Brazilian mining giant, Vale (also known as CVRD) is to step up its iron ore challenge to BHP Billiton and Rio in the fast growing Asian market, especially China.
Vale is the world’s major iron ore miner and exporter, a major copper and a leading nickel producer.
But it is facing increasing pressure to invest more in Brazil, especially in steel, which could limit is ability to compete head-on with the big Australian-based exporters.
This week the company revealed plans to try and balance those demands with expanding its exporting capacity.
Vale revealed plans to invest $US12.9 billion in 2010, an impressive sum, but down sharply from the previous estimate of $US14.7 billion for this year.
That was abandoned when the global financial crisis hit which saw Vale cut spending 37% last December.
The 2010 spending plan is up from $US10 billion invested in the year through June 30.
It also slashed output and slowed new projects and sent thousands of workers on holidays or short working weeks (or laid them off), especially in iron ore and nickel, two industries that were hurt by the downturn, especially in the Brazilian, US and European markets, which are its real strengths.
The company said it would retrench 1300 employees and send a further 5,500 on permanent leave while conditions remained fraught.
It also said it would cut output by 10%, or around 30 million tonnes.
Like BHP and Rio though, it has found in recent months that the China rebound (which is boosting other economies in the region) has lifted demand for its iron ore and enabled it to add more workers.
Vale’s is planning to boost iron-ore output 49% in the next five years from this year’s 301.7 million tonnes, with the startup of the Serra Sul mine in Para state and other Brazilian plants.
Around two thirds of the new sum will be invested in Brazil, some of it in steel, coal, power and metals, but the majority will go into ramping up its huge iron ore mines, as well as building special transhipment centres in Asia to better compete with Rio and BHP.
The new iron-ore output target of 450 million tonnes by 2014 replaces a previous one of 422 million tonnes by 2012.
Vale also announced new annual targets for 2014 output of 380,000 tonnes of nickel, 650,000 tonnes of copper, 30 million tonnes of coal, as well as 3.1 million tonnes of potassium and 6.6 million tonnes of phosphate rock used in fertilizers.
Vale’s planned opening in 2013 of its Serra Sul iron-ore mine in Para state will about double output of the company’s high-quality Carajas ore.
The mine, which may produce about 90 million tonnes a year, will be Vale’s biggest single project ever, involving an investment of more than $US11 billion, including transport and associated infrastructure.
Capacity at the Carajas mine will rise 40 percent to 140 million tonnes a year by the first half of 2012.
It will also build new iron ore mine capacity in Minas Gerais state, southeast Brazil.
Vale said; "The program for 2010 involves investments of US$ 12.894 billion, of which US$ 9.876 billion will finance organic growth, corresponding to 76.6% of total spending, with US$ 8.647 billion allocated to project execution and US$ 1.228 billion to R&D.
"Budgeted expenditures with R&D allow for US$ 621 million to finance our global mineral exploration program, US$ 488 million for conceptual, pre-feasibility and feasibility studies to develop mineral deposits already identified, and US$ 119 million to be invested in new processes, technological innovation and adaptation.
"Investments to sustain existing operations are budgeted at US$ 3.019 billion, which represents 4.8% of our asset base in June 2009."
"Expenditures in infrastructure are comprised of US$ 834 million for power generation and natural gas exploration and US$ 2.654 billion for logistics, in which the bulk will be dedicated to supporting the iron ore business capacity. We plan to invest US$ 892 million in the coal business in 2010 and US$ 343 million in steel projects.
Vale will start steel production in Rio de Janeiro state in a joint venture with Germany’s ThyssenKrupp. It’s two years late and will produce five million tonnes of semi-finished steel slabs for export.
It has other plants and joint ventures under consideration, according to the lengthy statement from the company this week.
This and the big sell on the amount of money being invested in Brazil, is part of the company’s attempts to fight off greater political control (which would be good news for BHP and Rio).
Of the $US12.9 billion just $US343 million will be invested in steelmaking, compared with $US3.86 billion in mining ferrous metals, $US4.08 billion in non-ferrous metals and $US2.65 billion in logistics.
So the plan to spend more on steelmaking, a key Government demand, is window dressing at best.
Vale was privatised in 1997.
But the Brazilian Government owns shares indirectly through pension funds and the national development bank is a partner in the group of local companies and banks that control Vale. Mitsui is there as well in a minority stake.
The transhipment centres won’t be fully operational until early 2013, and work will start in the next few months, but it will add costs to Vale’s landed iron ore prices in Asia compared with Australia (and India).
The company said that these centres will act as “virtual mines”, which "will improve our ability to s
