BHP Billiton to Take $1 Billion Profit Hit From Brazil Dam Charges

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An official stands in front of BHP Billiton’s sign outside the Perth Convention Centre, where its annual general meeting was held on Nov. 19, 2015. Photo: Reuters

SYDNEY— BHP Billiton Ltd. BHP 0.98 % said its annual net profit will be crimped by charges of more than US$1 billion relating to last year’s deadly dam failure at Brazilian iron-ore mining operations it jointly owns with Vale SA VALE 1.76 % .

BHP, the world’s largest mining company by market value, said it would record a provision of between US$1.1 billion and US$1.3 billion, roughly half the estimated funding needed by the Samarco Mineração S.A. joint venture under an agreement signed with Brazilian authorities in March. In a separate statement, Vale said it booked a 3.7 billion-real ($1.2 billion) provision.

The Samarco dam spill released an avalanche of sludgy mine waste that killed 19 people, destroyed villages and polluted more than 400 miles of rivers before spewing into the Atlantic Ocean. It is widely considered to be Brazil’s worst-ever environmental catastrophe.

“The recognition of the provision demonstrates our support for the long-term recovery of the communities and environment affected by the Samarco tragedy and the belief we have that the agreement is the most appropriate mechanism to do this,” BHP Chief Executive Andrew Mackenzie said in a statement.

Under the agreement, BHP would spend a minimum of 9.46 billion reals through 2030 via a foundation. However, the outlook for the agreement is in doubt. Last month, Brazil’s Superior Court of Justice issued an interim order suspending its ratification, effectively reinstating an earlier 20-billion real civil claim.

BHP filed an appeal against that decision two weeks ago.

On Thursday, BHP said it would also record direct costs of roughly US$100 million after tax. The miner is scheduled to publish annual financial results in August.

In its first-half earnings report in February, in which the miner posted a huge net loss and abandoned its progressive dividend policy, BHP recorded US$1.2 billion in before-tax charges over the dam failure.

BHP said there is “ongoing uncertainty surrounding the nature and timing of a potential restart of Samarco’s operations.” Separately, Vale said there is a “reduced likelihood of resuming operations in 2016, given the current status of the licensing process.”

In June, Brazil’s Federal Police requested formal charges against eight company officials and said top executives at Samarco were for years aware of cracks and drainage problems at the Fundão tailings dam that collapsed on Nov. 5. Samarco has previously said it “always operated with high safety standards in all of its processes.”

BHP and Vale each own 50% of the Samarco business.

BHP said its board has approved US$134 million of funding for repatriation and compensation programs that will be offset against the US$1.1 billion-US$1.3 billion provision. It will also offer a short-term facility worth up to US$116 million to Samarco, which was one of the world’s biggest producers of before the November spill halted operations.

Vale said it would similarly lend Samarco up to US$100 million in the short term. Both said the funds will be linked to certain milestones, without providing details.

Rhiannon Hoyle at rhiannon.hoyle@wsj.com





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