BHP Billiton (BHP) Shares Hammered After News of Brazilian Lawsuit

Shares of BHP Billiton (BHP) were down -1.25 or -4.63 percent to $25.73 per share in Monday’s premarket after news that Brazilian authorities had threatened a $5.2 billion legal action against Billiton and Vale S.A. (VALE) for the companies’ mine disaster in Brazil’s southeastern state of Minas Gerais. BHP Billiton stock closed at $26.98, down -0.55 or -2.00 percent in Friday’s regular trading session.

Melbourne, Australian based BHP Billiton is the world’s largest mining company by revenue.
The Anglo-Australian company is the product of the 2001 merger of Anglo-Dutch Billiton plc and the Australian Broken Hill Proprietary Company Limited or BHP. The company is a major world producer of coal, copper, iron ore, petroleum, natural gas, uranium and nickel and operates mines in Australia, Algeria, Brazil, Canada, Chile, Columbia, Pakistan, Peru, Trinidad and Tobago, the United Kingdom and the United States.

The legal actions threatened by Brazilian authorities come after the failure of an iron ore tailings dam in Bento Rodrigues in the state of Minas Gerais in Brazil. The dam ruptured on November 5th, 2015 and caused massive flooding with approximately 60 million cubic meters of iron waste polluting the Dolce River.

The dam was operated by Samarco Mineração S.A, a joint venture of Vale SA and BHP Billiton, which has already been hit with a fine of 250 million reais or $66.2 million from Brazil’s environmental agency. The dam’s rupture sent toxic brown mudflows over a wide area, covering the flood plain in mud for 80 kilometers and polluting a major river valley.

The overflow from the mine has reached the Atlantic Ocean, killing thousands of fish and cutting the fresh water supply to more than 250,000 people. Samarco and BHP deny that the river is toxic based on tests by the Brazilian Geological Service and SGS Geosol and that the tailings are not radioactive and not a danger to humans.

However, the Institute for Water Management in Minas Gerais found elevated levels of lead, cadmium, chromium and nickel in the runoff with new reports of arsenic and mercury. The United Nations declared that the mud contains highly toxic chemicals and heavy metals but was unclear as to what tests were performed and where their evidence was sourced. The death toll for the disaster is up to 13 with 6 people still missing.

The Brazilian government announced the legal action on Friday. The lawsuit is seeking $5.24 billion in damages from both BHP Billiton and Vale S.A. Proceeds from the lawsuit will be dedicated to the rehabilitation of the Rio Dolce according to Brazil’s attorney general. BHP Billiton stated that they had not yet received formal notice of the legal action.

BHP Billiton announced this morning that it has formed a sub-committee headed by John Schubert, which includes Chairman Jac Nasser to coordinate relief efforts and assist management in response to the tragedy. The company also announced it already has a reserve set up to help fund the cleanup of the Rio Dolce river system, which was heavily polluted by the mines runoff. The company forecast a recovery period of ten years.

BHP Billiton’s stock price has been hit hard as a result of the disaster and will open below its yearly low of $26.40 in this morning’s regular trading session.

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Published on Nov 30, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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