* Vale plans $16.3 bln 2013 capex, 24 pct less than 2012
* Company may sell Norsk Hydro stake, non-core assets
* Costs jump at Amazon iron ore, Canada nickel mines
* May sell 50-70 pct of VLI SA rail, port firm - CEO
By Jeb Blount
RIO DE JANEIRO, Dec 3 Brazil's Vale SA
, the world's second-largest mining company, cut
estimated 2013 capital spending by 24 percent after a global
slowdown and a drop in iron ore prices led the company to
The retrenchment comes after sluggish growth in the United
States, China and Europe diminished demand for metals and
weighed on the price of iron ore, Vale's main product.
Iron ore , a key ingredient in steel, fell to
a three-year low in September, and is currently hovering around
$115 a tonne. Vale forecasts a $110-$140 a tonne range in the
Vale will invest $16.3 billion in 2013, down from the $21.4
billion budgeted this year for new projects, research and
development and to maintain existing mines and plants, according
to a regulatory filing on Monday.
"The outlook for slower expansion of global demand for
minerals and metals in the medium term requires rigid discipline
in the allocation of capital and greater focus in maximizing
efficiency and reducing costs," the company said in the
Vale's 2013 investment plan is the smallest since 2010.
Among cuts, Vale confirmed the removal of its Simandou iron ore
mine in Guinea, and the Samarco IV pellet plant with Australia's
BHP Billiton Plc in Brazil from the list of active
BHP and Vale each own half of the Samarco mine, slurry
pipeline, pellet production and port project.
The Lubambe copper mine in Zambia was removed from the
project list after output successfully started, Vale said. The
mine is a joint venture with African Rainbow Minerals and Zambia
Consolidated Copper Mines Ltd.
Vale is also considering selling its 22 percent stake in
Norwegian aluminum group Norsk Hydro, Chief Financial
Officer Lucianao Siani said.
Vale obtained the stake when it sold its aluminum business
to Norsk in 2010. The agreement requires Vale to hold the stock
until February 2013, although the company is eager to divest
"Vale's saying 'we're an iron ore company, this is not iron
ore (and) we've got enough trouble in iron ore right now,'" an
analyst said. "(The Hydro stake sale) was just a way to get the
deal done and monetize it."
Vale, which is Brazil's largest rail and port operator, may
also sell 50 percent to 70 percent of its new logistics company
VLI SA, far more than the 33 percent originally planned, Chief
Executive Murilo Ferreira said. VLI will operate in the
non-mining-related general cargo business.
Some analysts said the cuts and planned asset sales failed
to go far enough.
BHP 'GOES FURTHER'
"It would be more significant if there were significant
changes to capex on core projects, particularly in Brazil," said
Wiktor Bielski, head of commodity research at VTB Capital in
BHP Billiton has halved capital spending over the next five
years, a posture that offers better returns to shareholders, he
Vale is still concentrating on too many new mining projects
and not looking for enough ways to increase output from existing
assets, Bielski added.
"Vale should follow this business model," he said, referring
to what he called BHP's more aggressive shedding of new,
so-called greenfield projects and focus on older assets.
Vale, though, trumpeted a sharp tightening of financial
discipline and a willingness to consider the sale of any and all
assets that fail to provide an adequate return.
The era in which the company expanded in all directions is
at an end, Ferreira told investors in New York.
"The super-cycle in mining is over," Ferreira said,
referring to a decade-long boom led by growing Chinese demand.
"While there is still growth in the iron ore market, it will
be slower," iron ore and strategy chief Jose Carlos Martins said
at the same event.
IRON ORE FOCUS
Vale's cuts began earlier this year. Final 2012 spending is
not expected to surpass $17.5 billion, 18 percent less than
originally planned, the company said. Vale spent a record $18
billion in 2011, one-fourth less than the $24 billion initially
budgeted for the year.
Since 2008, actual annual capital expenditure has been an
average 18 percent below initial investment plans.
Vale plans to focus on iron ore, dedicating 47 percent of
2013 capital spending to the mineral. That is about the same
percentage as budgeted in 2012 despite a 22 percent cut in
overall spending on iron ore mines, processing and transport
facilities and iron ore pellet plants.
Vale, the world's largest producer and exporter of the
mineral, accounts for more than a quarter of the world's
seaborne iron ore exports.
While the company is also a major producer of nickel, copper
and fertilizers, it gets about 90 percent of its profit from
The company's outlook for 2013 iron ore sales is down 1.9
percent to 306 million tonnes from the original 2012 estimate of
312 million tonnes.
Spending on coal projects next year is expected to rise to
10.6 percent of the total from 6.9 percent this year. Vale
expects to sell 12.4 million tonnes of coal in 2013, a quarter
less than its 2012 estimate.
Production is unlikely to pick up until 2014, Vale said.
KEY MINE COSTS RISE
The share of basic metals, where Vale has experienced
difficulties with production and efficiency at nickel and copper
projects, was raised to 23 percent of spending. The 2013 budget
cut base metal spending by 18 percent, to $3.78 billion.
Vale expects to sell 260,000 tonnes of nickel in 2013, or 13
percent less than its estimate for 2012.
Under the 2013 investment plan, Vale expects to spend $10.1
billion, or 62 percent, on new projects; $1.1 billion, or 6.7
percent, on research and development; and $5.1 billion, or 31
percent, to maintain existing mines and facilities.
Vale said it needs less research into new mines and
development of projects now that the world economy has slowed.
Part of the cutbacks began earlier this year when Vale pulled
engineers and other staff from the Simandou project in Guinea.
The need to increase efficiency was underlined by a surge in
expected investment in two of the company's largest projects.
The plan to add 40 million tonnes a year of iron ore
capacity from mines in the Carajas region of Brazil's Amazon
rose to $3.48 billion, 17 percent more than the company
estimated in October in its third-quarter earnings report.
Spending on the company's Long Harbor nickel and cobalt mine
project on the Labrador coast of Canada's Newfoundland province
rose 18 percent to $4.25 billion as a result of rising labor and
engineering service costs.
Vale preferred shares, the company's most-traded class of
stock, fell 0.87 percent to 36.38 reais on the Sao Paulo
BM&FBovespa exchange, their first decline in three days.