Vale to slash iron ore output target, but opening world’s largest mine in 2016

Vale to slash iron ore output, but plans opening world’s largest mine in 2016

S11D, also known as Serra Sul, will expansion Vale’s mining activity in the Carajás Mountains of Northern Brazil, adding 90 million tonnes to the miner's annual capacity. (Image courtesy of Vale SA)

Brazil’s Vale (NYSE:VALE), the world's biggest iron ore producer, is likely to slash its iron ore output target for the year even further than what it has already hinted following the Samarco disaster, according to BTG Pactual, the largest independent investment bank in Latin America.

In a note to investor Wednesday, the bank said the miner would target a 355 million tonnes output for 2015, significantly less than the 376 million tonnes the company had previously forecast, Noticias de Mineracao reports (in Portuguese).

Earlier this month the miner had warned that the deadly collapse of a tailings dam at Samarco, the iron ore company it owns 50-50 with BHP Billiton, would impact production at two nearby mines. Vale's Fabrica Nova and Timbopeba mines output, said the company in a statement, would be reduced by 3 million tonnes in 2015 and by 9 million tonnes in 2016.

The miner, battling to increase margins, will soon have a new major source of iron ore output as the Rio de Janeiro-based company has announced that S11D, the world’s largest iron ore project, is 60% completed, SteelOrbis reports.

The company expects the venture, which includes a mine, plant, and railway and port logistics, to start production in the second half of 2016.

S11D, also known as Serra Sul, is part of Vale's massive Carajás complex and will add another 90 million tonnes to the miner's capacity, pushing it over 400 million tonnes per year. Last month the company announced record third quarter shipments of 88 million tonnes despite idling 13 million tonnes worth of high cost operations.

The miner has been able to reduce cash costs to just $12.70 per tonne (it's in the high teens at Rio Tinto and BHP) and that S11D could push costs below $10 a tonne, thanks largely to the weak real which is down more than a third in value against the US currency over the past year.