VALE Vale SA

RIO DE JANEIRO—Troubled Brazilian mining company Samarco Mineraç ã o SA's publicly traded bonds plummeted to eight-month lows on Tuesday after it missed an interest payment on $500 million in bonds.

Bank of New York Mellon, the trustee on the debt, said that Samarco had missed the payment to bondholders Monday but added that the company is still in the 30-day grace period for payment. A spokeswoman for the bank declined to comment further. Samarco declined to comment.

The price of Samarco's 10-year bond, due 2024, was recently down 6.2% at 32 cents on the dollar Tuesday, its lowest level since January. Analysts noted that Samarco is also scheduled to make coupon payments in October and November for bonds due in 2023 and 2022.

"We expect both bonds not to pay their coupon," said Cedric Rimaud, director of emerging markets research at bond research firm Gimme Credit. "A restructuring is becoming necessary."

Samarco, a joint-venture between Brazilian mining giant Vale SA and Australia's BHP Billiton Ltd., has had virtually no cash flow since last November, when a tailings dam at its iron-ore operation collapsed. The failing at the Fundã o dam is believed to be Brazil's worst-ever environmental disaster and one of the worst in the history of mining, with 19 people killed as waste from the collapsed dam destroyed villages and polluted more than 400 miles of waterways.

The company's bonds have seesawed in the nearly 11 months since the disaster, with Samarco struggling to find a path forward after its environmental licenses were revoked and production halted at its mines. Bonds have plunged as low as 31 cents on the dollar in January and risen as high as 62 cents after the company and its shareholders reached a tentative settlement with Brazil's government in March.

Two months later, federal prosecutors filed a civil lawsuit against the mining companies in which they alleged 155 billion reais ($48 billion) in damages, triggering another selloff. The prosecutors also sought to nullify the previous settlement, which a judge suspended in July, raising the prospect of a drawn-out litigation process.

Vale and BHP Billiton have agreed to support Samarco in its efforts to fix the environmental and social devastation left by the avalanche of mud from its tailings dam. But since the parent companies don't guarantee Samarco's debt, they have no obligation to its bondholders.

The major question facing the bondholders now is whether Samarco will ever be allowed to operate again, and if so, when. Vale and BHP, which initially predicted Samarco's mines to restart by the end of this year, have more recently demurred from providing specific time frames.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

September 27, 2016 14:35 ET (18:35 GMT)

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