BHP BHP Group Limited

   (FROM THE WALL STREET JOURNAL 12/1/15) 
   By Rhiannon Hoyle and Alex MacDonald 

Shares in BHP Billiton Ltd. fell to a more-than-10-year low on Monday in expectation of the Brazilian government suing the Anglo-Australian miner, its Brazilian partner Vale SA and their joint venture over a deadly dam failure in November.

The lawsuit, which was filed on Monday, demands damages of roughly 20.2 billion Brazilian reais ($5.25 billion) over 10 years, the Attorney General's office said, for a fund to help recovery efforts in the Rio Doce, a major river contaminated when a dam holding mine waste broke on Nov. 5 at an iron-ore operation in Brazil's Minas Gerais state.

At least 13 people were killed and six remain missing, BHP said. The dam burst unleashed a torrent of waste that the United Nations called "toxic," turning the Rio Doce orange in recent weeks and sending a plume of material into the Atlantic Ocean.

Hundreds of people were displaced and entire villages were destroyed.

BHP's shares in London fell 1.3% on Monday, after hitting a seven-year low of 778.9 pence during the session, while its shares in Sydney closed at a more-than-10-year low of 18.09 Australian dollars ($13.01), down 3.6% on the day.

This compares with a 0.5% drop in the U.K.'s FTSE 350 mining index and 0.4% drop in the London shares of Anglo-Australian mining peer Rio Tinto PLC.

BHP and Vale have said their equally owned joint venture, Samarco Mineracao SA, was legally responsible for the incident.

BHP said it was committed "to supporting Samarco to rebuild the community and restore the environment affected by the breach of the dams." Samarco operates the mine.

On Friday, Vale and BHP said they would establish a voluntary fund for efforts to rehabilitate the Rio Doce river system, although the mining giants didn't say how much money would be available.

The dam incident has put new financial pressure on BHP at a time when it was already challenged by falling prices for the commodities it sells, especially iron ore.

That steelmaking ingredient hit a more-than-decade low of $42.80 a metric ton on Monday, down 78% from its 2011 peak of $191.90 a ton, according to data provider The Steel Index.

The travails are also weighing on Vale and its executive team. The mining giant's CEO, Murilo Ferreira, has stepped down from his chairman position at Brazil's state-run oil company, Petroleo Brasileiro SA, as he deals with the implications of the dam break.

Mr. Ferreira had already been on temporary leave from Petrobras since Sept. 14, though he had only been at the company since an April shake-up.

The dam incident and falling commodity prices have prompted BHP Billiton's shareholders to query whether the company can sustain its dividend payout, among the highest in the industry.

BHP Chairman Jacques Nasser told investors last week that the miner won't change its dividend policy until February at the earliest, despite shareholder concerns.

Analysts at Investec Securities and J.P. Morgan Cazenove have since issued notes recommending that BHP cut its dividend.

"Given the risk of ongoing commodity price volatility, we believe it would be prudent for the company to rebase its [progressive] dividend," Investec Securities said in a note.

Meanwhile in Brazil, BHP said Samarco is working with government authorities to relocate displaced people to rented housing from temporary accommodation, which it expects to happen by February.

Samarco and local authorities are also continuing to assess water quality in the Rio Doce, it said, adding that the plume of so-called tailings had reached the Atlantic Ocean and was dispersing.

Last week, a U.N. report said "high levels of toxic heavy metals and other toxic chemicals" had been detected in the river system.

Vale later confirmed materials such as arsenic were found in the water.

In its news release Sunday evening, BHP said the material released into the Rio Doce was "not hazardous to human health, based on the hazard classification of the material under Brazilian standards."

The company called the materials "nonreactive" and "geochemically stable."

The company said a large number of fish had suffocated in the river "as a result of the high volume of sand and clay tailings material that moved through the river system."

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(END) Dow Jones Newswires

December 01, 2015 02:47 ET (07:47 GMT)

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