From UBS:
Brazil’s federal prosecution have announced US$43bn claim against Samarco
Proceedings against Samarco have been commenced by the Brazilian Federal prosecutor, for a claim of BRL155bn (US$43bn at BRL 3.60) in relation to the impacts to the economy and environment, resulting from the Nov 2015 tailings dam failure at Samarco. At the time of the announcement BHP had not received a formal notice from the Federal prosecutor of the claim.
Claim follows the US$2bn Samarco foundation agreement announced 2 Mar 16
On 2 March 2016, Vale & BHP announced Samarco had reached an agreement with Brazil’s Federal Attorney, States & public authorities for a ~US$2.0bn package over 15 years for restoration of the affected regions of Minas Gerais and Espirito Santo. The framework of the agreement allows for remediation & compensation for the damage resulting from the Nov 15 event, as well as establishment of an Inter-Federative Committee comprised of Federal, State & Municipal representatives to oversee programs as they are implemented. We previously estimated the pre-tax NPV to BHP of its share of contributions (or cash flow loss) at US$900m-1.0bn (US17-18cps); if tax deductible, the NPV impact drops to US 11-12cps. Samarco is targeting restart of operations in late 16 – early 17 at 2/3 capacity, subject to relevant approvals. If this occurs, we expect cash flows generated would likely be directed to the foundation.
US$43bn compensation claim ahead of expectations, but early days
The US$43bn claim ( US$21.5bn or US$4ps – BHP Billiton’s 50% share) is, in our view, above market expectations, especially given the Foundation Agreement of early March 2016, where a US$2bn (US$1bn net to BHP Billiton) package was reached, although the Foundation Agreement is yet to be ratified by the Courts. It is early days, in our view, and a final outcome is likely to be some time off, with a final settlement perhaps not bearing any resemblance to the initial claim. In 2011, an US$11bn claim was made against Chevron and Transocean in response to an offshore spill, although the companies ended up paying ~US$42m after reports showed the damage was relatively minor. We continue to expect Samarco to weigh on BHP Billiton until resolved.
