Samarco rebuffs creditors on resumption of debt talks

Reconstruction efforts in 2017. (Image courtesy of BHP)

Samarco Mineracao SA has rejected creditors’ formal request to resume talks to restructure its defaulted debt, signaling heightened risks for bond holders, according to people with direct knowledge of the situation.

The Brazilian iron ore venture between BHP Group and Vale SA said it has yet to firm up its business plan. And without that, the company argues that it will be at a disadvantage if it were to resume talks that have been put on hold for almost a year on its $2.9 billion in defaulted debt, the people said.

Samarco has said it will restart iron ore mining in the second half of this year after securing all the permits required by authorities. Operations have been halted since a waste dam collapse in 2015 that killed 19 people, curtailing the company’s ability to meet its obligations to creditors.

Samarco has said it will restart iron ore mining in the second half of this year after securing all the permits required by authorities

The continued delay in talks to restructure the debt may antagonize Samarco’s creditors, the people said. That’s bad news for holders of the company’s $2.2 billion in bonds maturing 2022 and 2024 that have fallen to 66 to 69 cents. The company has been in default on these obligations for almost four years.

Samarco estimates production to hit as high as 8 million metric tons per year in 2020 and reach full capacity of about 24 million tons of pellets by around 2030.

Negotiations for the restructuring of the defaulted debt were put on hold at the end of January 2019, when Vale, which owns half of the venture, suffered an even worse disaster at a mine in Brumadinho, also in the state of Minas Gerais. That spurred heightened scrutiny of applications for environmental permits by regulators.

BHP, Vale and Samarco declined to comment.

(By Pablo Gonzalez)

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