Australian mining giant BHP has announced that a Brazilian court has approved the restructuring plan for its joint venture Samarco, marking the indebted Brazilian miner's undertaking of a $3.7 billion debt restructuring. Following the announcement, BHP's stock price rose 3.1% during trading, and the Australian mining index also saw a nearly 2% increase.
Samarco is an iron ore producer, with BHP and Vale each holding a 50% stake. In early November 2015, a dam burst at the Fundao tailings dam owned by the company, leading to what has been described as the worst environmental disaster in Brazil's history. Following the incident, the Brazilian government revoked Samarco's operating license.
For years, Samarco has been striving to reach an agreement with its creditors. BHP's latest statement reveals that the Second Commercial Court of Belo Horizonte in Minas Gerais, Brazil, officially approved Samarco's restructuring plan on September 1, 2022.
BHP states that the restructuring plan allows Samarco to convert its current financial debt of $4.8 billion into $3.7 billion of long-term unsecured debt. BHP anticipates that this restructuring will be completed in the first half of the 2024 fiscal year.
Furthermore, Samarco will provide compensation funds of up to $1 billion from 2024 to 2030. Should the compensation exceed this limit, BHP Brasil and Vale will be required to provide financial support.
Barrenjoey analyst Glyn Lawcock noted that the court's approval merely confirms a certain amount of debt, but Samarco's problems are not entirely resolved. The larger issues are still undergoing court proceedings, which may take more time to be addressed.
