Page 187 - Annual Report 2020

4 Significant events – Samarco dam failure continued
Equity accounted investment in Samarco
BHP Brasil’s investment in Samarco remains at US$ nil. BHP Brasil provided US$95 million funding under a working capital facility during the Strategic Report
period and recognised impairment losses of US$95 million. No dividends have been received by BHP Brasil from Samarco during the period
and Samarco currently does not have profits available for distribution.
Provisions related to the Samarco dam failure
2020 2019
US$M US$M
At the beginning of the financial year 1,914 1,285
Movement in provisions 137 629
Comprising:
Utilised (369) (328)
Adjustments charged to the income statement:
Change in estimate – Samarco dam failure provision 916 579 Governance at BHP
Change in estimate – Samarco Germano dam decommissioning 37 263
Amortisation of discounting impacting net finance costs 93 108
Exchange translation (540) 7
At the end of the financial year 2,051 1,914
Comprising:
Current 896 440
Non-current 1,155 1,474
At the end of the financial year 2,051 1,914

Samarco dam failure provisions and contingencies Under a Governance Agreement ratified on 8 August 2018, BHP Brasil, Remuneration Report
As at 30 June 2020, BHP Brasil has identified provisions and Samarco and Vale were to establish a process to renegotiate the
contingent liabilities arising as a consequence of the Samarco Programs over two years to progress settlement of the R$155 billion
dam failure as follows: (approximately US$28 billion) Federal Public Prosecution Office claim
(described below). The renegotiation process remains outstanding as
Provisions certain pre-requisites established in the Governance Agreement are
Provision for Samarco dam failure yet to be implemented. However, the renegotiation may be extended
On 2 March 2016, BHP Brasil, Samarco and Vale, entered into a for a further two years by mutual consent of the parties.
Framework Agreement with the Federal Government of Brazil, the BHP Brasil, Samarco and Vale maintain security comprising R$1.3 billion
states of Espírito Santo and Minas Gerais and certain other public (approximately US$240 million) in insurance bonds and a charge of Directors’ Report
authorities to establish a foundation (Fundação Renova) that will R$800 million (approximately US$145 million) over Samarco’s assets.
develop and execute environmental and socio-economic programs A further R$100 million (approximately US$20 million) in liquid assets
(Programs) to remediate and provide compensation for damage previously maintained as security has been released for COVID-19
caused by the Samarco dam failure. Key Programs include those related response efforts in Brazil. The security is maintained for a
for financial assistance and compensation of impacted persons, period of 30 months from ratification of the Governance Agreement,
including fisherfolk impacted by the dam failure, and those for after which BHP Brasil, Vale and Samarco will be required to provide
remediation of impacted areas and resettlement of impacted security of an amount equal to the Fundação Renova’s annual budget
communities. A committee (Interfederative Committee) comprising up to a limit of R$2.2 billion (approximately US$400 million).
representatives from the Brazilian Federal and State Governments, 5
local municipalities, environmental agencies, impacted communities Samarco Germano dam decommissioning
and Public Defence Office oversees the activities of the Fundação Samarco is currently progressing plans for the accelerated
Renova in order to monitor, guide and assess the progress of actions decommissioning of its upstream tailings dams (the Germano dam
agreed in the Framework Agreement. In addition, the 12th Federal complex). Given the significant uncertainties surrounding the nature
Court is supervising the work of the Fundação Renova and in July and extent of Samarco’s future operations and related cash flows,
2020 made decisions relating to financial compensation for impacted BHP Brasil recognises a provision of US$227 million (30 June 2019: Financial Statements
persons in two municipalities, which have been considered in the US$263 million) for a 50 per cent share of the remaining expected
Samarco dam failure provision change in estimate. Further decisions Germano decommissioning cost. The decommissioning is at an
are anticipated in FY2021. early stage and as a result, further engineering work and required
The term of the Framework Agreement is 15 years, renewable for validation by Brazilian authorities could lead to changes to estimates
periods of one year successively until all obligations under the in future reporting periods.
Framework Agreement have been performed. Under the Framework
Agreement, Samarco is responsible for funding Fundação Renova’s
annual calendar year budget for the duration of the Framework Additional information
Agreement. The funding amounts for each calendar year will be
dependent on the remediation and compensation projects to be
undertaken in a particular year. Annual contributions may be
reviewed under the Framework Agreement. To the extent that
Samarco does not meet its funding obligations, each of BHP Brasil
and Vale has funding obligations under the Framework Agreement
in proportion to its 50 per cent shareholding in Samarco.
Samarco is currently progressing plans to resume operations,
however significant uncertainties surrounding the nature and
extent of future operations remain. In light of these uncertainties
and based on currently available information, BHP Brasil’s provision
for its obligations under the Framework Agreement Programs is Shareholder information
US$1.8 billion before tax and after discounting at 30 June 2020
(30 June 2019: US$1.7 billion).

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