Pressure grows on Samarco, one year after tailings disaster

Legal and financial pressures are mounting on Samarco, one year after a tailings dam failure sent 60 million cubic metres of mine waste and sludge into Brazil’s Rio Doce river system.

A federal court in Minas Gerais state has ruled that BHP Billiton (NYSE: BHP) and Vale (NYSE: VALE), owners of the Samarco iron ore mining complex in Minas Gerais, have 30 days to come up with US$354 million to fund initial cleanup at the mine after a tailings dam disaster last November.

According to a report by Reuters, the partners have 90 days to prove the tailings dam burst has been fully contained. The court also gave the companies six months to present their plans to complete the cleanup.

Damage from the Samarco tailings dam failure late last year in Mariana, Brazil. Photo by Jose Moraes.

The dam collapse killed 19 people, destroyed 200 homes and several small communities, spurred the evacuation of 600 people and affected thousands more. The tailings travelled 600 km and polluted riverways all the way to the Atlantic Ocean.

In a settlement with the federal government in March, Samarco and its owners agreed to a US$2.3-billion initial rehabilitation plan to clean and rebuild areas affected by the disaster. The agreement would see the companies pay up to 20 billion reais (US$6.4 billion) over 15 years.

The framework agreement includes compensation for residents affected by the spill, provisions to rebuild public infrastructure and clean the river system, and the relocation of three communities that saw the most severe damage — Bento Rodrigues, Paracatu de Baixo and Gesteira.

The work is being carried out by the Renova Foundation, an independent foundation established by BHP and Vale in June 2016.

But the deal was suspended by a court in August, because it considers a 155-real (US$43.5-billion) civil lawsuit federal prosecutors have launched against Samarco, Vale and BHP.

Damages in the suit were calculated using the cost of BP’s Deepwater Horizon oil spill in the Gulf of Mexico (US$55 billion).

In October, homicide charges were also laid against 21 executives employed at the time of the failure by the Samarco JV. Among those charged are: former Samarco CEO Ricardo Vescovi, Vale’s iron ore director Peter Poppinga, former BHP iron ore chief Jimmy Wilson and vice-president finance for BHP’s iron ore division, Margaret Beck.

Prosecutors allege that executives were aware of structural problems at the dam. A report commissioned by Samarco and released in August found that changes to the tailings dam design in 2011 and 2012 caused problems with water drainage and eventually led to the dam burst, which was triggered by a small earthquake.

The Fundao dam at Samarco’s iron ore mining complex in Minas Gerais, on Nov. 5, 2015 (10 days before its collapse). Credit: fundaoinvestigation.com.

BHP and Vale rejected the charges, which still need to be approved by a judge before they can be tried in court, and said they would defend the current or former employees.

Samarco, BHP, Vale and Vogbr Recursos Hidricos e Geotecnia — the engineering company that certified the dam’s safety — were also charged with environmental crimes.

The Samarco mine complex has been closed since the disaster occurred over a year ago. However, Reuters recently reported that BHP hopes to reopen the operation in 2017 — pending an agreement with Samarco, Vale, regulatory authorities and other stakeholders.

The Samarco JV has US$3.8 billion in debt and has laid off more than half of its 5,000 employees.