Brazil freezes BHP, Vale assets over dam burst

A Brazilian court has ruled that global mining giants BHP Billiton and Vale are responsible for the bursting of tailings dams at their joint venture iron ore operation Samarco Mineracao, which have caused colossal environmental damage in the region.

In November, mineral waste containing mud, sediments and contaminated water stored in tailing dams flooded adjacent areas and flowed through two states cutting water supply in several urban areas and dislocating hundreds of people and causing widespread environmental damage (See: Dozens missing after mudslide flattens village in Brazil).

The contaminated water stored in the Fundao and Santarem tailings dams cut the water supply in several urban areas causing widespread environmental damage in the Rio Doce river basin.

In the same month Brazilian authorities imposed an initial penalty of 250 million reais ($66 million) on the two mining giants for the damages (Brazil slaps $66-mn fine on BHP, Vale for dam burst).

In a ruling on Friday, federal court judge Marcelo Aguiar Machado assigned environmental responsibility to BHP and Vale as indirect polluters as they are the controlling partners of Samarco.

Samarco did not have enough funds to pay for the total cost of the damage estimated at over 20 billion reais ($5.2 billion), the judge said.

This is the first time the 50:50 stakeholders are legally accused of the disaster to share Samarco's huge liabilities.

The disaster, happened on 5 November, taking the lives of at least 13 people with several more missing, and affected several villages that rendered around 650 people homeless. 

The judge ruled Samarco to deposit an initial amount of 2 billion reais, as part of the costs to repair the damages.

The judge also ordered suspension of the licences of the mine operated by BHP, Vale and Samarco. It is not exactly known what mines Samarco have still in operation.

Both BHP and Vale said they have not received any formal notice from the Brazilian authorities on the matter and declined to comment.

"We are committed to supporting Samarco to rebuild the community and restore the environment affected by the breach of Samarco's Fundao and Santarem tailings dams," a BHP spokesperson said yesterday.

Belo Horizonte-based Samarco has an annual production capacity of over 30 million tonnes of iron ore, about one-tenth of the country's total iron ore exports.

The operations in the states of Minas Gerais and Espirito Santo include open pit mines, a concentration plant, pellet plants, port facilities, a hydropower plant and a 396-km slurry pipeline between the mine and the pellet plants.

A United Nation's report in November claimed that the dam burst caused ''high levels of toxic heavy metals and other toxic chemicals.''

Refuting the claims, Samarco and BHP maintained that tailings are non-hazardous and are chemically stable and the metal concentrations on the sediments ''do not significantly defer'' from the results of 2010.

Reports of dead fish in Doce river were due to reduced oxygen levels caused by discharge of high volume of sand and clay tailings material, the companies said.

The judge ordered the miners to produce an environmental recovery plan for the Rio Doce basin, and also a socio-economic plan for rehabilitation of the affected people.

Vale earlier said that the company has no direct responsibility for the disaster because it is only a joint shareholder in Samarco, and would be liable only if Samarco was not able to pay for the damages.

In a joint statement last week, Vale and BHP, pledged to support Samarco in creating an emergency fund for rebuilding works and to help the affected families and communities. Samarco also agreed to pay an initial deposit of 2 billion reais for compensation and clean-up. (Polluter pays: Vale, BHP Billiton to fund clean-up of Brazil river)

A class action lawsuit was initiated against Vale in earlier this month by Bronstein, Gewirtz & Grossman, a corporate litigation firm, for making false statements. BHP is not mentioned in the charges.

Vale and BHP can appeal the federal court's decision.

Shares of both the mining giants have taken a beating since the mishap in global markets, plunging nearly 30 per cent.