Ground Breakers: Is BHP getting pinged for $66 billion in damages?

Another 500,000 victims added to BHP UK damages claim over dam disaster, taking potential bill to 36 billion pounds
But resources analyst says claim, initially thrown out before leave to appeal was granted last year, is not likely to succeed amid overlapping Brazilian claims
Materials hammered as commodities fall against backdrop of banking drama

Has BHP (ASX:BHP) become the subject of what some commentators are now calling the largest class action in history?

Lawyers Pogust Goodhead have reportedly added another 500,000 victims to a UK damages claim against the world’s biggest miner over the Fundao dam collapse at the Samarco mine in Brazil in 2015.

The high grade iron ore mine is operated in a JV between BHP and Vale, Brazil’s largest miner and later the company at the centre of the even more tragic Brumadinho dam collapse.

The Samarco dam collapse caused 19 deaths and displaced hundreds of people.

BHP says it and Vale have spent US$5.9b on remediation and compensation in Brazil through the Renova Foundation, paying over US$2.6b in indemnities and emergency financial assistance to approximately 410,000 people.

In addition, BHP says, around 70% of the resettlement cases for the communities impacted by the Fundão Dam collapse have been completed.

But the UK court system granted the subjects of a damages claim in that country leave to appeal in July last year, with the addition of hundreds of thousands of new claimants (around 700,000 all up) bringing the total potential damages to 36 billion pounds or almost $66m, more than a quarter of the miner’s market cap.

“Full details of the claims have not been received and the amount of damages sought in the English Proceedings remains unspecified,” BHP said in a statement.

“As noted in BHP’s results for the half year ended 31 December 2022, the Group’s provision related to the Samarco dam failure is US$3.122 billion as at 31 December 2022.

“Given the status of the English Proceedings, it is not possible to provide a range of possible outcomes or a reliable estimate of potential future exposures to BHP in connection with these proceedings.

“BHP will continue to defend the English Proceedings which it believes are unnecessary because they duplicate matters already covered by the existing and ongoing work of the Renova Foundation and legal proceedings in Brazil. All claimants have avenues in Brazil to resolve any potential claims including avenues established through the Brazilian Courts.”

‘Limited prospect’: Analyst

RBC Capital Markets resources analyst Tyler Broda said the case is a “tricky” situation for BHP. But he believes the case is unlikely to succeed with BHP already facing claims in the Brazilian court system.

“The situation is a tricky one for BHP and is likely to provide a stream of negative headlines over the coming years (or until this is denied by the courts or settled…),” he said in a note to clients.

“But in our opinion there is a limited prospect of this case succeeding, considering that the liabilities would cover the same reparations and compensation that has (and will) be remediated by the Renova Foundation.

“The claim is likely to become even more challenging once the Samarco case has been settled in Brazil, in our view. We do however continue to see risk to the company’s cash position/ongoing cash flow from the Brazilian settlement and do not believe this is captured in consensus estimates.”

BHP is one of RBC’s choice picks in the mining sector, but RBC is bearish on iron ore prices, expecting them to drop later this year as the market heads into balance.

It has a $36 per share price target on BHP, down from a current level of $43.98.

BHP was down around 3.5% this morning.

BHP (ASX:BHP) share price today:

Miners toweled up again as market withers

Before you get too worried about that or not worried enough, BHP’s loss was both in line with and a major cause of the market fall this morning, driven by concerns around the health of the global financial sector.

Commodities responded poorly, with copper down 3.7% to US$8505/t and aluminium dropping 3.2% to US$2277/t, while iron ore sagged 1.4% to US$129.90/t.

“Iron ore futures fell amid warners of lower steel output in China. The world’s biggest producer is likely to see annual output fall again in 2023 as the government tries to reign in carbon emissions, according to a report by Bloomberg,” ANZ’s John Bromhead translated in a note to clients this morning.

That was tempered by another safe haven rally in fold with bullion looking tastier with US Treasury yields on the decline and concerns over the financial health of major investment bank Credit Suisse, lifting almost 1% to US$1917/oz.

Gold stocks were the only miners among the ASX winners’ list today, with Newcrest (ASX:NCM) and Northern Star (ASX:NST) up a spare 1.01% and 0.41% respectively.

Capricorn Metals (ASX:CMM), Evolution Mining (ASX:EVN) and Gold Road Resources (ASX:GOR) brought stronger gains in the mid-caps, with lithium miner Sayona (ASX:SYA) a rare non-gold standout.

The materials sector fell 2.71% as of 12.30pm AEDT against a broader slide for the ASX of 1.33%, with energy stocks 4.14% lower.