BHP’s mine disaster clean up deal with Brazil has just collapsed

A protestor splashes muddy water at the entrance to Vale headquarters in Rio de Janeiro. Mario Tama/Getty Images

The deal between Brazilian authorities and BHP Billiton and partner Vale to clean up the environmental mess from the fatal mine disaster last year has fallen apart.

The Federal Court of Appeal in Brasilia ratified the deal in May. However, the Federal Prosecutors’ Office has just 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 has been reinstated.

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

The Samarco 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.

In March, BHP announced an agreement between it, the Samarco mine and Vale, and the federal government of Brazil, the states of Espirito Santo and Minas Gerais and other public authorities.

The agreement outlined a process for the restoration of the environment and communities affected by the Samarco dam failure and the suspension of a civil claim.

The ratified agreement for the cleanup has set the costs at around $US2.3 billion ($A3 billion) over the next six years.

Part of the deal was for the establishment of a foundation to develop environmental and socio-economic programs to remediate and provide compensation for damage caused by the dam failure.

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.