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Brazil's Vale Heads For Major Role In Copper Market

UPDATE China June Copper Output Higher Aluminum Zinc Down A Tad

July 14, (Dow Jones)- Brazil's Vale SA (VALE, VALE5.BR), the world's biggest iron-ore producer and second biggest in nickel, has set its sights on a position among the world's top producers in the burgeoning copper market.
Vale starts production this year at its Tres Valles copper mine in Chile. In 2011, it will start up Salobo, its biggest Brazilian copper property, after almost two decades of research at the Amazon site.
In 2013, it will double Salobo and start up Konkola North mine in Zambia in a joint venture with African Rainbow Minerals Ltd., or ARM, to produce 650,000 metric tons of copper a year.
And more projects are in the pipeline. There is Salobo III, Alemao, Cristalino and Polo in Brazil's Carajas region, while exploration continues in Africa's copper belt in a venture struck last year with ARM.
Vale President Roger Agnelli has singled out copper and coal as priorities in the mining company's diversification program, as power grid and infrastructure needs in emerging countries cry out for these minerals.
All told, Vale has announced spending of $3.34 billion on existing copper projects by 2013.
For analysts, copper is a darling among commodity picks.
&quot;Copper is one of our preferred commodities,&quot; said Nomura Securities analyst Gavin Wood. &quot;It's likely to remain in deficit for the next couple of years, which could lead to higher prices.&quot;
Copper is &quot;one of the best metals for the long term because China doesn't have enough,&quot; said Credit Suisse analyst Luiz Moreira. What China needs most is iron ore, coal and copper, Vale's three priority minerals, while it doesn't need steel, stainless steel or aluminum, Credit Suisse said in a recent report.
In May, Vale sold extensive aluminium, alumina and bauxite operations, which had been slated for $2.69 billion in new investments, fueling speculation it may switch more funds into copper. The sales were cited as a factor in Fitch Ratings' June upgrade of Vale to BBB+ on the company's &quot;improving competitive position.&quot;
Vale has been a midsize copper producer since 2004 because of its Sossego mine in Para state in northern Brazil, where first-quarter output was 26,000 tons. Copper operations acquired as part of its 2008 takeover of Canada's Inco added an additional 8,000 tons. But copper still accounted for just 3.3% of sales in the period.
&quot;Copper is strategic for Vale but the company hasn't yet achieved scale,&quot; said Renato Antunes of Barclays Capital. Vale's planned growth in copper &quot;is positive on long-term prospects for copper use in areas including electricity supply,&quot; he said.
Firm copper prices may encourage new projects, such as those seen by Vale, but there still won't be enough new capacity in coming years to bring the market into balance, Nomura's Wood said. This is due to massive demand from China, a net importer representing 40% of global demand of about 18.8 million tons a year, he said.
Vale's move into big-time copper hasn't been easy. Tres Valles, which will produce 18,000 tons a year over a short 11-year lifetime, has been delayed over land-rights issues. Salobo overshot time and cost budgets, due to a complex ore type demanding years of research into an environmentally friendly hydrometallurgical treatment process.
But the countdown to start up at the giant deposit is now on. Salobo's initial copper output will be 127,000 tons a year, later to be more than doubled over a 30-year mining cycle.
Konkola North's initial 50,000 tons a year will double in 2015. The property is the second-biggest in Zambia's copper belt.&nbsp; 
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