Responsible Investing

BHP – Brazil Samarco mine field trip

Although we are satisfied with progress so far, risks remain
April 2018

Risk Disclaimer

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

 

As always investment values may fall as well as rise and capital is at risk.

BHP Billiton and Vale’s remediation efforts to address the 2015 Samarco mining accident have been complicated by political and economic crises in Brazil. Corporations, especially those in sectors with strong links to government, will continue to find it difficult in this challenging operating environment.

Background and action

In June 2017, we participated in a field trip to Brazil organised by the mining company BHP. The purpose was to get a first-hand insight into developments in relation to the 2015 Samarco accident, when the collapse of a major dam at the site of the Samarco mine resulted in at least 17 deaths and is one of Brazil’s biggest environmental disasters.

We spent three days with BHP in the Samarco region and met with representatives from the Renova Foundation, which is tasked with overseeing remediation efforts. We also spoke with Samarco employees and representatives of communities affected by the accident.

Since the accident, the two joint-venture companies, BHP and Vale, have made concerted efforts to remediate the damage while aiming to mitigate the financial impacts and rebuild their own reputations. A preliminary date for a possible restart of Samarco’s operations has been set for 2018, with BHP apparently in talks with Vale to sell its stake fully to the Brazilian miner.

We highlighted our concern that the companies’ efforts continue to face legitimacy challenges among the wider population since they are seen as having colluded with the government to arrive at a settlement that falls short of popular expectations. We encouraged the companies to consider options for doing more to elevate the role of local stakeholder perspectives within the process. To alleviate scepticism around long-term river pollution impacts, we also asked that remediation plans are independently verified by the IUCN and made public1. Although we did not see any obvious concerns regarding compliance controls, there is still a need for the companies to clarify the nature of disclosure around remediation payments and the impact on end beneficiaries.

During the entire trip – whether we talked to mining employees or residents in the Samarco region, or corporate employees in offices in Sao Paolo and Rio de Janeiro – discussions typically referred to the wider political context: the ongoing political fallout from the corruption investigation dubbed “Operation Car Wash”. With many political and corporate leaders being implicated by these investigations, including two former presidents (Lula and Dilma Rousseff) and the current president, Michel Temer, the country’s political and corporate institutions are facing a fundamental crisis of legitimacy.

 

Our view

It is unfortunate, but perhaps unsurprising, that the wider political and economic climate has had a bearing on the process, which requires considerable skill for the companies to navigate. Although we are satisfied with progress so far, risks remain and we will continue to monitor the situation as it draws to its conclusion. Whilst it is impossible to fully compensate for the loss of life and of homes that resulted from this disaster, our view is that Vale and BHP have so far shown both high-level management commitment and hard financial assistance in remediating the damage, which will eventually help the affected communities and the environment to recover.

All information is at March 2018 unless otherwise stated.

Risk Disclaimer

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

 

As always investment values may fall as well as rise and capital is at risk.