Meeting of mines
Mutual self-interest is powering a remarkably fast disaster settlement. Brazil’s President Dilma Rousseff is close to extracting 20 billion reais, or about $5 billion, from Samarco Mineração, the mine operator whose busted dams killed 17 people and deluged the region, two rivers and the Atlantic Ocean with billions of gallons of toxic waste. The calamity struck barely three months ago.
Such haste is uncommon. BP established a $20 billion compensation fund within two months of the April 2010 Deepwater Horizon spill, but official settlements with various governments only started months later and dragged on for years. Exxon appealed the size of punitive damages awarded against it for the 1989 Valdez disaster until it won in the Supreme Court in 2008.
All parties in Brazil’s case have good reason to act quickly. Rousseff could do with a victory of sorts. Long-running investigations into government corruption, especially around state-controlled oil giant Petrobras, have plagued her administration. The country’s economy is amid a terrible recession and the Zika virus is creating a panic. Holding a big corporation to account would be something to tout.
A resolution also would suit Samarco’s co-owners, BHP Billiton and Vale. They’re caught in a long and painful downturn in the commodities cycle. The mine itself also has been closed since the disaster occurred. That means iron ore is stuck in the ground and the joint-venture partners can’t collect dividends. BHP, which accounts for its stake as an equity investment, booked $371 million in profit from Samarco in the 12 months to last June.
The larger concern for BHP and Vale is that they could end up having to foot some or all of the bill the longer the mine stays closed. Opening the mine would get cash flow churning again to either help pay for the fine or support, say, a bond sale to raise the funds. Local authorities would be happy to see the mine up and running again, too. It provides both jobs and tax revenue.
There are sticking points, including whether various governments and agencies will sign up. And it only covers social and environmental damage, not private lawsuits or criminal charges. The mooted deal is nevertheless a sign of how tough times can focus minds.