BHP Billiton Limited’s (ASX:BHP) share price facing $9 billion headache

It feels like the largest stocks on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index are facing legal problems that will run into the hundreds of millions, if not more.

You can add mining giant BHP Billiton Limited (ASX: BHP) to this list that is dominated by our largest financial institutions such as Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and AMP Limited (ASX: AMP).

The BHP share price fell 0.4% to $31.64 in early trade but it’s holding up much better than the banks and AMP as the CBA share price, the NAB share price and AMP share price have all suffered a big de-rating this year with many of the biggest names in the financial sector facing multiple lawsuits and class actions.

Legal Woes

The world’s largest miner said it will fight an unprecedented lawsuit filed in London seeking £5 billion ($9 billion) in damages relating to the Samarco dam disaster – the worst environmental catastrophe to hit Brazil and one that claimed the lives of 19 people.

According to Reuters, the lawsuit represents 240,000 individuals, 24 municipal governments, a Roman Catholic Archdiocese and members of the Krenak indigenous community.

The report states that the claim appears to be the largest in British legal history and BHP has the dubious honour of being linked to it.

BHP said it will defend the claims and pointed out that it has committed US$780 million to the Renova Foundation, which was set up to manage reparations and repairs.

The dam failure sent 40 million cubic metres of sludge over villages and contaminated rivers. The pollution travelled 650 kilometres into the Atlantic Ocean.

Foolish Takeaway

But shareholders shouldn’t be too concerned about the impact of the mammoth lawsuit on BHP’s share price.

History has shown that mega lawsuits seldom have a lasting impact on the share price performance of companies with BP Plc a classic example in the wake of the Deepwater Horizon oil spill in April 2010.

Lawsuits can also drag on for years before an outcome is reached.

As terrible as the Samarco disaster was, it’s the escalating Trump trade war and looming slowdown in the Chinese economy that will have a bigger impact on the performance of BHP’s share price over the next several months.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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