Vale, BHP iron ore venture can't pay creditors

Brazil's Samarco Mineracao – a joint venture Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP) – on Tuesday said it had missed an interest payment on a $700 million bond due yesterday, the second missed payment in the space of a month.

According to Reuters the company says it remains in talks to restructure $2.2 billion in outstanding bond obligations and about $1.6 billion of bank loans.  The company faces about $54 million in interest payments on three bonds through November, according to the report.

Samarco ceased operations in November last year following a deadly tailings dam burst and there is growing uncertainty when the iron ore mining complex could reopen.

Last week, Brazilian federal prosecutors filed homicide charges against 21 mining executives in connection with the catastrophe. The disaster in Brazil’s Minas Gerais state that killed 19 people caused sludge to wash downstream into neighbouring state Espírito Santo through remote mountain valleys reaching the Atlantic ocean 600 kilometres away.

According to The Wall Street Journal, among those charged are former Samarco Chief Executive Ricardo Vescovi, Vale’s current iron-ore director Peter Poppinga, and five Vale and BHP officials who sat on Samarco’s board. If convicted, they could face sentences of between 12 and 30 years in prison, just for the crime of “qualified homicide.” Additional charges of causing a flood, landslide, and grave bodily harm have been laid against them.

On top of this, Vale, BHP, and Samarco have been charged with 12 different kinds of environmental crimes.

According to an independent panel three small seismic shocks triggered the collapse, but the dam's failure was "already well advanced" caused by a string of design and maintenance failures.

The tailings dam became stressed through a series of "construction defects" stretching back to 2009 that "introduced the potential for sand liquefaction."

A Brazilian judge in June dismissed a civil lawsuit brought by the National Humanitarian Society in December seeking environmental and property damages amounting to billion reais (roughly $5.8 billion) against Samarco, in which Vale and BHP each own 50%.

Another civil lawsuit brought by Brazilian prosecutors for 155 billion reais (around $45 billion today) against the two companies and Samarco, Brazil’s federal government along with the Minas Gerais and Espirito Santo state governments is still being considered. Demands include an upfront payment of $2.2 billion.

In March Vale and BHP reached a deal with Brazilian authorities and the mine owners agreeing to pay an estimated 24 billion reais or $6.2 billion spread out over several years. Samarco committed to providing $1.1 billion through 2018 into a fund for clean up costs and amounts between $200 million and $400 million to 2021.

At 30 million tonnes per year before the disaster Samarco's pelletizing operations supplied roughly one-fifth of the seaborne trade in the steelmaking raw material that attracts a premium price over iron ore fines and lump ore. Samarco in the past has said that should the mine reopen output would likely be capped at 19 million tonnes per year.

The benchmark Chinese import price for iron ore fines jumped by 5% on Tuesday, to above the $60 at tonne level. The price of iron ore is up nearly two-thirds from a decade low struck in December last year.