REG - BHP Group Limited - Samarco - Final Agreement with Public Authorities
25/10/2024 15:30
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RNS Number : 7399J BHP Group Limited 25 October 2024
Exchange release
25 October 2024
BHP Brasil reaches final settlement with Public Authorities in Brazil for
reparation of Samarco's Fundão dam failure
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
"The Samarco Fundão dam failure in 2015 was a terrible tragedy. It should
never have happened and must never be forgotten.
As shareholders in the Samarco non-operated joint venture, BHP Brasil and Vale
have always been committed to supporting Samarco to do what's right by the
Brazilian people, communities, organisations, and environments affected by the
dam failure.
Today's signing of a comprehensive agreement with the Brazilian government and
public authorities is an important reflection of that commitment. It delivers
expanded and additional programs for the environment and for the people,
including designated funding for the health system, economic recovery,
improved infrastructure and extensive compensation and income support
measures, including for farmers, fisher people and Indigenous and Traditional
communities. We acknowledge the significant commitment of the Brazilian
Government and public authorities in reaching this milestone."
Mike Henry
Chief Executive Officer, BHP
The Federal Government of Brazil, State of Minas Gerais, State of Espirito
Santo, public prosecutors and public defenders (Public Authorities) have
entered into an agreement with Samarco Mineirão S.A. (Samarco), BHP Billiton
Brasil Ltda. (BHP Brasil) and Vale S.A. (Vale) (the Companies) to settle the
Framework Agreement obligations, the Federal Public Prosecution Office civil
claim and other claims by the Public Authorities relating to Samarco's Fundão
dam failure on 5 November 2015 (Agreement). The Agreement was executed by the
parties today in Brazil. The Agreement remains subject to approval by the
Brazilian Supreme Court.
As stated in BHP's 2024 Annual Report, the Companies have been engaging in
negotiations with the Public Authorities since early 2021 to seek a definitive
and substantive settlement of the Framework Agreement obligations, the Federal
Public Prosecution Office civil claim and other claims by the Public
Authorities relating to the dam failure.
The negotiations were conducted by the Brazilian Federal Court of the 6(th)
region and the National Court of Justice in Brazil with the oversight of a
court-appointed mediator and the participation of public prosecutors and
public defenders.
Key terms of the Agreement
The Agreement delivers a full and final settlement of the Framework Agreement
obligations, the Federal Public Prosecution Office claim and other claims by
the Public Authorities in relation to the dam failure. The Agreement provides
reparation for the impacts of the dam failure, and builds on the existing
remediation and compensation work already performed by the Renova Foundation
in Brazil which totals R$38 billion(1) (approximately US$7.9 billion(2)).
The financial value of the Agreement is R$170 billion(1) (US$31.7 billion(2))
on a 100% basis to be delivered to the people, communities and environment
impacted by the dam failure.
The Agreement includes amounts already spent to date plus future payments and
obligations as follows:
· R$38 billion(1) (approximately US$7.9 billion(2)) in amounts
already spent to 30 September 2024 on remediation and compensation since
2016.
· R$100 billion(1) (approximately US$18.0 billion(2)) in instalments
over 20 years to the Public Authorities, the relevant municipalities and
Indigenous peoples and traditional communities (Obligation to Pay).
· Additional performance obligations for an estimated financial value of
approximately R$32 billion(1) (approximately US$5.8 billion(2)) that will be
carried out by Samarco in accordance with the terms of the Agreement
(Obligations to Perform).
BHP Brasil's expected outflows under the Agreement align with BHP's FY2024
Samarco dam failure provision of US$6.5 billion and no update is required to
the existing provision at this time. Further detail on the financial impacts
and payment schedule of the Agreement is set out below.
Summary of key obligations in the Agreement
The Agreement:
· allocates compensation to programs for the benefit of people,
communities and the environment in the affected regions, including R$11bn(1)
for universal water sanitation, R$12bn(1) for health programs, R$6.5bn(1) for
economic recovery programs, R$4.3bn(1) for improvements to road and
infrastructure, R$2.0bn flood response fund, R$2.4bn to foster fishing and
biodiversity, R$1bn for a program to support women, R$5.7bn(1) for a social
participation fund for investment in education, culture, sports and food
security, and R$3.75bn(1) for an income assistance program to support the most
vulnerable people in the affected regions;
· provides R$8 billion(1) (US$1.4bn(2)) to eligible Indigenous
People and Traditional communities with the allocation of funds to be
determined by Indigenous and Traditional communities following a consultation
process to be conducted by the Federal Government;
· provides compensation payments of R$95,000(1) per person to
eligible fishermen and farmers in the affected regions and R$13,018(1) per
person to individuals with water damage claims; and
· establishes a further compensation and indemnification system.
Further detail on the terms of the Agreement is included below in "Detailed
terms of the Agreement".
1 All financial obligations are presented on a real, undiscounted basis and
will accrue inflation at IPCA inflation rate. Payments will be made in
Brazilian Reais.
2 All USD amounts throughout are calculated based on actual transactional
(historical) exchange rates related to funding provided to Fundação Renova
(Renova Foundation) for investment to date and future spend is calculated
using 28 June 2024 BRL/USD exchange rate of 5.56.
Financial obligations(1,2)
Under the Agreement, Samarco is the primary obligor for the settlement
obligations and BHP Brasil and Vale are each secondary obligors of any
obligation that Samarco cannot fund or perform in proportion to their
shareholding at the time of the dam failure, which is 50% each.
BRL Billion USD Billion (US$)(1)
(R$)
Spent to date (as at 30 September 2024) (100%) 38 7.9
Obligation to Pay (100%) 100 18.0
Obligations to Perform (100%) 32 5.8
Total Settlement Amount (100%) 170 31.7
Total - BHP Brasil share (50%) 85 15.9
(i) Payment schedule
The payment schedule for the Obligation to Pay is set out in the table below.
The first payment will become payable 30 days after the Court confirms the
Agreement and subsequent payments will become payable in six months after the
first payment and annually thereafter for a total of 20 years.
The Obligations to Perform are expected to be largely completed over
approximately the next 15 years with approximately R$6.6 billion(1) (US$1.2
billion(2)), R$14.7 billion(1) (US$2.6 billion(2)) and R$3.1 billion(1)
(US$0.6 billion(2)) to be spent on a 100% basis over FY25, FY26 and FY27
respectively.
Obligation to Pay schedule of payments (R$ Billion, 100%)(1,2)
FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34
11.0(3) 7.0 5.0 5.0 5.1 5.5 6.0 5.4 5.0 5.0
FY35 FY36 FY37 FY38 FY39 FY40 FY41 FY42 FY43
4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.4
(ii) Samarco dam failure provision
BHP Brasil's expected outflows under the Agreement align with the existing
US$6.5 billion Samarco dam failure provision based on the current assessment
of the uncertainties associated with the execution of Obligations to Perform
and current estimates of the extent to which Samarco could directly fund
settlement obligations. No update is required to the existing provision at
this time.
Under the terms of Samarco's Judicial Reorganisation Plan, Samarco's funding
of remediation obligations will be capped at US$1 billion for the period
CY2024 to CY2030.
(3) FY25 payment includes CY24 and CY25 instalments.
To the extent that Samarco has a positive cash balance each year after meeting
its various obligations including operating capital requirements, debt service
and remediation obligations in line with the cap, BHP Brasil and Vale are able
to direct 50% of Samarco's year end excess cash balance to provide further
funding for remediation and compensation obligations. BHP Brasil and Vale will
be required to provide funding to remediation obligations during this period
to the extent that the funding amount required exceeds the US$1 billion cap
and any excess Samarco cash available.
Other litigation not resolved by the Agreement
The Agreement will not resolve the Australian class action complaint, United
Kingdom group action complaint, the group action claim brought against certain
Vale and Samarco entities in the Netherlands, criminal charges against
Samarco, BHP Brasil, Vale and certain individuals, civil public actions
commenced by private associations, including the civil public action
concerning the use of Tanfloc for water treatment, trailing litigation from
individuals, Indigenous Peoples and Traditional communities and businesses
(among others) and future or unknown claims which may arise from new
information or damages in connection with the dam failure such as potential
claims alleging health impacts to individuals.
Detailed terms of the Agreement
This table sets out a summary of the key terms of the Agreement.
Category Description of term
Parties · The Federal Government of Brazil, the State of Minas Gerais, the
State of Espírito Santo, the public prosecutors and public defenders
· Samarco, BHP Brasil and Vale
Settlement and releases · Full and final settlement of the Framework Agreement obligations, the
Federal Public Prosecution Office civil claim and other claims by the Public
Authorities relating to the dam failure.
· Confirmation that the collective socio-environmental and
socio-economic damages of any nature (including social, moral and non-economic
damages) arising from the dam failure are compensated and remediated by the
Obligations to Perform and Obligations to Pay and no additional obligations
will be required for the reparation and compensation of the collective
damages.
· Releases from the Obligations to Perform and Obligations to Pay will
be provided once the obligations have been completed.
· Releases from liability by eligible individuals, small businesses,
Municipalities and Indigenous and Traditional communities will be provided on
receipt of compensation payments if they choose to opt-in to the settlement.
· All releases under the agreement will be extended to BHP Group UK
Ltd, BHP Group Ltd and other affiliates of the BHP Group.
· See "Other litigation not resolved by the Agreement" section above
for the liabilities and claims that will not be resolved by the Agreement.
Payment terms · Samarco will be required to pay the Obligation to Pay to the
Public Authorities in instalments over a 20-year period from FY25 to FY43 (see
"Financial obligations" for further detail).
· Samarco and the Renova Foundation will be required to complete
the Obligations to Perform in accordance with the scope and period set out in
the Agreement.
· Samarco is the primary obligor for the settlement obligations and
BHP Brasil and Vale are each secondarily liable for any obligation that
Samarco cannot fund or perform in proportion to their shareholding at the time
of the dam failure, which is 50% each.
Municipalities · Allocation of amounts that will be directly paid to eligible
Municipalities in the affected regions that agree to opt-in to the settlement.
(Obligation to Pay)
· Investments in Municipalities and communities via the various
environment and community initiatives in the Agreement, including in relation
to health, economic recovery and water sanitation programs (described in the
table below).
Health · Funding for the creation of a perpetual fund to strengthen the
public health system in the affected regions, which will be coordinated by the
(Obligation to Pay) Federal Government of Brazil.
Fishing · Funding for the creation of federal and state perpetual funds to
strengthen fishing activity in the Doce River which will be administered by
(Obligation to Pay) the Public Authorities.
· The existing fishing ban applicable to the portion of the Doce
River in the State of Minas Gerais will be released in up to six months, and
the fishing ban applicable to the river mouth and coastal area of the State of
Espírito Santo will be released in up to two years. Both releases will
support the resumption of livelihoods and economic activities in the affected
regions.
Water sanitation · Funding for the universalisation of basic water sanitation for
municipalities in the Doce River basin, with the objective of reducing the
(Obligation to Pay) amount of untreated sewage that is discharged into the river.
State Projects · Funding for infrastructure works related to the construction and
improvement of roads in the affected regions and the development of a defined
(Obligation to Pay) list of State Government actions and projects that will replace the
socioeconomic and socio-environmental programs that are currently run by the
Renova Foundation.
Program for Women · Funding for a program to support women.
(Obligation to Pay) · Program to be managed by the public prosecutors and public
defenders.
Other community funding · Income support program: Funding allocated to the financial
support of individuals involved in agriculture and fishing activities in the
(Obligation to Pay) affected areas. The Federal Government will create a program to provide a
prescribed amount to eligible individuals on a monthly basis for three to four
years.
· Economic Recovery Plan: Funding allocated to the creation of a
program to support education, science, technology, innovation, socioeconomic
development and farming, with the aim to support the economic recovery of the
affected regions.
· Prevention and mitigation of mining risks: Funding for actions
aimed at monitoring and risk mitigation for mineral exploration activities.
· Strengthening of National Social Assistance System: Funding to
strengthen the services and other public offerings of the Unified Social
Assistance System in Brazil.
· Social Security Reimbursements: Funding to reimburse the Federal
Government for public spending on social security resulting from the dam
failure, including amounts for social security benefits due to work accidents
and unemployment insurance for eligible fishermen.
Indigenous and Traditional communities · Compensation of R$8bn (US$1.4bn) for eligible Indigenous and
Traditional communities that opt-in following a consultation process led by
(Obligation to Pay) the Federal Government, which is expected to take up to 18 months. During the
consultation period, the communities will continue to receive monthly
financial aid payments.
· Communities that opt-in will have discretion to decide how the
payments are used to compensate the community members for their collective way
of life, including through community programs and/or individual payments.
· The agreement will also establish a fund administered by the
Federal Government to implement public policies in connection with Indigenous
and Traditional communities.
Indemnification and Compensation · Eligible individual claimants with unresolved claims in
connection with water damage will be entitled to R$13,018 per person if they
(Obligations to Perform) opt in.
· Eligible fisherman and small farmers in the affected regions will
be entitled to R$95,000 per person.
· A further compensation and indemnification system endorsed by the
Public Authorities will compensate eligible individuals and small businesses
who agree to opt-in to the settlement for remaining general damages claims in
the amount of R$35,000 per person for a full release.
· Under the compensation and indemnification system, eligible
claimants will only be required to present proof of identity and residency in
order to be assessed for eligibility, and this simplified structure and
eligibility criteria has been designed to accommodate a large number of people
in a simplified processing scheme.
Community resettlement · Samarco will complete the resettlement of the communities of
Bento Rodrigues and Paracatu de Baixo.
(Obligations to Perform)
· At 30 September 2024, approximately 91 per cent of resettlement
cases were completed.
Environment · Samarco has committed to remove up to 9.15 million m³ of
tailings and sediment from a pre-defined location of the Doce River. The
(Obligations to Perform) removal of the material would be subject to approved environmental licensing
limits and certain conditions.
· If Samarco receives approval by the environmental agency to
remove only part of the 9.15 million m³ of the material, a compensation
payment of R$450 million per million m(3) of material not removed will be
payable at the end of the removal works.
· Samarco will continue an environmental monitoring program to test
for the presence of seven prescribed chemical substances in eight defined
areas of the Doce River basin which may increase to nine areas if the full
9.15 million m(3) is not removed (a total area of approximately 42,000
hectares).
· Samarco will undertake additional remediation of areas impacted
by the dam failure, including restoration of aquatic habitats and
environmental and water quality monitoring of the Doce River basin.
Renova Foundation · In March 2016, a Framework Agreement entered into between the
Companies and relevant Brazilian authorities established the Renova
Foundation, a not-for-profit, private foundation responsible for implementing
42 remediation and compensatory programs to address the impacts of the dam
failure to date.
· The Renova Foundation's 42 programs will be completed or
transferred to Samarco or to the Federal or State Governments of Brazil within
12 months and the Renova Foundation's governance body will cease on signing.
· As noted above, Samarco will be the primary party responsible for
completing the Obligations to Perform.
Authorised for release by Stefanie Wilkinson, Group General Counsel and Group
Company Secretary
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