Samarco's Bonds Soar on Bets Mine Disaster Settlement Is Near

  • Venture owned by BHP and Vale won't pay damages in lump sum
  • Final agreement set to be settled by end of the month

Samarco bondholders are betting Luis Inacio Adams’s last hurrah as Brazil’s attorney general will be brokering a deal that allows the miner to emerge from the nation’s worst-ever environmental disaster.

Bonds of the iron-ore venture owned by BHP Billiton Ltd. and Vale SA snapped a losing streak after Adams said authorities had reached an agreement with the companies on a model for paying compensation over a deadly dam failure last year.

Samarco Mineracao SA bonds rose for the first time in nine days on Wednesday, as its $1 billion in notes due 2022 increased 3.5 percent to 43.6 cents on the dollar at 1:46 p.m. in Sao Paulo. The yield fell 0.7 percentage point to 19.6 percent.

"There is a clear sign that the government is not willing to destroy Samarco, but rather look to let it survive," said Patrik Kauffmann, who helps manage $11 billion of assets at Solitaire Aquila Ltd. in Zurich.

Final Deal

The arrangement will allow Samarco, owned jointly by Vale and BHP, to pay damages for specific programs rather than in one lump sum, Adams said Tuesday. A final deal is expected to be signed by the end of the month, when he intends to leave office, he said.

Federal and local officials in Brazil are holding Samarco, BHP and Vale responsible for the deaths and environmental devastation caused when a Nov. 5 dam collapse released billions of gallons of sludge into communities and waterways. Brazil’s government has described it as the country’s worst-ever environmental disaster.

“The discussion is going clause by clause -- the devil is in the detail,” Adams said. Settling on an agreement on compensation for the disaster won’t protect executives from any potential criminal prosecution, he said.

Vale didn’t respond to an e-mail requesting comment on the compensation model proposal. BHP declined to comment on whether an agreement on the model had been reached.

BHP Optimistic

“Discussions include the creation of a foundation to plan and execute all remediation and compensation programs,” Melbourne-based BHP said Wednesday on the status of talks in Brazil. “We remain optimistic that an outcome can be reached in the near future.”

An agreement on compensation with Samarco and its two owners could potentially open the possibility of the joint venture negotiating a new environmental license to resume operations in the region, Adams said previously.

Under the compensation plan, the iron-ore joint venture will cover all costs of social and environmental programs, rather than paying a set amount of 20 billion reais ($4.9 billion) that was originally sought, Adams said earlier this month.

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