BHP Billiton faces $5.2bn fine as death toll rises at Brazil dam tragedy

The London-listed company is co-owner, with Vale, of the mine in Brazil where two dams containing mining sludge burst earlier this month

Thousands of tons of sludge from the mine have flooded into the Doce river, choking fish and forcing the authorities to provide emergency drinking water for 250,000 people (AFP/Getty)

BHP Billiton’s Brazilian mining disaster, which has claimed 13 lives so far, is set to become yet more costly for the group, as it admitted the country’s authorities are planning a major fine which could be as high as $5.2bn (£3.5bn).

The London-listed company is co-owner, with Vale, of the mine in Brazil where two dams containing mining sludge burst earlier this month, flooding the surrounding area and triggering a mudslide that wiped out a nearby town. On Friday, a Vale executive admitted arsenic had been found in the water of the valley’s Rio Doce after the tragedy.

Yesterday, however, BHP cited other studies suggesting the pollution in the Samarco mine region is not as bad as had been feared, but admitted the Brazilian federal government and other state authorities were to sue the companies for clean-up costs and damages.

This would include making them pay for a fund of $5.2bn, similar to that set up by BP following the Deepwater Horizon disaster.

When the dam burst, thousands of tons of sludge from the mine flooded into the Doce river, choking fish and forcing the authorities to provide emergency drinking water for 250,000 people.

The dam contained tailings – the debris left over from the process of extracting ore. In yesterday’s statement, BHP said that analysis had shown the tailings were not comprised of materials hazardous to human health.

It did confirm, however, that the high volume of sand and clay tailings that swept through the river system had killed “a large number of fish” due to reduced oxygen. The tailings surge, known as a “plume”, has reached the Atlantic, about 300 miles away, and is now dispersing, BHP said.

Shares in both BHP and Vale fell heavily yesterday on the news of the fine, with investors fearing it may hit BHP’s dividend payments.

Analysts at Citi pointed out that while for BHP the fine represented a huge 4 per cent of its entire stock market value, the government was proposing payment in instalments over 25 years, making the impact less dramatic.

The bank estimates the clean-up cost will be a minimum of $1bn over the next five years, meaning production from the Samarco mine will stop until the next decade at least. In fact, Citi put the probability of it ever restarting at only 50:50.

In a further development on the corporate reaction to the tragedy, Murilo Ferreira, the chief executive of Vale, resigned from his other major business role as chairman of the country’s state oil producer, Petrobras.

There were no reasons given for the resignation, although the mining disaster is only one potential reason for the move: Petrobras is facing a corruption scandal and has a mountain of debt.

In Samarco, on top of the 13 dead, emergency services are still trying to find six missing people, BHP said.

BHP has set up a sub-committee of board members, including former Ford boss Jac Nasser, and Malcolm Brinded, the former Shell managing director.

BHP shares closed last night down 10.7p at 796.9p.