Vale secures license for Serra Sul mega development

VANCOUVER — Brazilian mining giant Vale SA (VALE-N) has received its preliminary environmental license for what will be the world’s largest iron-ore project. Serra Sul, or Carajas S11D, is a US$20-billion expansion initiative at the Carajas iron-ore complex in Brazil’s Para state, which has been in operation since 1985. The Carajas mineral province in Para is the epicentre of Vale’s massive iron-ore empire.

The company has been operating in the Parauapebas region in south-eastern Para for over 30 years and maintains four open-pit mines in the area simultaneously — N4E, N4W, N5E, N5W — as well as N5S, which is a fifth mine moving towards commercial production. According to Brazil’s Ministry of Development, Industry and Foreign Trade, Parauapebas was the country’s largest regional exporter, bringing in US$11.7 billion in 2011. The Carajas mineral corridor, including Serra Sul where S11D is located, has proven probable reserves of 7.83 billion tonnes of iron ore.

S11D focuses on expanding the Carajas complex to incorporate a Greenfield iron-ore deposit at Serra Sul that would increase nominal capacity by 90 million tonnes per year of iron ore with an average ferrous content of 66.5% — high iron grades in the Para region are one of Vale’s main competitive advantages in the iron-ore market.

“S11D is our major lever for production capacity growth and maintaining undisputed leadership in the global market in terms of volume, cost and quality,” Vale commented in a statement. “The increase in production of high quality iron ore is in line with growth and value creation strategies based on a world class asset platform, active portfolio management and discipline in capital allocation.”

The open-pit operation and processing facilities will only account for roughly US$8 billion of the overall capital expenditure. Vale intends on processing its iron ore through the use of an energy-efficient natural dry process, which “eliminates the generation of tailings with the maximum use of ore, since the finest feeds, which would be lost in the conventional process, are within the final product.”

Vale’s big spending splurge is a US$11.5-billion infrastructure build-out that involves connecting the new open-pit at Serra Sul to existing rail, port, and highway systems. The company is intending to build a 504-km extension to its current Carajas railway, plus remodel 226 km worth of existing lines. Vale will also upgrade the Ponta da Madeira port terminal to handle 230 million tonnes of iron ore annually, and polish it off with the construction of the Canaa dos Carajas municipal highway.

As of June 2012, Vale reported expenditures of roughly US$1.2 billion, with 30% of its basic infrastructure completed. Once the company receives its construction license, which is expected by year-end, S11D will employ 30,000 workers during its three-year build-out period and generate US$1.5 billion in purchases from local suppliers before hitting production in 2016.

Granted by Brazilian federal environmental body Ibama, a preliminary environmental permit is commonly seen as one of the most difficult to acquire in Brazil, and considering Vale is operating in what equates to a lush section of the Amazon rainforest it took a number of concessions to receive a green light at S11D.

Vale has adopted a “truckless mining concept” wherein excavators and mobile crushers extract iron-ore and 37-km of conveyor belts handles the transportation to the company’s beneficiation plant. Using the system, Vale will reduce its diesel consumption by 77%, water consumption by 93%, and cut 50% of its CO2 emissions.

The natural moisture processing process — already in use at the N4 and N5 mines in Carajas — will eliminate tailings, cut down water use, and allow the mine to have a smaller footprint, which reduces deforestation.

The S11D expansion is part of Vale’s plan to boost its production capacity to 460 million tonnes of iron ore over the next five years. Along with 90 million tonnes per year added from S11D, the company has 40 million tonnes per year coming online from its Serra Norte mine by 2017, which is part of the nearby N5 open-pit. Vale’s current iron ore production sits at roughly 310 million tonnes annually.

Vale had a rough first quarter, as net income tumbled to US$3.83 billion, marking a 44% decline from the US$6.83 billion the company recorded in first quarter 2011. Vale blamed the decline on heavy rainfall affecting exports, as well as price decreases on its main products and a jump in development expenditures. The average price of iron ore on spot markets reportedly dropped by a fifth, down to US$143.46 per tonne.

Vale has been beaten up on the New York Stock Exchange in the past five months, with company shares dropping 28% or US$7.36 en route to an US$18.78 presstime close. The world’s fourth largest miner has 5.1 billion shares outstanding and a US$95.7 billion market capitalization.