Samarco hits back at creditors in battle over Brazil mining disaster

Samarco, an iron producer responsible for one of Brazil’s worst environmental disasters, has accused creditors of an “unfortunate attempt” to disrupt a restructuring the miner says will safeguard thousands of jobs.

The criticism from Samarco, a joint venture between global mining groups Vale and BHP, comes after lawyers for a group of creditors, including London-listed asset manager Ashmore and US group Canyon Partners, this week branded the proposed restructuring as “absurd”.

Under the plan, Samarco has given bondholders and other lenders the option of being paid just 15 per cent of the face value of the notes in 2041, or else swap the debt for a stake in the business. The dissenting creditors are owed R$22bn ($4.3bn).

The battle between Samarco and its creditors comes more than five years after the breach of the Fundão tailings dam at the Germano mining complex, which killed 19 people and polluted one of Brazil’s largest river basins with a torrent of mining waste.

Saddled with about $10bn in borrowings, Samarco earlier this year filed for a judicial reorganisation, a court-supervised process in Brazil akin to bankruptcy protection.

The group of creditors, which include distressed debt specialist Solus Alternative Asset Management, have claimed the plan is intended to shield BHP and Vale from obligations arising from the November 2015 disaster. The creditors account for most of Samarco’s third-party debt.

Lawyers for the creditors, which hold mostly bonds as well as some export loans, dismissed the proposal they take an 85 per cent haircut on their debts as “absurd”, according to a document submitted this week to a court in the state of Minas Gerais, where Samarco is based.

In the court documents, they also accused Vale and BHP of abusing their position to extract value to the detriment of creditors, arguing that the two joint venture partners should only receive any repayments from Samarco after its other debts are settled.

Just under half of Samarco’s debts are owed to Vale and BHP, which will be subject to the same discount and repayment terms.

Samarco said in response to the court filing: “This is one more unfortunate attempt from some financial creditors to disrupt the judicial reorganisation process and confuse public opinion.” The company insisted it was prepared to negotiate “despite the numerous disputes and accusations” by financial creditors.

“The plan presented was prepared in accordance with the current financial capacity of the company” and aimed to preserve more than 6,000 direct and indirect jobs as well as tax contributions, it added.

Samarco has said that filing for a court-supervised restructuring was required to prevent creditors affecting its ability to operate and make payments towards Renova, a foundation set up to oversee reparations for the disaster under a settlement with Brazilian prosecutors.

Samarco only resumed production in December and its output is expected to be less than a third of its total before the dam disaster. However, the group is selling its iron ore into a booming market.

Prices for the steelmaking ingredient have hit a record high this year, helping Samarco’s defaulted bonds recover much of their value. They are trading at almost 80 cents on the dollar, up from less than 40 cents in early 2020 as the pandemic erupted.

Ivan Apsan, vice-president of legal and corporate affairs at BHP Brasil, described Samarco’s terms as “fair and reasonable”.

“[They] present the best solution that enables Samarco to . . . continue operating, contributing to the local economy of Minas Gerais and Espírito Santo and funding the Renova Foundation,” he said.

Vale expressed support for the restructuring plan, which it described as “built according to the company’s capacity”.

Ashmore and Canyon Partners declined to comment. Solus did not respond to a request for comment.