September 20, 2016 / 12:26 AM / 3 years ago

Vale says rail delay limits new iron mine output to 75 million tons

RIO DE JANEIRO (Reuters) - Brazil’s Vale SA said on Monday output from its new S11D iron ore mine in the Amazon region will be limited to 83 percent of full capacity as efforts to preserve cash and limit transport disruptions crimp a needed railway expansion.

A view shows the company logo of Brazilian mining company Vale SA at its headquarters in downtown Rio de Janeiro August 20, 2014. REUTERS/Pilar Olivares/File Photo

The $14.3 billion project, Vale’s biggest-ever investment, was widely expected to produce up to 90 million metric tonnes a year of iron ore - the key ingredient in steel making - after a two-year ramp-up scheduled to begin by year-end.

But S11D will only deliver up to 75 million metric tonnes to international sea-borne clients after a four-year ramp-up, Vale said, responding to an article last week in Britain’s Financial Times business newspaper.

“There has been a replanning of the execution of construction work on the logistics corridor in a phased form in order to minimize interference with existing operations and optimize our cash flow without increasing the project’s capital spending,” Vale said.

In the article, Vale iron ore chief Peter Poppinga said investors understand the company’s expansion plans.

Vale, struggling with slumping iron ore prices which have slid nearly 60 percent in three years as well as delays completing S11D, has been slashing expenditures and selling assets.

S11D is expected to help Vale cut its per-tonne ore costs while helping drive higher-cost competitors from the market as demand falls.

Despite limits on the amount of S11D can ship to clients, Vale said there will be no change to the mine’s official capacity of 90 million tonnes.

The S11D mine, also known as Serra Sul, is one of two giant iron-ore mines in Vale’s sprawling Carajas resource complex in Brazil’s northern state of Para. The other mine, Serra Norte, is producing 155 million tonnes a year.

The Carajas railway which carries the ore to the Port of Ponta da Madeira near Sao Luis, Brazil for export to international clients, will only be able to carry 230 million tonnes of ore in four years despite a major expansion for S11D, Vale said.

Vale did not say whether it will increase the $7.9 billion already spent on S11D-related rail and port expansions in the future to allow the mine to ship up to 90 million tonnes per year.

“It’s important to remember that, as it has already be repeated, that Vale will produce based on market demand, Vale said in response to questions from Reuters.

Vale also confirmed the information published in the Financial Times.

Reporting by Marta Nogueira, writing and additional reporting by Jeb Blount, editing by G Crosse

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