Mining companies Vale and BHP Billiton are struggling to reach agreement over how to restart operations at their joint venture Samarco in Brazil, where the collapse of a mining dam last year killed 19 people.
“I have to admit to you that there exists a certain misalignment between Vale and BHP in relation to the process of restarting Samarco,” Vale CEO Murilo Ferreira said in a conference call on the company’s Q3 results.
Samarco’s Fundao dam burst in November 2015, unleashing a wall of contaminated sludge that washed away villages and forced hundreds of people from their homes in what is believed to be Brazil’s worst environmental disaster. Experts estimate the cleanup will take years.
Ferreira said it would not be feasible to rebuild the dam and added once Samarco is operational again it will have to rely on infrastructure at neighboring mines. He said he plans to meet next week with BHP CEO Andrew Mackenzie to discuss ways to restart the joint venture. The company could resume operations by the middle of next year, according to press reports.
Samarco agreed in March to pay BRL20bn ($6.41bn) in damages over the next 15 years. Federal prosecutors sued the company for BRL155bn in May and last week charged 21 people with homicide. BHP, Vale and Samarco said they rejected the charges. If convicted, the accused face up to 54 years in prison.
As the legal cases proceed, the mine’s continued closure is straining the company’s cash flow.
Samarco missed a $20.1m payment on its $700m 2023 bonds earlier this week. The joint venture also missed a $13.5m payment on its $500m 2024s on September 26. “Samarco continues to explore options regarding a restructuring of its debt obligations,” the company said in a statement.
S&P Global Ratings cut Samarco’s corporate rating to D after the company missed the interest payment on its 2024 notes. The rating agency this week downgraded the 2023s to D from CC for the same reason. S&P added that it does not expect Samarco to make interest payments on other senior unsecured notes.
Vale logged $1.04bn in Samarco provisions in Q3 2016. The miner had $575m in net income in Q3 this year, down from $1.11bn in the same period last year. Vale said it had $26bn in net debt and $5.48bn in cash at the end of September this year.