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BULK - Brazil Miner Vale To Announce $20 Billion Investments

33989 fcras 27/9 2010 09:04

Brazil Miner Vale To Announce $20 Billion In Investments For 2011-Source

Monday, 27 September 2010

Brazilian miner Vale SA will next month announce a record investment budget of $20 billion for 2011, as part of a continuing drive to become the world's biggest mining company.

The investment, which would be a 55% increase from this year, was provided by a person with knowledge of the plans, who said the figure didn't include any potential acquisitions.

Investments for the next five years will reach about $100 billion, said the person who asked not to be named as he wasn't authorized to discuss details.

That would be up nearly 70% from the 2004-2009 period.

There's a renewed emphasis on Vale's roots in the mining business, with a larger share of investments going to iron ore and to Brazil.

Some 60% of next year's spending will be for iron ore and 65% will be invested in Brazil, the person said, which are both higher than the roughly 50% spent on each this year.

But Vale will next year also give priority to the Rio Colorado potash fertilizers project in Argentina, the person said, where some $4.2 billion will be spent over the next few years.

The project gained the go-ahead from Argentine authorities earlier this year.

Vale aims to meet as much as possible of Brazil's booming fertilizers demand, the firm's strategy director, Claudio Alves, said in a presentation in Rio de Janeiro on Wednesday.

The company spent close to $5 billion earlier this year to buy the Brazilian fertilizer assets of Fosfertil SA and Bunge Ltd, and recently announced it's slated $12 billion investments in the fertilizers area over the next three years.

"Fertilizers are now another priority, they're more profitable than non-ferrous metals," said Max Bueno, analyst with Sao Paulo-based broker Spinelli SA.

Analysts said they expect the new program to be announced on or before Vale's meetings with investors in New York and London on Oct. 18 and 20, respectively.

Vale will be looking less at acquisitions and more at speeding up the development of its own projects, the analysts said.

And there may be some surprises: Ancelmo Gois, a columnist with Brazil's O Globo newspaper, reported earlier this month that Vale will start investing in uranium projects next year.

A Rio de Janeiro-based spokeswoman for Vale said she couldn't comment on details of the investment budget but that the company announces its plans "at about the same time every year". Last year's announcement was made Oct. 19.

"We were originally expecting $15 billion for 2011 but now expect an upside to Vale's capex program, which could be increased to $20 billion," said Gavin Wood, an analyst with Nomura Securities.

"This won't be a stretch for Vale given we expect iron ore prices to be inflated" next year, he said.

Spot iron ore prices are seen rising to $150 a metric ton next year from the current $146.

However, they could fall below $100 by 2013-2014 due to new supplies coming on stream, which may make Vale more reticient to announce a full five-year spending program, according to Wood.

In addition, there's no clear visibility on China's future iron ore demand levels for the next five years, he said.

A source with knowledge of Vale's board discussions said the 2011 investment program will be "very big".

On Sept. 8 Vale raised $1.75 billion on international markets in a heavily-oversubscribed bond issue in order to prepare for its investment program, the source said.

Demand was nearly three times the size of the offering, according to a banker working on the deal.

Itau Securities' Sao Paulo-based analyst Alexandre Miguel said, "Vale's 2011 budget will include more on steel, including the Alpa works; more on fertilizers, including Rio Colorado; and the company will start investing on logistics for its Simandou iron ore project in Guinea."

Simandou, a joint venture in which Vale holds 50%, is designed to eventually produce 50 million tons a year of high-grade ore.

Alves recently said it would be developed simultaneously with Serra Sul, a 90-million tons a year project in Brazil's Carajas region.

Expenditure at Serra Sul, which was last year budgeted by Vale at a total of $11.2 billion over several years, may be delayed on factors including licensing, according to Miguel.

Alpa, Acos Laminados do Para, is a 2.5 million-ton steelworks that will require a $2.76 billion investment, Vale said earlier this year.

"Vale could need to spend up to $20 billion next year if it's going to achieve the goal it's set itself of doubling in size by about 2016," said Daniel Gorayeb, partner in Sao Paulo-based Accerta Investimentos Ltda.

Source: Dow Jones
Vale SA / website: