From Fairfax, it’s getting bigger:
Pedro Eduardo Pinheiro Silva, a lawyer who represents a community association in another state, filed the case on Monday, according to the Minas Gerais court website. He’s demanding the mining giants’s joint venture Samarco Mineração pay 10 billion reais ($3.69 billion) as compensation for environmental damages, he said in a telephone interview.
As for how much harm it will do to BHP output in the mean time, Macquarie estimates:
We expect Samarco to be down for a year: We have suspended production at Samarco for twelve months. The ability to restart is dependent on sufficient tailings disposal capacity being available, either in the remaining tailings dam or by utilising previously mined open pits. Post CY16 we assume a steady ramp back to 30.5mtpa of pellets over a 12 month period.
Costs of suspension are significant: Samarco has already agreed to set aside R1bn (US$260m) to fund the initial cleanup costs of the tailings dam failure. We have assumed a total cost for clean up and care and maintenance of Samarco for the 12 month period of US$800m (BHP share US$400m) and a further US$500m (BHP share US$250m) to cover potential liabilities. Samarco has the capacity to fund some of these costs from cash reserves but is likely to require additional funding from BHP and Vale during 2016. Earnings and target price revision
Suspending production at Samarco for one year has had a modest impact on our earnings forecasts for BHP. We cut our FY16 and FY17 earnings by 6% and 5% respectively.
Material. And from the ex-chief economist at RIO via Bloomie:
“There’s about 300 million tons of surplus capacity in China – that needs to be not just shut down, it needs to be eradicated, it needs to be bulldozed,” David Humphreys, who held the title at Rio for eight years to 2004, said in a phone interview. Steel “production needs to fall,” said Humphreys, 63, who is now an independent consultant.
…”We’re looking at what’s likely to be a fairly soft year for demand and in the absence of any dramatic changes on the supply side, yes, I think it will remain a year of weakness,” Humphreys said from London, referring to iron ore. “There’s a prospect of further declines in steel demand and the capacity to grow exports is almost non-existent. It does point to the need for some cutbacks” in steel output, he said.
Yep.
