BHP, Vale Shares Plummet Following Brazil Dam Disaster Lawsuit – by Paul Kiernan (Wall Street Journal – May 4, 2016)

http://www.wsj.com/

RIO DE JANEIRO—Shares of two of the world’s biggest mining companies continued to plummet Wednesday after Brazilian federal prosecutors hit them with a 155 billion real ($43.8 billion) lawsuit in response to a catastrophic dam collapse in November.

The lawsuit cast fresh doubt upon Brazil-based Vale SA’s and Australia-based BHP Billiton Ltd.’s hopes for a swift resolution to liabilities stemming from the failure of a tailings dam at their Samarco Mineração SA joint-venture in southeast Brazil. It also threatened to upend a settlement the companies signed in March in which they agreed to fix up to 20.2 billion reais of damage initially estimated by Brazilian government agencies.

A task force of public prosecutors that has been investigating the accident never signed on to the settlement, saying in the lawsuit that it was “incomplete, precarious and partial.” Among other things, the prosecutors said, negotiations didn’t involve actual victims of the accident, while the ensuing settlement failed to hold various state and federal authorities accountable for their own negligence in monitoring the construction and operation of Samarco’s dam, known as Fundão.

“Input from the public prosecutors’ office was not considered by the negotiating parties,” the lawsuit said, adding that the government and companies appeared to be in a hurry to get a deal signed. The companies ultimately agreed to spend as little as 9.46 billion reais through 2030 via a foundation run mostly by their own appointees.

The settlement had underpinned a major rally in shares of both Vale and BHP Billiton, which also benefited from a partial recovery in prices for iron ore during recent months. Vale’s shares nearly doubled in price between late February and late April. BHP Billiton rose almost 40%.

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