BHP, Vale Reach Preliminary Agreement With Brazil To Settle Samarco Claim

(RTTNews) - BHP Billiton Ltd. (BHP.AX, BLT.L, BBL, BHP), Vale SA (VALE) and their Brazilian iron-ore joint venture Samarco Mineração SA entered into a preliminary agreement with the Federal Prosecutors' Office in Brazil regarding the Fundão tailings dam failure on 5 November 2015 that killed 19 people.

As part of the Preliminary Agreement, Samarco and Vale and BHP Billiton Brasil expect to provide security of BRL 2.2 billion or $675 million to support social and environmental remediation programs.

The Interim Security comprises a charge over Samarco's assets of BRL 800 million or approximately US$245 million, insurance bonds of BRL 1.3 billion or approximately US$400 million, and liquid assets of BRL 100 million or approximately US$30 million.

Any restart of operations at Samarco is subject to a separate set of negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community. Resuming operations would require government approvals, the granting of licenses by state authorities, the restructure of Samarco's debt, and the completion of commercial arrangements with Vale regarding the use of its infrastructure.

The Preliminary Agreement also requires Samarco, Vale and BHP Billiton Brasil to advance BRL 200 million (approximately US$60 million, 100 per cent basis) of the funding obligations under the Framework Agreement to Programs for the municipalities of Barra Longa, Rio Doce, Santa Cruz do Escalvado and Ponte Nova. The funds are to be advanced within 90 days after signing of the Preliminary Agreement.

During the period that the Interim Security is in place, it will, subject to Court approval, replace the BRL 1.2 billion injunction or approximately US$370 million issued in the BRL 20 billion Civil Claim. In addition, the applications by the Federal Prosecutors for the BRL 7.7 billion injunction or approximately US$2.4 billion in the BRL 155 billion Civil Claim and the BRL 20 billion asset freezing order or approximately US$6 billion in the criminal proceedings commenced by the Federal Prosecutors in Brazil against Samarco, Vale, BHP Billiton Brasil and others will be suspended.

The parties have agreed that the Interim Security will remain in place until the earlier of 30 June 2017 and the date that a final settlement arrangement is agreed between the Federal Prosecutors, and Samarco, Vale and BHP Billiton Brasil. If a final settlement arrangement is not agreed by 30 June 2017, the Federal Prosecutors may request reinstatement by the Court of the BRL 1.2 billion or approximately US$370 million injunction.

On 2 March 2016, Samarco, Vale, BHP Billiton Brasil and the Brazilian Authorities entered into a Framework Agreement for the remediation and compensation of the impacts of the dam failure. The Federal Prosecutors are not a party to the Framework Agreement.

The Preliminary Agreement outlines the process and timeline for negotiation of a settlement of the BRL 155 billion or approximately US$47.5 billion Civil Claim relating to the dam failure. 

The Preliminary Agreement provides for the appointment of experts to advise the Federal Prosecutors in relation to the social and environmental impacts of the dam failure, any revisions to the social and environmental remediation programs under the Framework Agreement and for the ongoing assessment and monitoring of the Programs. Samarco, Vale and BHP Billiton Brasil will provide existing studies and research to the expert advisors.

The expert advisors' conclusions will be considered in the negotiations of a final settlement arrangement with the Federal Prosecutors, which is expected to occur by 30 June 2017 under the timeframe established in the Preliminary Agreement.