Brazilian miner Vale seems to be going ex-growth in its key commodities – iron ore, copper and nickel.
This week’s annual update of its production, capex and cost estimates for the coming year and saw little growth in the global iron ore market in 2022, judging by updated forecasts for this year and an early estimate for 2022 output.
But more importantly, the miner has also cut the ambitious 2020 targets it set for its copper and nickel production in the next few years, even though both minerals are now in greater demand because of the rapid rise of the renewables sector, especially electric vehicles (EVs).
It’s as though Vale has put copper and nickel (and the small amount of gold it produces) on the backburner while it focuses on iron ore and all the uncertainties that lie in the world’s biggest market, China.
The reduced ambitions at Vale are in stark contrast to those of its three Australian iron ore rivals – BHP, Rio Tinto and Fortescue Metals – which are all stepping up the search for new sources of copper and nickel in the case of BHP, copper and Lithium (and some nickel) for Rio and hydrogen and copper and nickel in the case of Fortescue.
The trio are looking here and offshore in Canada, Europe, South America and even Africa.
Vale has copper and nickel mines in Indonesia, Canada and Brazil but apart from 80% of one big deposit in Indonesia called Hu’u which has a reported 17.4 million tonnes of copper and 32 million ounces of gold, its other base metal assets seem old and under invested.
On Monday Vale lowered the ceiling for its 2021 iron ore production outlook to 320 million tonnes from a previous 335 million, while leaving the lower end of the forecast range at 315 million tonnes.
The company also said in a securities filing that its 2022 iron ore output is expected to reach 320 to 335 million tonnes – so effectively, no growth next year.
Vale sees its iron ore production capacity at 370 million tonnes by the end of 2022, versus 341 million tonnes at the end of this year, while its long term goal is to reach a production capacity of 400 to 450 million tonnes.
It’s early capacity ambition was 400 million tonnes by the end of 2022, but that was hauled back mid-year because of slow approvals by governments, especially on the company’s northern mining system where the high grade 65% ore is mined and exported from.
But buried in the iron ore data was news – not highlighted that Vale had reduced its production guidance for copper and nickel in the coming years, following a disruptions such as Covid, a labour strike at its Canadian mines and maintenance downtime in 2021.
Vale now expects to produce 330,000-355,000 tonnes of copper output in 2022, rising to 390,000-420,000 tonnes a year from 2023-2026, and surpassing 450,000 tonnes after 2027. For 2021, the guidance was unchanged at 295,000-300,000 tonnes.
But at the same briefing a year ago (in early December) Vale set a guidance of 455,000 tonnes, in average, for the 2022-2024 period and reaching 500,000 tonnes in 2025. 2021 copper production was forecast to be 390,000 tonnes. 2021’s estimated 295,000 to 300,000 tonnes is a serious shortfall and due mostly to the two-month strike at its Sudbury mining complex in Canada.
Vale now estimates its nickel production at 175,000-190,000 tonnes in 2022 but a year ago said nickel output should average 200,000 tonnes over the next three years. Instead the 200,000 level will now not be reached until after 2024.
Vale Chief Financial Officer Gustavo Pimenta told this week’s briefing that the miner will cut costs by an additional $US1 billion over 2022 and 2023.
The reduction will be made mostly through the removal of inefficiencies in the organization, he said.
He said Vale reduced the size of its central offices in Rio de Janeiro during the pandemic, returning several floors as it made a flexible working system permanent.
The company said it sees its capital expenditure totaling $5.8 billion next year. It expects to invest an average of $5 billion to $6 billion in the coming years, but did not provide a specific timeframe.
The miner also announced a revision of its plans to eliminate upstream dams in Brazil, a type of structure used in iron ore production that has caused two deadly disasters in the country in 2015 and 2019.
Vale said there are still 31 dams in its operations seen as at some level of instability. It plans to reduce that number to nine by December 2025. That will involve billions of dollars of investment in remediation and in new dry processing facilities.
