"It takes 20 years to build a reputation and five minutes to ruin it." – Warren Buffett.
BHP Billiton Limited (ASX: BHP) is not only facing a human, environmental and financial catastrophe, its reputation is also on the line as a responsible global mining corporation.
BHP Billiton's shares have come under immense pressure over the last five trading days following the tragic failure of one of its Brazilian mines, operated by local business Samarco Mineracao S.A. The shares fell as much as 3.5% today to a fresh low of $20.22 and have fallen 13.1% since the incident, wiping billions of dollars from the group's market value.
Although the affected mine will have little impact on the group's overall production capacity, it threatens to potentially derail the group's progressive dividend policy with some estimates suggesting BHP could be responsible for paying more than US$500 million for its contribution to the clean-up costs, potential fines and remediation costs to those affected.
In a joint statement from BHP Billiton and Brazil's Vale, each of which is a50% owner in the Samarco joint venture, the companies said they would create an Emergency Fund for rebuilding works and to help the affected families and communities. As highlighted by The Age, the fund is estimated at $100 million.
Indeed, BHP's response has been swift and appropriate. They have stressed that their focus is indeed on responsibility and helping those impacted while BHP's own CEO, Andrew Mackenzie, and its President of Iron Ore, Jimmy Wilson, both travelled to Brazil to offer their assistance.
In saying that, however, BHP's reputation as a global miner could still become severely damaged by the incident with the Fairfax press already quoting Bob Burton, who monitors the impact of mining for environmental group the Earth Island Institute, saying BHP "had form" when it came to causing damage in developing countries. If you haven't heard of the Ok Tedi gold mine in Papua New Guinea – Wikipedia has more here…
He added, "It raises the question: are all of their other tailings dams across the world structurally sound?… This could raise eyebrows about how they are managing the risks at their operations."
An investigation is underway to determine the cause of the disaster in Brazil. If human fault is found to be a contributor to the cause, it could be a very bad sign for BHP Billiton. A global audit will also be conducted on its other tailing dams to ensure similar disasters don't occur, and the results could certainly be telling.
Although BHP's shares are now sitting near a seven-year low price, investors may want to hold off from buying just yet. Further uncertainty surrounding the disaster could drag the shares lower, as could the falling prices of some of BHP's most important commodities.
