Mining giant BHP Billiton (BLT) could see its ability to fund its progressive dividend policy hampered after the fallout from the fatal dam breaches at the Samarco Mineracao SA (Samarco) iron ore operation in Brazil.
The Anglo-Australian group responded rapidly to support local communities affected by last month's fatal dam breaches at the site it co-owns with Brazil's Vale SA. But despite these measures, the Brazilian federal government announced it would be kickstarting legal proceedings against the two groups.
The groups are being asked to set aside a BRL 20bn (£3.46bn) fund to cover remedial costs and damages over the next decade. However, a statement published subsequently by the Brazilian auditor general has demanded the companies immediately deposit 10 per cent of the total in escrow to help containment works in the areas affected by the breaches.
The ongoing Samarco costs represent another drain on group cash flows, already constricted through record low iron ore prices and the continuing slump in crude oil remits. Analysts at Citi already believe group net debt is set to rise by around $3bn (£2bn) to meet dividend and capital commitments in the year through to June 2016. The group generated $6.3bn in free cash flows at the 2015 year-end, but if commodity prices remain in the doldrums it will struggle to meet its obligations through internal cash flows.
