BHP's share of the cleanup costs in Brazil could be $3.5 billion

An iron ore train in Brazil. Mario Tama/Getty Images

BHP Billiton and its partner Vale have been ordered by a court to stump up the first 10% of a proposed $A7 billion fund to make good the damage from the fatal Brazil mine disaster.

And the final bill could be billions more when taking into account lost earnings and BHP’s share of the total debt held by the mine.

The Samarco mine debt is $US2.93 billion ($A4 billion). Taking into account half of that (the other half belonging to Vale), BHP’s net debt will rise to about $US30 billion ($A40 billion) by the end of 2017. In 2015, BHP’s share of Samarco’s net profit was $US369 million ($A510 million).

So far, 17 have been confirmed dead from the tailings waste dam collapse early last month which sent a wall of mud downstream. The dead include five members of a village and 12 people who were working on the dams. Two are still unaccounted for.

The federal and state governments in Brazil have taken the Samarco iron ore mine, BHP and Vale to court seeking clean-up costs and damages.

The action demands a fund of BRL 20 billion ($A7 billion). BHP’s share would be half that, about $A3.5 billion.

BHP shares have been hammered since the disaster, dropping to GFC levels. Falling iron ore and crude oil prices have also taken a toll. Shares in the world’s biggest miner closed yesterday at $16.83, down from a year high of $31.

And analysts calculate impact from the mud slide will strip about 4% from BHP’s profits. There are also questions over whether BHP can continue paying dividends at current levels.

The Federal Court in Brazil has ordered Samarco to deposit BRL 2 billion ($A700 million), 10% of the total claimed, to a court-managed bank account to pay for the community and environmental rehabilitation.

The court also ordered remediation actions including preventing leakage of waste from a tailings dam, appointing a consultant to evaluate contamination of fish and implement pest control, removal of mud from the Rio Doce banks, measures to prevent sludge from reaching the lagoon, and creating a comprehensive plan for environmental and socioeconomic recovery.

BHP also says it has further evidence showing the mud from the tailings dam isn’t toxic. The Brazilian Geological Service and National Water Agency issued a second report supporting earlier assessments that the tailings material is non-toxic.

The report also indicates that levels of dissolved heavy metals in the Rio Doce, including arsenic, cadmium, mercury, lead, copper, zinc, are similar to those found in analyses performed in 2010.

However, two United Nations independent experts have reported that the mud contains heavy metals and other toxic chemicals.

BHP has appointed a local, Flávio Bulcão, as country director in Brazil. Bulcão has extensive experience in the metals and mining industry.

And the New York-based law firm Cleary Gottlieb Steen & Hamilton have been hired to conduct the external investigation into the cause of the breach of the tailings dam and the water dam.

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