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Vale iron ore product mix quality falling after dam burst: CFO

London β€” Brazilian miner Vale's average iron ore product mix is set to decline in terms of quality following the January 25 dam burst at the company, according to CFO Luciano Siani. The company plans to keep its offer of Brazilian blend fines (BRBF) constant, but its offer of Carajas fines and niche products will decline, he added.

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"With lower levels of wet (ore) processing, production of higher-value added products falls and so we need more high-quality Carajas ore for blending to correct the quality of some products," Siani told analysts on the call. "We are committed to maintaining stable our offer of Brazilian Blend fines, our principal product," he said, speaking on a conference call late last week.

The decline in overall quality levels is seen due to the loss of high-grade feed for the production of around 11 million mt of pellets, and the halt in production of some sinter feed products as a result of mine stoppages in Minas Gerais state after the accident, Siani told analysts on the call. The lost pellets production is equivalent to around 8-9% of the seaborne iron ore pellets market, he said.

The production curbs -- even with the major Brucutu mine expected to resume production in the near future -- are likely to reduce Vale's total iron ore sales by around 50 million mt to 75 million mt this year, from the originally budgeted sales target of 383 million mt, Siani said.

The company is bringing ore from Carajas and Corumba (in northern and western Brazil, respectively) "involving more costs" to maintain its sales commitments, with contractual commitments taking preference over spot market sales, he said. The company's offer of its BRBF product, both for the domestic and seaborne markets, is currently stable, Siani said. It is also bringing pellets from its plants in Vitoria to Minas Gerais, he said, noting that supply to the domestic market is considered a priority.

For the seaborne market "the volumes contracted from Carajas are guaranteed", he said. Some dry material will be blended with Carajas ore and low alumina sinter feed is being withdrawn from the market, there will be less "free" Carajas ore available and fewer niche products, according to the executive.

While supplying the pellets market, currently suffering considerable tightness, is a priority, "no plan to accelerate pellets production is currently under discussion", according to Siani, who emphasized that Vale's principal current priority continues to be to focus on safety and the communities affected by the dam burst.

"We have more products of low quality in the mix...there are products that can't be sold directly to the market and need to be corrected...Carajas is supplying a part of what we need...But we need to bring in ore from Carajas," Siani said.

However, to bring on stream the 50 million mt/year of the company's iron ore production capacity which is currently idle (out of a total 450 million mt/year capacity) would take around three years as new equipment and personnel will need to be employed and this isn't the company's priority, he said.

-- Diana Kinch, newsdesk@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com