BHP Billiton hit by disaster in Brazil

Shares in BHP Billiton plunged after a collapse in a mine in Brazil left four dead and 22 missing.

15-11-12-Brazil-634

The resulting mudslide caused extensive damage

Shares in Anglo-Australian mining giant BHP Billiton plunged by a tenth to a seven-year low this week. The Samarco project, a tailings dam at a Brazilian mine, which it owns in a joint venture with local iron ore giant Vale, collapsed late last week, causing a mudslide that has left four dead and 22 missing. According to the Sydney Morning Herald, a 2013 report had raised concern over design flaws in the dam. It is unclear whether BHP were aware of this.

What the commentators said

Analysts think the clean-up could set BHP back by $1bn, noted Alistair Osborne in The Times. But "the final cost is anybody's guess". Expect state and federal inquiries; lawsuits; and "a probable bust-up between BHP and Vale" over who was responsible for the disaster. The damage to BHP's reputation will complicate or even thwart applications for future mining permits.

One thing's for sure, though, said Osborne. Part of the share price slide must be due to fears that BHP won't be able to keep financing the dividend increases it has promised shareholders. Early this week the stock was yielding almost 9%.

The group's projected free cash flow already appeared insufficient "to meet the dividend and ongoing growth capex requirements without increasing borrowings", according to Investec analysts. The dividend policy had been "a straightjacket for management", said the FT, and this disaster may provide an opportunity for BHP "to extricate itself" from it.

Recommended

Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021