BHP has done a deal with authorities in Brazil over the fatal mine disaster

Protestors at the entrance to Vale headquarters in Rio de Janeiro. Mario Tama/Getty Images

Samarco and its two shareholders BHP Billiton and Vale have struck an agreement with authorities in Brazil on the cleanup of the fatal iron ore mine disaster, setting the costs around $US2.3 billion, or almost half previous claims, over the next six years.

The 15-year deal is with the Federal Attorney General of Brazil, the States of Espirito Santo and Minas Gerais and other public authorities for the restoration of the environment and communities affected by the Samarco dam failure on November 5, 2015.

Samarco, Vale and BHP Billiton Brasil will establish a foundation to develop environmental and socio-economic programs to remediate and provide compensation for damage caused by the dam failure.

The miners will fund this with about $US1.1 billion (4.4 billion Brazilian reals) from now until 2018. After that, annual contributions for the three years to 2021 will vary between a minimum of $US200 million and a maximum of $US400 million, depending on remediation and compensation projects.

The agreement is subject to court approval and appears to set a ceiling of $US2.3 billion on payments for the next six years. Beyond that, funding is unclear. The final bill could be as high as 30 billion Brazilian reals ($US7.7 billion), according to Brazil’s attorney-general Luís Inácio Adams.

As Adams points out, no one really knows exactly how much is needed in repairs and compensation.

This deal will settle a previous civil claim by the Brazilian authorities for $US5.1 billion for clean-up costs and damages relating to the dam failure.

The BHP share price has been under intense pressure since the fatal disaster. Analysts calculate impact from the mud slide will strip about 4% from BHP’s profits.

Today BHP shares were up 4.7% in early trade to $17.52.

CEO Andrew Mackenzie says the agreement is an important step forward in supporting the long-term recovery of the communities and environment.

“This agreement demonstrates our commitment to repairing the damage caused,” he says.

The deal doesn’t cover compensation for the loss of lives or any criminal proceedings.

The burst dam sent 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 recorded a pretax impairment of $US1.188 billion or $US858 million after tax for its investment in the Samarco iron ore mine.

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.

The new foundation to run the cleanup will have a seven member board, with Samarco, BHP Billiton Brasil, and Vale each appointing two members and the Brazilian authorities one member.

The foundation will create programs to restore the environment, local communities and the social condition of the affected areas. And if that’s not possible compensation will be paid.