Vale Budgets $16.3 Billion Capex for 2013

Almost half of Vale’s 2013 project execution budget will go into its ferrous minerals project pipeline, while brownfield
exploration for iron ore and nickel will account for as much as 41% of its total exploration budget. (Photo courtesy of Vale)
Vale has budgeted $16.3 billion for capital expenditures during 2013, including $10.1 billion for project execution, $5.1 billion for sustaining existing operations, and $1.1 billion for research and develop-ment (R&D). The R&D expenditures in-clude the budget for mineral exploration.

Vale’s 2013 capex budget is down from an estimated $17.5 billion spent in 2012 and $18 billion spent in 2011. The prospects for only moderate expansion in global demand for minerals and metals over the medium-term require a stricter dis-cipline in capital allocation and a stronger focus on maximizing efficiency and mini-mizing costs, the Vale statement said.

Vale CEO Murilo Ferreira said. “We are now more than ever strongly committed to investing only in world-class assets, with long life, low cost, expandability, and high-quality output, capable of creating value through the cycles.”

Ferrous minerals projects account for $4.9 billion (48.4%) of Vale’s 2013 pro-ject execution budget, with major expendi-tures going toward iron ore projects in the Carajás region and in the state of Minas Gerais, Brazil. Vale’s global iron ore distri-bution network, including new ships, will also see significant spending.

Vale’s integrated nickel smelting and refining project at Long Harbour, New-foundland, which is scheduled to start up during the second half of 2013, is budgeted for $1.216 billion in capital spending during the year. Total estimated capex for the project has increased to $4.25 billion from $3.6 bil-lion due to cost pressures stemming from a tight market for labor and engineering servic-es in Newfoundland and Labrador. The plant will produce 50,000 mt/y of finished nickel, plus associated copper and cobalt products.

Vale has budgeted $171 million during 2013 for the reopening of the Totten nick-el mine in Sudbury, Canada, at an estimat-ed nominal capacity of 8,200 mt/y of nick-el in concentrates. Production is scheduled to begin during the second half of 2012.

A project to double capacity at Vale’s Salobo copper mine in Marabá, Pará, Brazil, to 200,000 mt/y of copper in concentrates is budgeted at $401 million during 2013. Production from the expansion is scheduled to begin during the first half of 2014.

Vale’s Rio Colorado potash solution min-ing project in Mendoza, Argentina, is bud-geted at $611 million during 2013. The project has an estimated nominal capacity of 4.3 million mt/y of potash and is scheduled to start up during the second half of 2014.

Vale’s 2013 R&D budget includes $382 million for mineral exploration; $465 million for conceptual, pre-feasibili-ty and feasibility studies; and $206 million for research into new processes, technolog-ical innovation and adaptation. The explo-ration program will continue to have a glob-al reach, with efforts in the Americas, Africa, Asia, and Australasia but within fewer countries than in the recent past.

Iron ore and nickel, given Vale’s very large deposits, are the main priorities for its brownfield exploration, which accounts for 41% of its planned explo-ration expenditures. Greenfield explo-ration, with 59% of the budget, will focus on finding copper deposits.

Vale Asset Write Downs:Vale reported on December 20, 2012, that it would rec-ognize a fourth-quarter impairment charge before tax of $4.2 billion against its Onça Puma ferronickel operations in Pará, Brazil, and its 22% stake in Norwegian aluminum producer HYDRO ASA.

At Onça Puma, problems with the two furnaces brought ferronickel production to a halt in June 2012. After analyzing the problems, Vale decided to rebuild one of the furnaces at an estimated cost of $188 million in 2013 and plans to start it up in the fourth quarter of 2013.

“Given this event and in face of the cur-rent market environment for ferronickel, the valuation of Onça Puma determined the need to recognize an impairment charge before tax of $2.848 billion. The book value of Onça Puma was $3.778 billion as of September 30, 2012,” the Vale statement said.

Regarding HYDRO, the downward vola-tility of aluminum prices and the macroeco-nomic uncertainties about the European economy reduced the market value of Vale’s stake in the company to a level below the book value of its investment. Based on HYDRO share prices at September 30, 2012, Vale recognized an impairment charge before tax of $1.3 billion.

The two impairments will not have any cash flow impact and will be treated as exceptional items.

As featured in Womp 2013 Vol 01 -