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The Brazilian miner will recognise a provision of 3.70 billion Reais ($1.12 billion) in its interim financial statements as at June 30, it said on Wednesday July 27.
Its Anglo-Australian joint venture partner said on Thursday July 28 that it would similarly record a provision in the range of $1.1-1.3 billion for the same purpose. The associated income statement charge will be recognised as an exceptional item in its statement for the six months to June 30, it said.
Both miners said their respective provisions represented approximately 50% of current estimates of Samarco’s funding obligations under a deal signed in March with local authorities.
Samarco and its shareholders – Vale and BHP – agreed a 15-year deal with Brazil’s federal attorney-general, the states of Espírito Santo and Minas Gerais, and other Brazilian authorities, which involves the establishment of a foundation to develop and execute environmental and socio-economic programmes in the region and provide compensation for damage caused by the Samarco dam collapse.
Pellet producer Samarco – a 50:50 joint venture between Vale and BHP – controls the Fundão dam, which collapsed in November last year at its Germano mine in Minas Gerais state, flooding nearby settlements, polluting the Rio Doce basin and killing 19 people.
“Due to the reduced likelihood of resuming operations in 2016 given the current status of the licensing process and the additional uncertainties regarding Samarco’s future cash flow, Vale recognised the provision of the present value of its estimated secondary responsibility,” it said.
Given Samarco’s current cash flow projections, it is likely that shareholders will be called upon to fulfil their obligations under the reparation agreement, Vale said. Therefore, it expects to contribute about $150 million to the foundation in the second half of 2016, as part of its 3.70-billion-Reais ($1.12-billion) provision.
Similarly, BHP will contribute $134 million to support the foundation.
In addition, short-term facilities of up to $100 million from Vale and $116 million from BHP will be made available to Samarco to carry out remediation and stabilisation work and to support the pellet producer’s operations.
Funds will be released to Samarco only as required and subject to the achievement of key milestones, according to both miners’ statements.
Vale and BHP Billiton are each setting aside over $1 billion as reparation for the deadly Samarco tailings dam collapse.