Rescuers search for victims in the Brazilian village of Bento Rodrigues after a dam burst at Vale and BHP Billiton’s iron-ore venture in November 2015. Picture: REUTERS/RICARDO MORAES
Rescuers search for victims in the Brazilian village of Bento Rodrigues after a dam burst at Vale and BHP Billiton’s iron-ore venture. At least one person is confirmed dead and 13 workers missing. Picture: REUTERS/RICARDO MORAES

RIO DE JANEIRO/BRASILIA — The Brazilian iron ore venture owned by Vale and BHP Billiton agreed to pay at least $1.1bn in the next three years for damage caused by a tailings dam spill described by authorities as Brazil’s worst environmental disaster yet.

The accord ends weeks of negotiations and months of uncertainty surrounding the cost of the rupture that unleashed billions of litres of sludge into the Rio Doce river basin, killing at least 17 people. For the owners, the deal represents a step forward in their efforts to one day resume operations. BHP’s share rose as much as 7% to an intraday high of R179.91 on Thursday.

While the Samarco Mineracao venture agreed to pay 4.4-billion reais ($1.1bn) to the end of 2018,contributions beyond that are less clear. Over 15 years, the arrangement may require 20-billion reais to guarantee social, economic and environmental projects, according to a statement released at a signing ceremony in Brasilia on Wednesday.

"We literally worked day and night on this deal," attorney-general Luis Inacio Adams said. "When Brazil manages to dialogue, construct solutions, it’s a Brazil that manages to overcome."

Samarco had agreed to pay 2-billion reais this year, 1.2-billion reais next year and another 1.2-billion in 2018, Vale and BHP said in a separate statements.

Annual contributions for 2019, 2020 and 2021 will vary between 800-million reais and 1.6-billion reais, depending on project needs.

The agreement does not cover all civil or criminal claims. Brazilian police are asking a judge to issue arrest warrants for Samarco executives over their alleged negligence.

"To the extent Samarco does not meet its funding obligations, each of Vale and BHP Billiton Brasil is liable in proportion to its 50% shareholding in Samarco," the Australian miner said.

Anticipation of the agreement spurred a rally in Samarco bonds. The $1bn in notes due in 2022 rose for a fourth straight day to $0.49 on the dollar in New York on Thursday, the highest since November 18. The bonds, which traded above $0.80 before the dam collapse on November 5, fell to as low as $0.31 in early January as the prospect of multibillion-dollar payouts and no income fanned concern it would not be able to pay back debt.

"Investors don’t like uncertainty," Patrik Kauffmann, a money manager at Solitaire Aquila, said by telephone from Zurich. "Once the deal is done, you know exactly what Samarco will pay for the spill," he said.

Samarco, which was the world’s second-largest producer of iron ore pellets, had an annualised production rate of about 30-million tonnes in September last year. In December, Vale chief financial officer Luciano Siani Pires told investors that the best way to settle all the claims would be to have Samarco back in operation.

"We have an agreement to resolve things in the best way possible," Vale CEO Murilo Ferreira said after the deal was signed.

"This was an accident that involved death and missing people, which should never be celebrated."

Bloomberg