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2nd UPDATE: Brazil's Vale To Invest $21.4 Billion In 2012
Nov 29,2011 09:54CST
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Vale SA said Monday it will invest $21.4 billion in 2012, though it faces challenges in getting projects off the drawing board, particularly with regards to the environment.

RIO DE JANEIRO, Nov 28, 2011 (Dow Jones) -- Brazilian mining company Vale SA (VALE, VALE5.BR) said Monday it will invest $21.4 billion in 2012, though it faces challenges in getting projects off the drawing board, particularly with regards to the environment.

"Environmental licensing is out of our control," Vale Chief Executive Murilo Ferreira told analysts and investors at an event in New York. "This is the most-important risk in project execution."

Vale had earmarked $24 billion for investments in 2011, but has said delays in licensing and equipment deliveries, as well as a shortage of manpower, meant the full amount wasn't spent and some of the 2011 investment would be held over until 2012.

The spending commitments for 2012 were slightly above some analysts' expectations. Leonardo Correa, of Barclays Capital, said that, "given the rising challenges to deploy capital, we see further risks of capex [capital expenditures] coming out below budget next year," and this uncertainty may be reflected in Vale's share price.

Vale rose 1.3% Monday on Brazil's Bovespa exchange to 39.50 Brazilian reais ($21.35), a smaller rise than the overall index, which advanced 2.1%.

In 2012, Vale will spend $12.9 billion to develop 20 new projects designed to boost production of iron ore, iron-ore pellets, nickel, copper, coal and potash, Vale said in a statement. A further $2.4 billion will be spent on research and development and $6.1 billion on maintaining existing operations, the company said.

Nearly half the investment will be spent on iron ore, 22% on base metals, 10% on fertilizers, 9% on coal and 3% on steelmaking, Vale said.

According to analysts, Vale faces obstacles to securing environmental licensing for the $8 billion Serra Sul iron-ore project in Amazonia, which will virtually double Vale's production capacity of high-grade iron ore from Carajas.

Vale aims to spend about $794 million on Serra Sul in 2012, but hasn't yet been able to start work on construction at the site as it awaits the environment license. The Brazilian mining company is taking steps to "improve the efficiency in the licensing processes," Martins said.

Meanwhile, Vale said it plans to produce 312 million metric tons of iron ore in 2012, slightly above the 311 million tons at which Vale's chief financial officer, Tito Martins, said the company would end 2011. In 2012, the company also expects to produce 50 million tons of iron-ore pellets, 16.6 million tons of coal, 300,000 tons of nickel, 340,000 tons of copper, 650,000 tons of potash and eight million tons of phosphate rock.

Speaking in New York, Martins said the focus is on developing its own projects, but that Vale would buy "good assets if they fit our intention to grow."

Meanwhile, declining ore grades is now one of the main concerns both of Vale and other mining companies, said Ferreira. Spending on mineral research has become essential to boost Vale's reserves and ore qualities, particularly as some of its high-grade reserves in south east Brazil are now depleting, he said.

Discussions over the Simandou iron-ore project in Guinea are up in the air due to new legislation which could give the local government a hefty stake in the mine, or a large share of the profits. "We don't know what will come up," said Martins. "It's very important to be under the umbrella of the Brazilian government in Africa."

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