This April 2016 file photo shows the Samarco mine, owned by Vale and BHP Billiton, in Mariana, Brazil. Picture: REUTERS/WASHINGTON ALVES
This April 2016 file photo shows the Samarco mine, owned by Vale and BHP Billiton, in Mariana, Brazil. Picture: REUTERS/WASHINGTON ALVES

Rio De Janeiro/Melbourne — Samarco and parent companies Vale and BHP Billiton have signed a deal with Brazilian authorities that settles a 20-billion reais ($5.30bn) lawsuit related to a 2015 dam burst that killed 19 people, Vale and BHP said on Monday.

The agreement, signed by prosecutors from the federal government and the states of Minas Gerais and Espirito Santo, mandates improvements in governance for the Renova Foundation, created to help victims of the accident, Vale said.

In a separate statement, BHP said the agreement set a two-year timeline to reach a settlement over a separate 155-billion reais lawsuit, which would remain suspended while the parties continued to negotiate.

"It’s good that it moves along closer to a resolution obviously, and potentially caps some of the risk around [the settlement], given the earlier numbers that had been put out there," said portfolio manager Andy Forster of Sydney’s Argo Investments, which has holdings in BHP.

"But it’s still uncertain around what the size of the total settlement could actually be."

Brazil’s worst environmental catastrophe happened when a dam designed to hold back mine waste burst, leaving a trail of destruction for hundreds of kilometres.

Part of the terms of the agreement announced on Monday include a greater role for affected people in the governing bodies of the Renova Foundation.

The deal marks a key milestone for beleaguered Samarco, but it still faces a hefty debt load and little clarity on when it might receive key permits to resume operations.

Vale has said it expects the company to resume operations in 2018 or early 2019, but has pushed back forecasts several times.

The mine still needs two permits to reopen, and the lack of a clear timeline makes it harder for the companies to renegotiate the debt load, sources have told Reuters.

Reuters