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BHP’s OK Tedi immunity scrapped

BHP Billiton (ASX: BHP) shareholders are anxious about the miner having lost immunity from legal prosecution, over the environmental damages caused by its Ok Tedi mine operations in Papua New Guinea (PNG).

The company’s immunity arose in 2001 through an agreement whereby BHP voluntarily divested its interests in OK Tedi, by placing its majority shareholding (63.4%) into a charitable trust called the PNG Sustainable Development Program (PNGSDP). The Government held the remaining interest.

Under new legislation passed on 19 September, two new bills have been introduced. The first saw the Government take full ownership of the mine, whilst the second scrapped BHP’s immunity.

Scientists believe that the damage caused to the area is likely irreversible, after 80,000 tonnes of limestone sludge was dumped into the upper Tedi River, polluting it with chemicals and minerals. Understandably, locals are angry over the previous government’s decision to grant the company immunity. Current PNG Prime Minister Peter O’Neill marked it as “a very bad decision (by the then-government)… preventing its own people from exercising their right under law, to sue for permanent damages done to their environment and their livelihood.”

While O’Neill is right in standing up for the rights of the community, the decision to remove BHP’s immunity, raises fresh concerns for mining companies looking to venture overseas for operations. This case certainly doesn’t bode well for other miners that would have considered PNG to be an attractive area in which to do business, whereby the increased levels of risk and uncertainty in doing so could now be deemed too great.

What’s more, it has also been argued that the Government’s decision to remove BHP’s immunity could also remove its own immunity, given that it controlled 36.6% of the mine. The legal reality of this claim has not yet been investigated.

Foolish Takeaway

Investors who attend BHP’s AGM in London on Thursday will be eager to find out more regarding the case and how it could potentially affect the miner.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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