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Samarco Is Close to a Settlement With Brazil Prosecutors

Updated on
  • Final details should be ironed out in coming days: sources
  • Resolving legal cases would allow debt negotiations to begin

After a year of back and forth, the owners of the Samarco iron-ore mine are close to signing a definitive settlement with Brazilian prosecutors that will clear the way for restart preparations and debt talks to begin, people briefed on the matter said. Bonds jumped.

Joint venture partners Vale SA and BHP Billiton Ltd. have already secured four court extensions to negotiate the settlement of a multibillion-dollar claim stemming from a fatal tailings dam disaster in 2015.

This time the two sides are on track to meet the deadline, which now stands at June 25, the people said, asking not to be identified because talks are private. Final details probably will be ironed out in the coming days, including a request by prosecutors to have community representatives on the board of a foundation that administers ongoing reparations, the people said.

The prosecutor’s office had no comment. The press departments of Vale, BHP and Samarco declined to comment.

The settlement would bring together two separate claims: 155 billion reais ($41 billion) sought by federal prosecutors and 20 billion reais sought by the southeastern state of Minas Gerais in a civil suit.

Resolving the legal cases will allow talks with creditors to begin as the company starts to draft its long-term business plan, although any restructuring deal would still require a firm restart date, the people said. Vale’s best case is a limited restart in the first half of 2019. Wood Mackenzie predicts 2020.

In a note to clients Wednesday, Exotix reiterated a buy rating on Samarco bonds, predicting a fine that’s in line with the venture’s future ability to pay.

"We expect them to seek not to jeopardize Samarco’s future operations and/or profitability, and allow it to become profitable enough to take care of bondholders and other creditors," wrote Rafael Elias, a director for Latin American research at Exotix.

Samarco notes due 2022 rose the most in five weeks on Friday to 69.3 cents on the dollar at 9:15 a.m. in New York. Still, without a restart, they’re worth zero, said Patrik Kauffmann, who helps manage $11 billion in assets at Solitaire Aquila in Zurich.

In December, Samarco obtained permits to use the Alegria Sul pit for depositing waste, but has held off preparatory work until settling with prosecutors. Other restart permits are pending.

(Updates with bond gain in first and ninth graphs.)
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