Court ratifies Vale, BHP plan for Samarco rectification

A court in Brazil has approved a plan to assess social and environmental damage caused by the collapse in 2015 of the Fundao tailings dam in the Brazilian state of Minas Gerais as part of a roadmap to reopening Samarco Mineracao's 25mn t/yr iron ore operation.

Brazilian mining firm Vale and UK-Australian resources firm BHP Billiton, which co-own Samarco in a 50:50 joint venture, entered an agreement on 18 January to engage experts to evaluate the impact of the disaster, to provide technical evidence to Brazilian prosecutors, an arrangement that was ratified by the civil court in Minas Gerais yesterday.

As a result of the ruling, a 155bn real ($43bn) action brought by federal prosecutors against Vale and BHP has been suspended. The companies now have 60 days to appoint an expert who will work with two government appointees to evaluate the damage.

Samarco has agreed to pay R20bn in compensation to the communities affected by the collapse of the dam, which took place on 5 November 2015, over the next 15 years. But the settlement, which Samarco's owners put forward in March 2016, was reviewed by Brazil's new environment minister Jose Sarney Filho within the first week of his appointment in May, after he concluded that the agreement needed to be adjusted, as it violated environmental laws

Vale and BHP are expected to negotiate the final claim by 30 June. They hope to restart their project by the end of this year at 60pc of its 25mn t/yr capacity and expect to maintain production at this level "for some years".

The mine will not be allowed to restart production until the Brazilian authorities are satisfied that Vale and BHP have demonstrated that sufficient safety and compensation measures have been put in place.

The Samarco mine, which produced iron ore pellet feed for Vale's Brazilian pelletisation plants, was suspended immediately after the tailings dam failed, killing 19 people, and has remained shut ever since. The project, comprises the mine, three concentrators in Minas Gerais and four pellet plants in Espirito Santo state with a 400km pipeline connecting the mine to the pellet plants.

The impact of the suspended production of the mine have already been reflected in BHP and Vale's iron ore output, but the settlement of the lawsuit could have further implications for the financial health of the two firms. Additional delays to the mine's restart can have long term effects on global iron ore supply, with industry commentators including US investment bank [Goldman Sachs forecasting] (https://direct.argusmedia.com/newsandanalysis/article/1353743?keywords=samarco%20dam) that a rise in seaborne iron ore supply in 2017 is likely to be curtailed by Samarco's suspension.