BHP, Vale Shares Plummet Following Brazil Dam Disaster Lawsuit
May 04 2016 - 12:32PM
Dow Jones News
By Paul Kiernan
RIO DE JANEIRO -- Shares of two of the world's biggest mining
companies continued to plummet Wednesday after Brazilian federal
prosecutors hit them with a 155 billion real ($43.8 billion)
lawsuit in response to a catastrophic dam collapse in November.
The lawsuit cast fresh doubt upon Brazil-based Vale SA's and
Australia-based BHP Billiton Ltd.'s hopes for a swift resolution to
liabilities stemming from the failure of a tailings dam at their
Samarco Mineração SA joint-venture in southeast Brazil. It also
threatened to upend a settlement the companies signed in March in
which they agreed to fix up to 20.2 billion reais of damage
initially estimated by Brazilian government agencies.
A task force of public prosecutors that has been investigating
the accident never signed on to the settlement, saying in the
lawsuit that it was "incomplete, precarious and partial." Among
other things, the prosecutors said, negotiations didn't involve
actual victims of the accident, while the ensuing settlement failed
to hold various state and federal authorities accountable for their
own negligence in monitoring the construction and operation of
Samarco's dam, known as Fundão.
"Input from the public prosecutors' office was not considered by
the negotiating parties," the lawsuit said, adding that the
government and companies appeared to be in a hurry to get a deal
signed.
The companies ultimately agreed to spend as little as 9.46
billion reais through 2030 via a foundation run mostly by their own
appointees.
The settlement had underpinned a major rally in shares of both
Vale and BHP Billiton, which also benefited from a partial recovery
in prices for iron ore during recent months. Vale's shares nearly
doubled in price between late February and late April. BHP Billiton
rose almost 40%.
Both companies' shares have shed more than 11% since prosecutors
filed the latest lawsuit.
"As an investor you want to minimize uncertainties surrounding a
company. This here is a giant uncertainty," said Bruno Menezes,
head of research at Rio de Janeiro-based asset manager Pacifico
Gestão de Recursos, noting that the damages claimed in the lawsuit
exceed Vale's total market capitalization. "It's almost like
talking about handing the company over to the government because it
won't have anything left to sell."
Public prosecutors in Brazil enjoy broad freedom from other
institutions and are known for occasionally hitting companies with
massive lawsuits.
In 2011, a federal prosecutor sought the equivalent of $11
billion at the time from Chevron Corp. and Transocean Ltd. in
response to an offshore oil spill and asked a judge to shut down
the companies' operations in Brazil. The companies ended up
agreeing to pay about $42 million after reports from regulators
showed the damage was relatively minor.
But Samarco's accident is widely considered to be Brazil's
worst-ever environmental catastrophe. It 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 weeks later.
In the lawsuit, prosecutors compared the toll of Samarco's
accident to BP's Deepwater Horizon oil spill in the Gulf of Mexico,
saying that the former caused more deaths and more damage to the
ecosystem.
"Unless one wishes to suppose that the environment of Brazil is
worth less than that of the U.S., it's inadmissible that the
valuation of the environmental damage caused by the defendant
companies falls below, at first glance, the $43.8
billion...acknowledged by the party responsible for the tragedy in
the Gulf of Mexico," the prosecutors said in the lawsuit.
A Samarco spokeswoman said the company hasn't been formally
notified of the lawsuit and declined to comment. Vale also declined
to comment. BHP Billiton said in a statement after the lawsuit was
announced that it "remains committed to helping Samarco to rebuild
the community and restore the environment affected by the failure
of the dam."
A spokeswoman for Brazil's solicitor general, which handles
legal matters on behalf of the government, declined to comment.
In addition to civil penalties, the mining companies also face
criminal investigations for environmental crimes and the 19
deaths.
Police in Minas Gerais state said in February that they would
seek homicide charges against several Samarco officials, blaming
the company for attempting to expand the Fundão dam too quickly and
without proper monitoring. But an appellate court suspended the
investigation in March amid a dispute over whether the criminal
case should be tried at the state or federal level.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
May 04, 2016 12:17 ET (16:17 GMT)
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