Brazil's Samarco reaches debt restructuring deal with creditors

Apr 11, 2023

Brazilian iron ore pellet producer Samarco Mineração reached an agreement with a large number of creditors for a debt restructuring plan worth 50bn reais (US$10bn).

As part of the accord, it will issue bonds to the creditors totaling US$3.5bn due in 2031, Samarco said in a statement.

A 50:50 joint venture between Vale and BHP, Samarco filed for bankruptcy protection in 2021 to avoid early payment to some bondholders and preserve its cash flow and advance toward full production. The company has presented various restructuring proposals since then, but all were rejected.

Nearly half of Samarco's debt consists of bonds and the rest is owed to Vale and BHP.

"Under the terms agreed, Samarco should emerge from the JR [bankruptcy protection] with a lean capital structure. Payments to the financial creditors will be made over time, in line with Samarco's operational ramp-up and cash flow generation," Vale said in a statement outlining other details of the agreement.

The restructuring deal is a key step for Samarco to be able to focus on full resumption of its production, and the option of selling the company could also gain traction.

"Samarco now has a clear path to focus on cash generation and increased production," Pedro Galdi, mining and metals equity analyst at Mirae Asset Wealth Management, told BNamericas. "As an asset, the company is highly attractive as pellet production generates less greenhouse emissions than iron ore, so with the advance of the creditor negotiations we will see near-term definitions about its capital structure as well."

Among the possibilities that Galdi sees are Vale buying BHP's stake, or other companies acquiring parts of Samarco.

Potential buyers have already been knocking on Samarco's door. Brazilian steelmaker CSN, the controller of mining firm CSN Mineração, said last year that it was evaluating buying debt from bondholders as a way to gain a stake in the company.

Samarco was involved in one of Brazil's biggest mining disasters in 2015, when its Fundão tailings dam collapsed and destroyed two villages, killing 19 people and causing widespread environmental damage. As a result, the company halted its operations from late 2015 until December 2020, severely affecting its cash position.

Samarco is investing 1.6bn reais this year and expects reaching full production capacity as of 2028, with capacity estimated at 30Mt/y.

The full details of the debt restructuring deal can be seen using this link.

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