* Samarco has reached deal around $5bn lawsuit
* Agrees on two year pause for separate, much larger, lawsuit
* Incident marked Brazil's worst environmental catastrophe (Adds analyst comment)
By Marta Nogueira and Melanie Burton
RIO DE JANEIRO/MELBOURNE, June 26 (Reuters) - Samarco and parent companies Vale SA and BHP Billiton Ltd have signed a deal with Brazilian authorities that settles a 20 billion reais ($5.30 billion) 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 sets a two-year timeline to reach a settlement over a separate 155 billion reais lawsuit, which will remain suspended while the parties continue to negotiate. It did not give a timeline on licensing and when operations may resume.
"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 kilometers.
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.
"The positive is we don't have a big compensation number which was the market's concern," said analyst Glyn Lawcock at UBS in Sydney. "The negative is that we still don’t have a definitive outcome or a definitive amount, or a timeline for restart."
Vale has said it expects the company to resume operations in 2018 or early next year, 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.
"It seems that if everything goes well, and the plaintiffs feel the community are being compensated fairly and the land is being rehabilitated...then there could be no more increase in cash out the door for BHP and Vale," said UBS analyst Lawcock.
"But if the plaintiffs feel that as they move forward two years and there's still things to be done...then there may be more money to be spent, is our understanding."
$1 = 3.7753 Brazilian reais Reporting by Marta Noguiera in RIO DE JANEIRO and Melanie Burton in MELBOURNE Editing by Lisa Shumaker and Joseph Radford