BHP Billiton will recognise a provision in the range of US$1.1 billion – $1.3 billion, which is approximately equivalent to a 50% share of the current estimate funding obligations for Samarco under the terms of the framework agreement entered into on 2 March 2016.
This reflects the on-going uncertainty surrounding the nature and timing of a potential restart of Samarco’s operations.
The associated income statement charge will be recognised as an exceptional item in the June 2016 half-year, together with direct costs of approximately $100 million (post tax).
The company and its shareholders continue to believe that the framework agreement provides an effective long-term solution to remediate and compensate for the impacts of the Samarco dam failure.
The foundation provided for under the agreement has been established to deliver the socio-economic and environmental programmes outlined in the agreement.
BHP Billiton CEO, Andrew Mackenzie says that the recognition of the provision demonstrates their support for the long-term recovery of the communities and environment affected by the dam tragedy and the belief that the company has for the agreement is the most appropriate mechanism to do it.
The BHP Billiton board of directors also approved $134 million to support the foundation to allow the continuation of reparatory and compensatory programmes.
The amount will be offset against the provision recognised on Thursday and a further short-term facility of up to $116 million is being made available for Samarco to carry out remediation and stabilisation work and to support Samarco’s operations.
Funds will be released to Samarco only as required and subject to the achievement of key milestones.
The short-term facility said that it will preserve the value of BHP Billiton’s investment while it continues to monitor developments.
The safe restart of the mine operations remains an important priority, along with the restructure of it’s debt.
Vale to reinstate Samarco
Vale has recognised a provision of R$ 3.7 billion (US$ 1.2 billion) in its interim financial statements as of 30 June 2016, which is equivalent to the present value of Vale’s estimated secondary responsibility under the agreement signed on 2 March to support the foundation established to develop and execute the long-term remediation and compensation programs as a result of Samarco’s dam failure.
Due to the reduced likelihood of resuming operations in 2016 given the current status of the licensing process and the additional uncertainties regarding Samarco’s future cash flow, Vale recognised the provision of the present value of its estimated secondary responsibility, equivalent to 50% of Samarco’s obligations under the agreement.
Given Samarco´s current cash flow projections, it is likely that shareholders will be called upon to fulfill its obligations under the agreement and, therefore, Vale expects to contribute about $150 million to the foundation, with this amount offset against the above mentioned $ 3.7 billion provision.
Furthermore, Vale intends to make short-term facilities of up to $100 million to Samarco to support its operations, without undertaking an obligation to Samarco.
Funds will be released on an as-needed basis and will be subject to Samarco achieving certain milestones.
Vale will carry out frequent reassessments of the assumptions used and revise the above mentioned provision in a timely manner to reflect new facts and circumstances in its financial statements.