BHP Billiton Limited (ASX: BHP) warned on Friday that the Brazilian government intended to commence legal actions in response to the catastrophic dam disaster recently, and now, that appears to have become a reality.
According to the ABC network, Brazil's government has filed a $7.2 billion lawsuit against the Samarco mining company, together with its co-owners BHP Billiton and Vale. The damages being sought are related to costs associated with the clean-up, environmental recovery and compensation after 60 million cubic metres of mud and mine waste spread roughly 80 kilometres.
Samarco would be required to set up a private fund with the money with payments to be spread across a 10-year period.
As cited by the ABC, the chief prosecutor of the coastal state of Esprito Santo, Rodrigo Vieira, said: "If Samarco does not have the financial resources to cover payments for 10 years, Vale and BHP will be held responsible for providing their share."
It has been reported however that the Brazilian government would prefer to settle the issue out of court, suggesting the miners could settle on a lower price.
The Brazilian mine disaster was a catastrophe from both a human and environmental perspective, and BHP Billiton has handled the aftermath quite appropriately. It has focused predominantly on responsibility and ensuring that everyone impacted is being looked after.
Not to take away from that, but it is also a financial tragedy for the group. BHP Billiton's earnings and cash flows are already being strangled by tumbling commodity prices, while its progressive dividend policy is also under attack by analysts, most of whom believe it is unsustainable.
BHP Billiton's share price has also taken a beating. The shares are currently trading for $18.78 on the ASX – down 41% since early March and 19.3% since the incident – but recently dipped as low as $18.09. That was their lowest price since 2008.
Although the shares might look cheap, there is still a lot of uncertainty surrounding the company and the industry as a whole which could continue to drag on the share price. There could certainly come a time to buy the shares but, in my opinion, they haven't hit that price to justify the risk just yet.
