UPDATE 2-Vale blames Guinea government for Simandou uncertainty

Thu Dec 6, 2012 2:11pm EST

* Vale says still interested in Guinea

* Sees 1st tranche of oil and gas asset disposal in weeks

* Says no rush to sell Norsk Hydro, will wait for reasonable price

* Says China's ban on Valemax ships costs it $2-$3 a tonne

By Clara Ferreira-Marques and Jeb Blount

LONDON/RIO DE JANEIRO, Dec 6 (Reuters) - Brazil's Vale , the world's top iron ore producer, has blamed a Guinean government U-turn on rail and port links and shifting, unclear regulation for its decision to shelve the giant Simandou iron ore project.

Vale said it remained interested in working in Guinea and at Simandou, site of the world's largest untapped deposit of iron ore, but needed clarity to proceed with the project. It stopped work on its part of the deposit in the spring and froze activity at the smaller Zogota project months later.

Both projects, which Vale is developing with BSGR, the mining arm of Israeli entrepreneur Beny Steinmetz's business conglomerate, have been shelved, raising questions about the their future as the government reviews mining contracts.

"We are still interested in being in Guinea. But we need clarity. We have shareholders, and we need to be transparent with them," Vale Chief Executive Murilo Ferreira said.

"The issue is in the hands of the Guinean government ... They set the rules; they tell us what rules govern a project, and they have not communicated the rules for this project yet."

Among the major question marks for Vale is the export route for the millions of tonnes of high-grade iron ore that will be mined in Guinea's forested south.

Unlike Rio Tinto, which is developing the southern part of Simandou and will export through Guinea, Vale had hoped to export through neighbouring Liberia - a shorter and less expensive route but a less popular option with the government.

Ferreira said the government had informed Vale and BSGR that the export route would be through Guinea, scrapping an earlier concession which they obtained in exchange for agreeing to build an almost 700 km rail line. That would drive up risks and project costs already estimated at $10 billion.

Simandou's northern blocks, the area held by Vale and BSGR, were originally part of Rio Tinto's Simandou concession but were stripped from the mining major in 2008 after the government said it was moving too slowly. Vale bought a stake in the northern blocks in 2010 from BSGR in a $2.5 billion deal. Only $500 million has been paid, and Vale said targets had not been met for more to be paid out.

The government has been considering Vale's and BSGR's proposals on the project since last year, the Brazilian company said.

Rio, which is closer to production, has agreed to go through Conakry but is also awaiting government decisions on a variety of other issues.

Officials at Guinea's Mines Ministry were not immediately available for comment.

CUTTING DOWN

Simandou is one of several projects on the line for Vale as it aggressively retrenches in the face of competing demands for its capital and weaker iron ore prices.

Earlier this week, the miner said it was pushing ahead with plans to sell off non-core assets and would slash 2013 spending by almost a quarter from the amount budgeted this year for new projects.

It remains interested in assets outside Brazil, though the quality of its flagship Carajas and Serra Sul iron ore assets meant it will focus there to expand production volumes largely stable since 2006, Ferreira said.

Among the non-core assets up for sale is Vale's oil and gas division, which was bought as a hedge against rising energy costs. Ferreira said the capital intensive business no longer made sense as Vale has other drains on its cash resources.

"We will sell everything, but it takes time," Ferreira said. "On the oil and gas process, we will make some announcements in a few weeks. It is not for all the assets, because you don't sell to just one company."

Vale also said it was still in talks with Chinese authorities over a port ban on its giant Valemax ships and expected an agreement in 2013.

The 400,000 deadweight tonne Valemax ships, designed for the China trade, should save the company $6 per tonne in shipping costs compared with capesize ships of 180,000 to 200,000 tonnes, Vale's iron ore chief Jose Carlos Martins told investors and analysts.

But currently they are saving only $3 to $4 a tonne, because the company must use smaller ships for the last leg of a voyage into the ports.

"The situation is not optimal," Martins said. "Right now we have to transfer ore to smaller ships at sea."

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