BHP - Vale Samarco JV files for Brazil bankruptcy protection
The collapse of a dam at the Samarco mine complex in 2015 killed 19 people and severely polluted the Doce River with mining waste, one of Brazil’s worst environmental disasters. The facility, which resumed production in December, is the focus of significant litigation from bondholders holding nearly $5bn in debt.
“The (judicial reorganization - JR) filing is necessary to prevent legal actions already underway ... from affecting Samarco’s ability to produce, ship, receive for its exportations and to fund the normal course of its activities,” the company said.
Vale said the bankruptcy protection filing would not impact Samarco’s ability to pay reparations to those affected by the 2015 dam burst. It said out-of-court negotiations with creditors had slowly broken down over time.
The in-court reorganization request, filed in the state of Minas Gerais, is roughly analogous to a Chapter 11 bankruptcy filing in the United States, reports Reuters.
Samarco has $4.7bn of financial debt from non-related parties, Vale said. In the years following the Samarco disaster, Samarco had negotiated with creditors to reach a restructuring agreement. However, those talks slowed in 2019 after changes in dam regulations in Brazil, which materially affected operations at Samarco, Vale said.
In a statement BHP added: "The JR is a means for Samarco to restructure its financial debts in order to establish a sustainable independent financial position in order for Samarco to continue to rebuild its operations safely and meet its Renova Foundation (Renova) obligations. Samarco’s restarted operations provide jobs, local economic activity and community support as well as continuing the remediation and compensation programs underway through the legally approved programs. Samarco’s operations will continue through the JR and restructure process.
"The JR does not affect Samarco’s obligation or commitment to make full redress for the 2015 Fundão dam failure, and it does not impact Renova’s ability to undertake that remediation and compensation."
Low carbon world needs $1.7trn in mining investment
According to a new report from consultancy Wood Mackenzie, mining companies need to invest nearly $1.7trn in the next 15 years to help supply enough copper, cobalt, nickel and other metals needed for the shift to a low carbon world.
Cutting carbon emissions
The United States, Britain, Japan, Canada and others raised their targets on cutting carbon emissions to halt global warming at a summit in April hosted by US President Joe Biden.
Meeting those targets will need large-scale deployment of electric vehicles, storage for power generated from renewables and electricity transmission, all of which require industrial materials, such as lightweight aluminium and metals used in batteries such as cobalt and lithium.
Wood Mackenzie analyst Julian Kettle calculated miners needed to invest about $1.7trn during the next 15 years to “deliver a two-degree pathway - where the rise in global temperatures since pre-industrial times is limited to 2°C”.
“At an industry level, there seems to be reticence around investing sufficient capital to develop future supply at the pace and scale demanded by the energy transition (ET),” he said.
Mining firms are wary of making heavy investments after their experience of the last decade when they invested in new capacity just as demand peaked, leading to a collapse in prices and revenues. They also need to please investors, who are unlikely to want to see dividends diverted to capital spending.
Rising demands of investors related environment, social and governance (ESG) issues further add to the challenge.
Australia, Canada and Western Europe carry a low ESG risk but some of the best resources are in high-risk areas, such as Democratic Republic of Congo, which sits on about half the world’s cobalt reserves according to the U.S. Geological Survey. “Given the need to meet tough decarbonisation and ESG targets, Western governments, lenders, investors and consumers will need to get comfortable operating in jurisdictions where ESG issues are more complex,” Kettle said.
Kettle said government support was needed to help miners comply with ESG issues to ensure production from high-risk areas was conducted in an acceptable way to consumers.
“Then, and only then, will the West be able to secure sufficient volumes of the raw materials needed to pursue the energy transition in the timescales envisaged.”