BHP-Vale Mine Reaches Accord to Pay for Brazil Dam Disaster

  • Deal calls for BRL4.4b to be deposited by 2018 in foundation
  • Company's 2022 bonds rise to highest level since Nov. 18

The Brazilian iron-ore venture owned by Vale SA and BHP Billiton Ltd. agreed to pay at least $1.1 billion over the next three years for damage caused by a tailings dam spill described by authorities as Brazil’s worst ever environmental disaster.

The accord ends weeks of negotiations and months of uncertainty surrounding the cost of the rupture that unleashed billions of gallons of sludge into the Rio Doce river basin, killing at least 17 people. For the owners, the deal represents a step forward in their efforts to one day resume operations. BHP’s Sydney-traded shares rose as much as 5.3 percent on Thursday.

While the Samarco Mineracao SA venture agreed to pay 4.4 billion reais ($1.1 billion) through 2018, contributions beyond that are less clear. Over 15 years, the arrangement may require 20 billion reais to guarantee social, economic and environmental projects, according to a statement released at a signing ceremony in Brasilia Wednesday.

“We literally worked day and night on this deal,” Attorney General Luis Inacio Adams said at the event. “When Brazil manages to dialogue, construct solutions, it’s a Brazil that manages to overcome.”

Civil Claims

Samarco agreed to pay 2 billion reais this year, 1.2 billion reais in 2017 and another 1.2 billion in 2018, Vale and BHP said in a separate statements. Annual contributions for 2019, 2020 and 2021 will vary between 800 million reais and 1.6 billion reais depending on project needs.

The agreement doesn’t cover all civil or criminal claims. Brazilian police are asking a judge to issue arrest warrants for Samarco executives over their alleged negligence.

“To the extent Samarco does not meet its funding obligations, each of Vale and BHP Billiton Brasil is liable in proportion to its 50 percent shareholding in Samarco,” the Melbourne-based miner said.

Anticipation of the agreement spurred a rally in Samarco bonds. The $1 billion in notes due in 2022 rose for a fourth straight day to 49 cents on the dollar at 3 p.m. in New York, the highest since Nov. 18. The bonds, which traded above 80 cents before the Nov. 5 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.

BHP rose 5.2 percent to A$17.60 at 10:02 a.m. local time, trimming its decline this year to 1.5 percent.

‘Best Way Possible’

“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.”

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.

“We have an agreement to resolve things in the best way possible,” Vale Chief Executive Officer Murilo Ferreira told reporters Wednesday after the deal was signed. “This was an accident that involved death and missing people, which should never be celebrated.”

Before it's here, it's on the Bloomberg Terminal.