Samarco Bonds Rally Before Signing of Spill Compensation Accord

  • BHP-Vale joint venture expected to sign deal in Brasilia
  • Company's 2022 bonds rise to highest level since Nov. 18

Samarco Mineracao SA bonds rose to the highest since the aftermath of a deadly dam spill on speculation that a compensation deal to be signed Wednesday will move the miner one step closer to resuming operations.

The $1 billion in notes due in 2022 rose for a fourth straight day to 48.2 cents on the dollar at 12:17 p.m. in New York, the highest since Nov. 18. The bonds, which traded above 80 cents before the Nov. 5 dam dam collapse, fell to as low as 31 cents in early January as the prospect of multi-billion-dollar payouts and no income fanned concern it wouldn’t be able to pay back debt.

The venture, co-owned by Vale SA and BHP Billiton Ltd., is scheduled to sign the compensation accord with authorities in Brasilia at 3 p.m. local time, according to Attorney General Luis Inacio Adams. That would end weeks of negotiations and more than three months of uncertainty surrounding the cost of the dam burst that killed at least 17 people and polluted waterways.

“Investors don’t like uncertainty,” Patrik Kauffmann, a money manager at Solitaire Aquila Ltd., said by telephone from Zurich. “Once the deal is done you know exactly what Samarco will pay for the spill.”

Second Largest

Samarco will pay an estimated 4.4 billion reais ($1.1 billion) in the first three years, with subsequent payments to be determined by program needs, a person with knowledge of the talks said last week.

The accord will cover costs of 39 social and environmental programs, rather than paying a set amount of 20 billion reais that was originally sought. The final value could end up being more or less expensive for the company, Adams said last month.

Samarco, which was the world’s second-largest producer of iron-ore pellets, had an annualized output rate of about 30 million metric tons in September. In December, Vale Chief Financial Officer Luciano Siani Pires told investors that the best way to settle all the claims would be to have Samarco back into operations.

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