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BHP's liability for the fatal dam collapse in Brazil is blowing out to the $1 billion mark

A protestor splashes muddy water at the entrance to Vale headquarters in Rio de Janeiro, a protest at thee bursting of two dams at the Samarco mine. Mario Tama/Getty Images

The costs to BHP of the fatal mine disaster in Brazil are becoming clearer.

A waste dam burst its banks in November, sending a wave of mud downstream, killing 17 people, including five from a village of 12 working at the mine. Two people who were working on the dams are still unaccounted for.

In its latest half year results, BHP has recorded a pretax impairment of $US1.188 billion or $US858 million after tax for its investment in the Samarco iron ore mine, half owned by BHP and the rest by Vale.

This is made up of $US655 million for the share of losses relating to the Samarco dam failure, $US525 million for carrying value of the investment in Samarco and $US8 million for costs directly paid by BHP Billiton so far.

That’s just the start. BHP faces legal action in Brazil, including one from government authorities of about $US5.1 billion.

“Additional lawsuits and government investigations relating to the Samarco dam failure may be brought against BHP Billiton Brasil and possibly other BHP Billiton entities in Brazil or other jurisdictions,” BHP said today in its half year accounts lodged at the ASX.

There’s more on the way but at the moment there’s no way to know how high the final bill will be. BHP says:

“Pending and future claims, lawsuits and enforcement actions relating to the Samarco dam failure, together with the potential cost of implementing remedies sought in the various proceedings, cannot be reliably estimated at this time … therefore a provision has not been recognised and nor has any contingent liability been quantified. Ultimately these could have a material adverse impact on BHP Billiton’s business, competitive position, cash flows, prospects, liquidity and shareholder returns.”

Revenue from the mine has almost dried up. The mine is next month expected to make its final shipment of pellets from stockpiles.

Mining and processing operations are suspended and this will impact on BHP’s global output of iron ore. Expected total iron ore production for the 2016 financial year at 237 million tonnes is 4% lower than previous guidance.

CEO Andrew Mackenzie says rebuilding communities and restoring the environment impacted by the dam failure is a priority.

“Our team in Brazil are focused on doing everything they can to support the response efforts, repair and maintain existing dams, rebuild communities and restore the environment impacted by the dam failure,” he says.

The families from Bento Rodrigues and Barra Longa affected by the dam failure are in rental housing or the homes of relatives. Some have preferred to stay in a hotel.

Debit cards have been distributed to those affected. Samarco and the authorities are continuing to ensure availability of food, water and emergency supplies.

Samarco has been building dikes to reduce the risk for further tailings getting into the River Doce, monitoring water quality along the River Doce system and planting trees to reduce erosion.

BHP Billiton, Vale and Samarco have jointly commissioned an external investigation into the cause of the dam failure. BHP Billiton says it will publicly release the findings of the investigation.

Discussions are continuing with the national government of Brazil and the state governments of Minas Gerais and Espírito Santo, aimed at reaching agreement for managing and funding long-term environmental and socio-economic rehabilitation plans.

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