UPDATE 2-Vale iron ore output falls; copper, cobalt rise
* Nickel, coal production rise from year ago
* Copper, cobalt production reach record levels
* Higher prices may ease impact of iron ore decline
RIO DE JANEIRO, April 17 (Reuters) - Iron ore output at Brazilian global miner Vale SA, the world's largest producer of the main steel ingredient, fell 3.5 percent in the first quarter on declining ore quality and license delays at old mines, the company said on Wednesday.
The impact of falling iron ore output was eased by rising production at new and much-delayed projects in Brazil, Canada, Australia and New Caledonia, Vale said in a securities filing.
Nickel and coal output rose and Vale recorded record levels of copper and cobalt production.
Vale has been investing heavily in recent years to reduce its dependence on iron ore which accounts for nearly 90 percent of its profit.
Iron ore output was 67.5 million tonnes, 3.5 percent less than a year earlier and 21 percent below the fourth quarter. Reserves of high quality ore are falling in the company's oldest and most important mining district in Brazil's southeastern state of Minas Gerais, Vale said. Also, new equipment to concentrate ores are not yet ready.
"The first quarter is the weakest of the year as operations are affected by the Southern Hemisphere rainy season," Vale said.
The Rio de Janeiro-based company also faced licensing delays that slowed the opening of new areas in old mine sites that the company needs to maintain output volumes, Vale said.
The impact of the output declines, though, is likely to be limited by higher average prices for the essential raw material. It takes about 1.5 tonnes of iron ore to make each tonne of steel.
At $148.23 a tonne, the average price of iron ore was 4.5 percent higher than a year earlier and 24 percent higher than in the fourth quarter. Combined with cost-cutting efforts, higher prices could ease the decline in output and bolster profit. Vale plans to release its first-quarter financial statement on Wednesday, April 24, after the markets in Sao Paulo and New York close.
Iron ore hit a three-year low on Aug. 30 of $88.70 a tonne, a sign of slowing global demand for minerals and metals that prompted the imposition of "rigid discipline" on spending by Chief Executive Officer Murilo Ferreira. Three months later Vale slashed planned capital spending 24 percent to $16.3 billion in 2013 from $21.4 billion in 2012.
Higher than average iron ore prices and spending cuts have had little positive impact on Vale's share price, which fell to 33-month lows this week.
Still, efforts to cut spending on diversification away from iron ore come just as expansion into nickel, copper and coal are starting to show results.
"Vale's production in the first quarter of 2013 was marked principally by the strong operational performance of base metals," the report said.
NICKEL, COPPER RISE
First-quarter nickel output rose 3 percent to 65,000 tonnes from a year earlier and rose 1.7 percent from the previous quarter. Vale is the world's No. 2 producer of nickel, a metal used to make steel rust-resistant.
Output was pushed higher by new production at its Sorowako mine in Indonesia, its VNC unit on the French Pacific Island of New Caledonia and at its Voisey's Bay project in Canada.
These allowed nickel output to grow even as production fell at its flagship mine in Sudbury, Canada, and its new Brazilian mine at Onca Puma in Brazil's Amazon.
"Improvements in the reliability of operations in Canada and the ramp-up of VNC more than compensated for the loss in output at Onca Puma and closure of a furnace at Sorowako," the statement said.
Nickel prices, though, have not held up as well as iron ore. The average price in the first quarter was 2 percent more than in the fourth quarter of 2012 but 10 percent below the average for the year-earlier quarter.
Copper output rose 22 percent from a year ago to a record 90,000 tonnes and was 10.5 percent higher than in the fourth quarter. Copper, a reddish metal, is a key component in electrical and electronic equipment.
Output was aided by the ramp-up of production at the Salobo I copper-gold project in Brazil's Amazon. Salobo, which has suffered delays and technical problems, functioned at 65 percent of capacity in the quarter, Vale said.
Cobalt, a subproduct of Vale's nickel output, also reached a record, rising 68 percent in the quarter to 993 tonnes from a year earlier and 71 percent from the fourth quarter.
Output of metallurgical or coking coal, used to make steel, rose 22 percent to 1.37 million tonnes in the quarter compared to a year ago, but was down 6.6 percent from the fourth quarter. Declines from mines in Mozambique, the result of rains, were offset by rising output from Australian coal mines.
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