Vale SA is betting on the world’s biggest iron-ore project as a way to become more competitive with its largest rivals. For Brazil, the US$14 billion S11D mine is a rare bright spot amid the country’s longest recession on record.
“This is a confident affirmation that yes, Brazil will return to growth,” Brazilian Minister of Mines and Energy Fernando Coelho Filho said on Saturday at a ceremony opening the complex in Para State in northern Brazil.
Superlatives define Vale’s effort. S11D is one of the largest private investments undertaken in Brazil, which is mired in a slump that has sent unemployment soaring, shrunk exports and cut factory output. That made the ribbon-cutting event a potent symbol, with Brazilian President Michel Temer scheduled to be the featured speaker until bad weather kept him from reaching the site in the Amazon rain forest.
Temer, who succeeded the impeached Dilma Rousseff, is leading Brazil’s sputtering turnaround effort. This week he outlined a number of measures aimed at boosting productivity and investment, including reductions in red tape, simplifying taxation and streamlining import and export procedures.
For Vale, the world’s top iron-ore producer, developing the mine in Brazil’s underdeveloped north is central to its long-term strategy. The company began working on the project more than a decade ago. At full capacity, the mine will be able to produce 90 million tonnes a year at a cost of about US$7 a tonne, or 41 percent less than Vale’s average expense now. The mine has a life expectancy of 30 years.
Stepping up production at the mine will help Vale reduce dependence on its higher-cost operations in southern Brazil. When at full capacity, S11D will account for about one quarter of Vale’s total output. The first shipments are scheduled for the middle of next month.
Vale’s ore now has to travel several thousand kilometers farther to reach China, the largest consumer of the steel-making ingredient, compared with production from the second and third largest producers, Rio Tinto PLC and BHP Billiton Ltd. Reducing cost is crucial to Vale’s efforts to compensate for its geographical disadvantage.
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