BHP-Vale Brazilian joint venture seeks cash injection

VALE and BHP Billiton’s Brazilian mining joint venture is seeking capital injections from its owners, as it runs out of cash after a deadly accident halted output, people with knowledge of the matter said.

The iron ore company’s cash will expire by August and it needs contributions from Vale and BHP to stay afloat, two people said, asking not to be identified because talks are private. Samarco, as the venture is known, has already started exploring ways to restructure about $1.6bn in bank loans and may seek to put off bond payments until it can resume operations, the people say.

Mining has been halted since November, when a tailings dam collapse killed 19 people and contaminated waterways in two states. After reaching a multibillion-dollar settlement with the government in March, the company hoped to secure licensing to resume operations in 2016, but probably will have to wait until 2017. Stockpiled ore has run out.

Samarco declined to comment on any talks with its owners. BHP declined to comment on Samarco’s financial position and Vale referred to comments made by investor relations director Rogerio Nogueira on June 16 that it would inject money only if there was a prospect forSamarco to restart.

The joint venture’s debt is not guaranteed by its owners, which do not intend to make payments on the company’s behalf, one source said.

Samarco hired JPMorgan Chase to help it with bank restructuring talks, BHP hired Rothschild, Vale has Moelis advising it, while banks holding the mine’s debt are working with FTI Consulting, sources said earlier this month.

Samarco’s $2.2bn of bonds have coupon payments scheduled for as early as September. The notes lost investors more than 20% in June, the worst performance among debt issued by mining and metal companies tracked by Bloomberg.

The company reported about 15-billion reais in debt ($4.7bn) at the end of 2015 and 1.8-billion reais in cash. Its obligations include about 328-million reals of payments in 2016 and 324million reais in 2017, the company says.

“Running out of cash makes for a good reason to restructure bonds,” said Omar Zeolla, an analyst at Oppenheimer in New York. “But I think shareholders would support the company. Annual interest expenses are not all that high.”

Samarco was scheduled to lay off about 1,200 employees after June.