BHP settles Samarco
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The collapse of the tailings dam operated by Samarco, a joint venture between BHP Billiton and Brazilian miner Vale, is among the worst mining disasters in a decade and the worst ever seen in Brazil. We won't dwell on the non-financial cost of the disaster here other than to say it is high.
The financial liability, however, has been agreed with the Brazilian government at a cost of between US$1.7-2.3bn paid over six years. BHP should be liable to half that sum.
The outcome is less than originally feared and will have little financial impact on BHP. The Samarco mine, a very profitable one, won't be operating anytime soon but one source of uncertainty is at an end. Investors can get back to fretting about more mundane concerns like commodity prices, global growth and Chinese demand.
If commodity prices stay where they are, BHP should generate free cash flow of about US$3bn this year, bang in between the base and bear case outlined in Biting on BHP part 2. BHP remains a BUY.
Note: The Intelligent Investor Income and Growth portfolios own shares in BHP. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.
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