Samarco's nightmare deepens with suspension, rising death toll

By
Tuesday, November 10, 2015

Brazilian pellet maker Samarco had all its operations in Minas Gerais state suspended on Monday evening by the state's environment and sustainable development department Semad.

The decision follows the accident on November 5 that involved the sudden bursting of two of Samarco's tailings dam walls at the Germano complex.

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The incident led to the village of Bento Rodrigues, about 7km downstream, being engulfed by 62Mm3 of mud and waste, enough to fill 24,800 Olympic-size swimming pools.

In a statement, Semad said local law allows the emergency suspension of all of Samarco's operations until the causes of the accident are clear.

By Tuesday's afternoon, the fire department had confirmed four deaths. The number of missing persons fell to 22, namely 11 contractors and 11 residents of Bento Rodrigues. A 65-year-old woman considered missing was found alive, local press reported.

Samarco is a 50:50 JV between Brazilian mining giant Vale and multinational resources group BHP Billiton. According to the company, all operations at the complex were halted.

The pellet maker announced in a statement on Tuesday it is granting paid leave to employees who are not directly involved in activities related to the accident's search and rescue.

Rescuers looking for victims in the district of Bento Ribeiro, Minas Gerais. SOURCE: Márcio Fernandes - Estadão Conteúdo

MUDSLIDE

Samarco is monitoring the advance of a giant mudslide along the path of the Doce river, the statement said.

The accident released large amounts of mud with iron ore tailings and chemicals, which contaminated the waters of the Doce river and put more than a dozen municipalities in Minas Gerais and Espirito Santo states on alert.

Neighboring Espírito Santo, which the river crosses on its path to the Atlantic Ocean, said it would fine Samarco. According to the state's environmental agency Iema, the amount of the fine has not yet been determined but it will be proportional to the company's assets as well as the damage caused, local press reported.

INSURANCE

Clean-up costs for the accident may exceed US$1bn, according to estimates by Deutsche Bank cited by Bloomberg on Tuesday.

"Samarco's insurance coverage totaled more than US$1bn as of mid-2014. A large-scale disaster such as the one it experienced last week is likely to lead to lawsuits and other actions that may take years to resolve," according to Bloomberg Intelligence analyst Kenneth Hoffman.

"Its structure as a stand-alone company may shield joint owners BHP and Vale from deep losses related to the dam collapse," Hoffman was quoted as saying.

Insurers Willis, Allianz and ACE are the managers of Samarco's contracts, sources familiar with the matter were quoted as saying by Reuters.

FITCH

Fitch Ratings has put four classes of Samarco's debt on negative credit watch.

The ratings agency cited concerns about lower iron ore production following the accident, as well as the potential for the company to be hit with regulatory, legal or environmental penalties.

If "the cause of the breach was due to a technical error, the penalties could be more punitive," Fitch said.

IRON ORE

Vale affirmed on Tuesday that its iron ore output at the nearby Fábrica Nova and Timbopeba mining operations in the company's southeast mining complex may be negatively impacted by 3Mt in 2015 and 9Mt in 2016.

"In addition, Vale will stop the sale of run of mine from its Fazendão mine to Samarco. These are all preliminary assessments which may change as other alternatives are explored," it said in a release.

"However our first priority at this time is to be completely focused on offering all the necessary support to Samarco and the authorities in assisting the local communities at this very sad time."

SAMARCO

Samarco's attributable pellet production was 3.6Mt in 3Q15, in line with the previous quarter and 7.4% up on a year before, as a result of higher availability of pellet feed. Excluding Samarco's attributable production of 3.56Mt, Vale's pellet output stood at 12.2Mt in the third quarter, up 6.6% compared to 3Q14, but 0.3% lower versus the previous quarter, Vale said in its Q3 production report.

Samarco started operations at its 6.4bn-real (US$1.68bn) pellet plant in Germano in Minas Gerais state in early-April 2014. The plant, which is Samarco's fourth, was expected to add US$1bn to its export revenues this year, taking the total to US$4bn. Before the accident, the new plant was forecast to up Samarco's production capacity by 37% to 30.5Mt/y.