When BHP Billiton and Vale started a joint iron-mining venture in rural Brazil nearly 40 years ago, the mining giants created a new corporate entity: a limited-liability company that, in theory, protected its owners from litigation in case of disaster.
But in practice, Brazilian authorities and lawyers say, the corporate structure does little to shield its parents from big fines, clean-up and legal costs after two tailings ponds owned by the joint venture — called Samarco Mineracao SA — burst last week. At least six people were killed, 21 are still missing, and farms and villages were destroyed.
If Samarco itself can’t cover the clean-up and legal costs, the Brazilian government can “go after the assets of the shareholders, Vale and BHP,” said Mario Werneck, an environmental lawyer who has represented people affected by pollution in Minas Gerais, the state where the dam-breach occurred.
Brazilian prosecutors say negligence played a role in the failure of the dams and raised the prospect of pursuing BHP (BHP) and Vale’s assets if Samarco can’t pay.
Anglo-Australian BHP and Brazil’s Vale say Samarco — not them — are responsible for the mine’s operations.
Vale said Samarco has “a management team that’s completely independent from its shareholders and responsible for technical and financial matters.” Under Brazilian law, the company said: “Vale really doesn’t have any responsibility for the occurrence of the unfortunate and sad accident.”
BHP said: “It is important to be clear that Samarco is the operator of the joint venture, and as a separate corporate entity, is responsible for the entirety of its operations.”
The chief executives of BHP and Vale have pledged to support Samarco in the creation of an emergency fund to help families and communities affected by the disaster.
In a joint statement, Murilo Ferreira, the CEO of Brazilian miner Vale, and Andrew Mackenzie, the CEO of BHP, said they are working with authorities to set up the fund as soon as possible for the purposes of rebuilding works and helping those people affected by the mass flooding caused when two dams burst.
Mr Mackenzie visited the site of the disaster and later apologised to everyone affected.
“At BHP, we have been overcome with sadness and our concern for your community,” Mr Mackenzie said at a press conference in Brazil overnight with Mr Ferreira.
“We are deeply sorry, so sorry, to everyone who has, and will suffer, from this terrible tragedy, to the friends and the families of those killed and missing and to those who have lost their homes and their possessions and who feel that their livelihoods may be under threat.
“The devastation that I and we have witnessed on site this morning and around the community is quite heartbreaking, so our thoughts and our prayers are with all of you in this distressing and uncertain time.”
Mr Mackenzie said he and Mr Ferreira had visited the site to see how BHP could best help those affected, which was the company’s main priority.
“Let me be very clear: we are 100 per cent committed to do everything we can do to support Samarco and make this right,” Mr Mackenzie said.
“We have already provided health, safety, environment and geotechnical experts to Samarco and we are working with them to identify further resources that they are going to need in their response effort.”
However Mr Ferreira and Mr Mackenzie provided no explanation as to what may have caused the disaster when they appeared at the news conference next to Samarco’s iron ore mine.
“Our immediate priority is to understand the full extent of the consequences of the tailings dam breach and how we can provide further help,” the two CEOs said.
Their statements came as new evacuations were ordered in the region, amid fears about the safety of a third Samarco dam.
“Families are being relocated so that they are in greater security,” a spokesman for the Minas Gerais state government said.
Dam repairs would “bring a greater measure of stability, mitigating the effects due to the (earlier) breaking and preventing possible future problems,” Samarco said in a statement.
Mr Ferreira declined to answer questions about whether his company had been dumping its own mine waste, known as tailings, into the joint venture’s dam system before it broke.
Minas Gerais state prosecutor Carlos Eduardo Ferreira Pinto says negligence likely played a part in the breach of Samarco’s Fundão and Santarém dams.
“No operation of this size just breaks without warning,” Mr Pinto said.
Mr Ferreira said was necessary to unify the companies’ response under Samarco CEO Ricardo Vescovi.
“Samarco has shown itself to be absolutely competent in spite of the devastating scene that occurred,” Mr Ferreira said.
Ratings agencies warned that the cut in iron and mineral production after the accident, as well as possible fines it could face if sued, threatened Samarco’s position.
Moody’s stripped Samarco of its investment-grade credit score, while Fitch put the firm on negative watch for a possible downgrade.
Threatening legal action, Minas Gerais state prosecutors called for Samarco to compensate displaced families, and set a schedule to move them from their temporary lodgings to homes and apartments, “so that the victims can get on with their lives.”
It is too soon to say with certainty what the financial toll of the disaster will be for BHP and Vale. Deutsche Bank estimated the companies’ bill could top $US1 billion, while Morgan Stanley said the costs could be anywhere from “tens of millions to hundreds of millions.”
Samarco had about $US700 million in cash and $US4.9 billion in debt at the end of June.
Investors appear to have decided the two companies will bear a heavy burden, selling their stocks in droves.
Vale’s most-traded shares in Brazil have fallen 10 per cent since November 4, the day before the incident happened, while BHP Billiton’s Sydney-traded shares have fallen 11 per cent over the same period.
BHP and Vale own Samarco as a 50-50 joint venture, putting an equal number of members on the board of directors. BHP said it “receives regular reports on the performance of its joint-venture operations, including Samarco.”
In Brazil, the companies face a legal system that allows for an array of entities to be held liable for an incident, including shareholders and firms that have provided technical assistance on a project, said Sergio Jacques, an independent Rio de Janeiro lawyer who has worked for several mining companies.
Brazilian courts also could allow for administrative, criminal and civil cases, including class actions, lawyers there said. Mr Werneck said Brazil’s courts let people seek compensation for moral damage and harm to patrimonial heritage, in addition to environmental and property damage.
The companies could also face lawsuits in Australia, where BHP is headquartered and where it faced environmental litigation over a Papua New Guinea mine that it eventually exited. BHP fought the litigation in Australia for years and eventually exited the mine by transferring its stake to a development fund that it created to fund long-term sustainable development projects in Papua New Guinea, particularly the Western Province.
A BHP spokesman declined to comment or speculate what kind of laws would be applicable to any case emanating from the dam breach. Vale, however, said Brazilian law is “the only applicable law.”
It is unlikely that victims of the disaster could gain much traction in US court.
In the past, people in several foreign countries have sued foreign resource-extraction companies in US federal courts. In 2009, UK- and Netherlands-based Royal Dutch Shell PLC agreed to pay $US15.5 million to settle a suit in Manhattan federal court by plaintiffs including the family of Ken Saro-Wiwa, a Nigerian activist executed by military authorities after he led protests of Shell oil operations.
A Shell spokesman said the company didn’t admit to wrongdoing, “had no part in the violence that took place,” and that the “settlement was not compensation, but a humanitarian gesture.”
Such suits have become more difficult to bring in recent years after Supreme Court decisions limited the scope of cases involving foreign parties to serious violations like human-rights abuses, and forced plaintiffs to prove more distinct U.S. connections to bad behaviour abroad, said Susan Farbstein, a professor at Harvard Law School who has represented plaintiffs in such cases.(Source: WSJ, AFP, THE AUSTRALIAN)
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