BHP is tipping another $1.5 billion into the Samarco mine in Brazil

A fireman rescues a dog trapped in the mud that swept through the Village of Bento Rodrigues. Douglas Magno/AFP/Getty Images

BHP Billiton announced a provision of between $US1.1 billion and $US1.3 billion to fund work at the Samarco iron ore mine in Brazil, the site of a fatal disaster in November.

This is a half share of agreed cleanup costs and reflects uncertainty on the timing of a restart of Samarco’s operations. The other half is coming from joint venture partner Vale.

The iron ore mine’s tailings dam collapsed on November 5, 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.

The latest charge will be recognised as an exceptional item in the June 2016 half year together with direct costs of about $US100 million after tax.

“The recognition of the provision demonstrates our support for the long-term recovery of the communities and environment affected by the Samarco tragedy,” says BHP CEO Andrew Mackenzie.

BHP’s board of directors also approved US$134 million to support a compensation program.

Another $US116 million is being made available to Samarco to carry out remediation and stabilisation work and to support Samarco’s operations.

BHP says the the short-term facility announced today will preserve the value of BHP’s investment.

“The safe restart of the Samarco operations remains an important priority, along with the restructure of Samarco’s debt,” says Mackenzie.

Early reports say the mine may not be reopened until the second half of 2017.

BHP is fighting an $8 billion civil suit in Brazil.

A deal between Brazilian authorities and BHP and 50/50 joint venture partner Vale to clean up the environmental mess from the fatal mine disaster last year fell apart.

The Federal Court of Appeal in Brasilia ratified the deal in May. However, the Federal Prosecutors’ Office then won an appeal against the ratification.

This increases the potentially liability for BHP. A cap placed on the cost of the cleanup has been lifted and a BRL20 billion ($A8 billion) public civil claim for damages made by the Brazilian Authorities against Samarco, Vale and BHP Brazil reinstated.

BHP says it intends to appeal the decision by the Superior Court of Justice.

Analysts calculate impact from the mud slide will strip about 4% from BHP’s profits.

In its latest half year results, BHP recorded a pre-tax 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.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at