BHP-Vale Brazil mine said to weigh missing next bond coupon

RIO DE JANEIRO/SAO PAULO – Samarco Mineracao is considering skipping bond coupon payments that are due as soon as this month as the stalled Brazilian iron-ore miner runs out of money, according to people with knowledge of the matter.

Without knowing when it can restart mining, the venture owned by BHP Billiton and Vale is yet to engage in formal restructuring talks with bondholders, two of the people said, asking not to be named because the matter is private. As a result, there’s not enough time to reach a restructuring deal before the coupons are due, they said.

Once the world’s second-largest producer of iron-ore pellets, Samarco also is seeking an agreement on about $1.6-billion in bank loans to postpone payments until it restarts mining, people with knowledge said last month. A bankruptcy protection filing is among options being considered, one of the people said.

Evaluating the prospect of bankruptcy protection, Solitaire Aquila's Patrik Kauffman, who helps manage $11-billion in assets, said “it’s always difficult.”

‘PROATIVE DECISION'
“For the moment they are not operating,” Kauffman said by phone from Zurich. “It would be much better to reach out to bondholders and offer them something, and have a proactive discussion with them.”

Samarco’s mining operations remain on hold ten months after a deadly tailings dam collapse released billions of gallons of sludge into communities and waterways in what the government described as the country’s worst ever environmental disaster. As many as 19 people died.

While Melbourne-based BHP, the world’s largest mining company, and Rio de Janeiro-based Vale are putting up money for Samarco’s working capital and repair and relief work, they aren’t covering debt payments. BHP, Vale and Samarco declined to comment.

Coupon payments on dollar-denominated bonds due in 2022 are scheduled for as early as September. The notes were trading at 37.8 cents on the dollar at 11:37 a.m. in New York compared with about 60 cents in early May after hopes faded for a swift resumption of operations.

After previously flagging a 2016 restart, the mine may not get new permits until late next year or 2018 amid regulatory scrutiny into the incident.

A more likely restart date would be by the end of next year, with an earlier forecast of mid-2017 an optimistic scenario, Peter Poppinga, Vale’s head of ferrous minerals, said Tuesday in an interview in London.