The resume of Samarco’s operations, a 50/50 JV venture between Brazil’s Vale and BHP Billiton, isn’t the company’s top priority right now, a Vale executive said this week, following an iron ore waste dam burst two weeks ago that killed 11 people and left another 12 missing.
Vale’s director of finance and investor relations, Luciano Pires, said Samarco’s short-term focus is in providing local communities humanitarian and social help.
“Things have a sequence, a priority order. If we can’t prove we’re able to raise again the communities and show there’s a recovery plan, then we won’t be able to get back from society the license to operate Samarco,” he said.
“The obstacle regarding Samarco’s restart of operations is more related to the discussion [we’re having] with society than to technical issues,” he said.
As the company’s operations remain shutdown, much has been asked regarding Samarco’s ability to generate revenue. Despite the recent downturns in the global iron ore market, Brazil pellet producer Samarco was expecting to keep up its revenue levels in 2016.
The company said earlier this year it wasn’t expecting to increase output or see significant gains in terms of prices for the year to come. Samarco said it didn’t expect at that time to cut jobs, as seen in the nation’s steel and mining industry. Samarco’s net profit in 2014 was BRL 2.8 billion, up from BRL 2.7 billion and BRL 2.6 billion in 2013 and 2012, respectively. The company’s net revenue in 2014 totaled BRL 7.5 billion. In 2013 and 2012 net revenue was BRL 7.2 billion and BRL 6.5 billion, respectively.
However, after the deadly dam burst, analysts have started questioning the company’s ability to keep healthy financial metrics, as it has been fined by local authorities and is expected to pay indemnities to local residents of Mariana affected by the burst.
Pires said Samarco could eventually generate cash by selling services and electricity.
“Until it eventually recovers its operating license, Samarco is able to generate cash through the sale of services and electricity, for example, which would be equivalent to its minimized fixed costs,” the executive said.
The company said, however, Samarco’s costs already exceed insurance.
"In terms of civil damages, Samarco's insurance policy is well below even the initial values being discussed in terms of costs," Luciano Pires said.