BHP-Vale Mine Restart Hinges on Deal With Small-Town Mayor

Updated on
  • Samarco and city officials are scheduled to meet next week
  • Town wants company to pay for plan to protect water supply

A 34-year-old mayor of a small Brazilian city stands between a giant mine and its plans to resume operations after a disastrous dam collapse.

By refusing to sign off on the use of river water, Leris Braga is delaying permit approvals that would allow the BHP Billiton Ltd.-Vale SA iron venture to rehire thousands of workers and start generating cash again for debt repayments. While that makes Braga a villain for bondholders and unemployed locals, he says he’s only trying to get the company to meet its responsibilities.

Santa Barbara city river.

Photographer: R.T. Watson/Bloomberg

“The city of Santa Barbara isn’t going to receive one cent,” he said in an interview from his offices in the more than 300-year-old mining town. “I’m not trying to make some exchange for the document they need.”

What he is trying to do is get the Samarco venture to fund measures to safeguard water quality. City sanitation experts outlined a plan that would cost about 70 million reais ($22.3 million). The cash-strapped venture is resisting Braga’s demands, with the two sides set to sit down for a court-ordered meeting on April 18.

Samarco used water from the river before its licenses were rescinded following a November 2015 spill that killed 19 people and polluted waterways in two states.

The mine’s ability to meet a goal of resuming operations in the second half of the year, and restart payments on $2.2 billion in bonds, will depend on a deal with Braga. The young mayor says mitigating the impact of capturing river water should have been properly formalized when his predecessor granted those rights.

Without access to the water, Samarco is unable to complete the environmental studies it needs to apply for mining licenses. Late last month, Samarco said the dispute with Santa Barbara was jeopardizing the restart schedule.

The venture’s bonds due 2022 began to rally in late November amid growing confidence of a restart this year. They’ve retreated in the past six weeks.

The obstacles to Samarco’s restart are weighing on another young, small-town mayor.

Duarte Junior, 36, became mayor of Mariana just months before the Samarco disaster. The city was the most directly affected by the spill, with nearby settlements drowned in tailings sludge as many residents lost loved ones and their livelihoods. Today, about 9,000 people are out of work because Samarco is inoperative.

Unemployed Miners

Junior said in an interview that while Braga should agree to a deal that moves things along for Mariana, Samarco could have handled the situation better. 

The Belo Horizonte-based company said it delivered a study in February proving that its use of Santa Barbara’s river is not producing any significant impacts. Rio de Janeiro-based Vale and Melbourne-based BHP declined to comment.

“We have no other way out of the economic crisis we’re facing,” the Mariana mayor said. “The only way out of this is for Samarco to begin mining again.”

(Updates with bond prices in eighth paragraph.)
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