Samarco Wins Environmental License to Restart Iron-Ore Mining

(Bloomberg) -- A key environmental council approved a permit Friday afternoon, clearing the way for Samarco Mineracao SA to resume operations at its iron-ore mine in the second half of 2020.

Ten of the 12 members of Minas Gerais state environmental council, known as Copam, voted in favor of an operational corrective license for the mine, according to a spokeswoman of the regulatory body.

Executives at Vale SA, which has a 50% stake in Samarco, expressed optimism that the license would be issued Friday and had said during their earnings call that day that an announcement on the restart would be released soon.

Samarco, Vale’s 50-50 joint venture with BHP Group has had its operations halted since a 2015 waste dam collapse that killed 19 people. The owners have been working to get all permissions to restart, with the aim of reaching 8 million tons of production in the second half of 2020 and full capacity of about 26 million tons of pellet production by around 2030.

The Minas Gerais state environmental agency, known as Semad, confirmed the council has been meeting since 9 a.m. local time and will vote on the license on Friday after 4 p.m. The Semad declined to comment on a potential outcome.

Samarco was expected to get its environmental permit by September but consent from a federal regulatory agency known as Ibama never arrived. The company decided instead to resubmit a plan to local authorities that could be approved without federal signoff.

Debt Talks

With the permit the company could submit a revised business plan to its owners in November or December. The owners will take the necessary time to review the plan, according to people familiar.

As soon as Samarco’s business plan is approved by its owners, the company is expected to resume paused talks with creditors. Samarco has $2.9 billion in defaulted debt, and restructuring talks were put on hold in January when Vale suffered an even worse disaster at a mine in Brumadinho, also in the state of Minas Gerais. A representative for JPMorgan Chase & Co, the company’s financial adviser for the restructuring of the debt, declined to comment in an email.

“Samarco could deliver a steady-state Ebitda of about $1.4 billion per year once operations are fully ramped up,” Itau BBA analysts Daniel Sasson and Ricardo Monegaglia wrote in an Oct. 20 report, based on production of about 26 million tons a year and prices ranging from $110 to 130 a ton. “Also, we believe that the restart could lay the groundwork for Vale to acquire BHP’s stake in Samarco.”

Samarco’s $2.2 billion in bonds maturing between 2022 and 2024, which have been in default for almost four years, have recently been trading at around 70 to 73 cents, according to data compiled by Bloomberg. The $1 billion of defaulted bonds outstanding due in 2022 rose to as high as 74.25 cents, according to Trace. The last trade was quoted at 72.875 cents, data shows.

“The market is apparently optimistic on today’s COPAM vote for a corrective operational license for Samarco and so are bidding the bonds up to the mid-70s,” said Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York. “The issue, though, is that the company’s plans for a ramp-up are likely significantly less aggressive than when bondholder talks broke off earlier this year.”

--With assistance from Vinícius Andrade.

To contact the reporter on this story: Pablo Gonzalez in in São Paulo at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Luzi Ann Javier, Christopher DeReza

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