BHP Billiton (BLT) has a Deepwater Horizon-sized legal headache on its hands. On Wednesday the Anglo-Australian miner said its 50:50 joint venture with Vale has been handed a BRL155bn ($43.5bn) claim for "social, environmental and economic compensation" for the collapse of the tailings dam at the Samarco iron ore mine in Brazil last November.
As part of the claim, Brazil's Federal Prosecution Service has demanded an initial payment of $2.2bn from the miners. Unsurprisingly, this knocked as much as 9 per cent off BHP's Australia-listed shares, the biggest one-day drop since the financial crisis.
A 6 per cent decline in London wiped out gains made on 3 March, when BHP and Vale (Br: VALE5) established a remedial and compensation fund for the disaster, which killed 19 people, devastated a nearby town and polluted a major river. But that settlement, which was independent of federal and state prosecutors and would have reached up to BRL9bn between now and 2021, has been overshadowed by the prospect of a much bigger claim. Indeed, Brazilian prosecutors said their move was based on the $53.8bn total pre-tax charge incurred by BP (BP.) in relation to Deepwater.
In March, JPMorgan said the initial settlement translated to around 4 per cent of BHP's net present value, while acknowledging reputational costs would be hard to quantify. Despite flagging uncertainties over potential civil claims, the bank's suggestion that the remedial fund represented "the majority of costs" now appears short-sighted.
