the accident. Mr. Siani and BHP Chief Executive Andrew Mackenzie
declined to say Monday whether their companies will provide
financial assistance to Samarco in the future if it faces a cash
shortage.
Neither Samarco nor its owners have provided any explanation for
how the tailings dams, located at its Germano mine, gave way so
suddenly.
Mr. Mackenzie said on a separate conference call that the three
companies are going to collectively "put in place an inquiry" using
a "wide range of experts" and looking at the history of the dams
that failed.
"Our intention is to get this going as soon as possible," Mr.
Mackenzie said. "But it is going to take its time."
Write to Paul Kiernan at paul.kiernan@wsj.com
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(END) Dow Jones Newswires
November 16, 2015 17:35 ET (22:35 GMT)
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