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Vale moves ahead with 20 million mt/year Carajas, Brazil iron ore mine expansion

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London — Miner Vale's board has approved the company's project to move forward with its Serra Sul 120 expansion, which will boost capacity at its S11D mine and processing plant in Carajas, northern Brazil, by 20 million mt/year of iron ore to 120 million mt/year in $1.5 billion project with start-up expected in H1 2024, the company said late on Aug. 13.

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The Serra Sul 120 project involves opening new mining areas, duplicating the long-distance belt conveyor (TCLD), implementing new processing lines at the plant and expanding storage areas, among other measures, Vale said in a statement.

The project is part of a broader move to boost the Vale's northern system to 260 million mt/year, including via additional logistics capacity, currently under development, Vale said. "The expansion of the mine-plant capacity and the development of additional logistics capacity are important steps for the iron ore volume growth, the maximization of margin and the flight-to-quality optimization," it said.

News of the expansion, expected by the market, comes as prices for 62% Fe content iron ore fines have in recent weeks stayed close to the five-year highs they reached in July 2019 following production curbs related to Vale's Brumadinho tailings dam collapse in January 2019. A supply shortfall from Brazil since that time has been exacerbated by mine restrictions relating to the COVID-19 pandemic, with the resultant spate of high iron ore prices pressurizing steelmakers' margins.

"The Serra Sul 120 Project will create an important buffer of productive capacity, ensuring greater operational flexibility to face eventual production or licensing restrictions in the Northern System," Vale said in its statement.

The $385 million investment to duplicate the existing TCLD will provide greater flexibility and help reduce operational risks, adding reliability to the system, the miner said.

Vale executives said in a July 30 call with analysts that the company is "sticking to" plans to produce at a run-rate of 400 million mt/year iron ore in 2022, should the market need this, and will exercise its "value over volume" mantra in further planned mine expansions.

The planned 2022 run rate will compare with the company's expected production this year of 310 million mt of iron ore, which will be at the lower end of its 2020 guidance, the company's Executive Director for Ferrous Minerals Marcello Spinelli told analysts on the call. Consequences of the Brumadinho accident limited Vale's 2019 output to 302 million mt.

The company had said in a May presentation that it could bring its capacity up to around 450 million mt/year by 2027.

With the Serra Sul 120 project now moving ahead following the delay in the execution of projects in 2020 due to the COVID-19 pandemic, Vale informed that it will revise and update, in due course, its investment guidance for 2021, currently at $5 billion, and in the period between 2022-2024, to an average of $4.5 billion annually.