Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Brazilian red tape may keep the global iron ore market tighter than expected after Vale SA lowered its forecast for production capacity because of sluggish permitting.
While capacity isn’t the same as actual production, the slower-than-expected expansion will give Vale less scope to increase supply over the coming years.
Vale’s ongoing recovery from an early-2019 tailings dam disaster makes it a major swing factor in a market that’s looking for direction after tumbling 40% from a mid-July peak amid China’s efforts to curb emissions.
On Thursday, the Rio de Janeiro-based company said it’s targeting production capacity of 370 of million tonnes next year, compared with a previous 400 million tonnes goal.
The reduction was attributed to issues in its prized high-grade operations in northern Brazil — namely, delays in securing permits for a project at the Serra Norte complex and additional waste-processing facilities at S11D.
Those obstacles mean Vale is now projecting annual capacity in the north to reach 215 million tons in the “medium term.” It’s now targeting a run rate of 205 million tons next year, down from a previous estimate of 230 million tons.
About 80% of the company’s planned investments in iron ore capacity through 2024 is focused on the northern operations.
Vale also lowered on Thursday its 2021 capital expenditure budget to $5.4 billion from $5.8 billion. While the company didn’t give a reason, the project delays and a weaker local currency may be countering inflationary pressures in Brazil.
Development of rich deposits in the Amazon region is crucial to Vale’s strategy, with the steel industry increasingly turning to higher quality inputs to limit emissions. Vale sees ore with 64-66% iron content accounting for 27% of the market by 2030 from 21% last year.
As part of a bid to reach net zero emissions by 2050, Vale is touting a so-called green briquette product that reduces greenhouse gases in steel production by as much as 10%.
A potential spinoff of Vale’s base metals business might have to wait, Itau BBA analysts said Thursday, citing a company presentation to investors. For the company’s management, the deal would make more sense after the expansion of Vale’s Voisey’s Bay, Copper Cliff and Salobo III operations, and the approval of the Alemao and Cristalino projects, they said.
Shares of Vale retreated for a third session in Sao Paulo Thursday, closing at the lowest level since late March. The company has lost about 127 billion reais ($24 billion) of its market value since peaking in May.
(By Mariana Durao, with assistance from Vinícius Andrade)
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