Vale Plans to Invest $21.4 Billion in 2012 Amid ‘Hurdles’

Vale SA, the world’s largest iron-ore producer, plans to invest $21.4 billion on mining projects in 2012 after failing to meet spending targets this year.

The Rio de Janeiro-based company will invest $12.95 billion on project execution, $2.4 billion on research and development and $6.1 billion on sustaining existing operations, it said in a regulatory filing. Iron-ore output will be 312 million metric tons, little changed from this year’s expected 311 million tons.

Nickel production is expected to be 300,000 tons, while copper output will be about 340,000 tons. The company will also produce 16.6 million tons of coal and 650,000 tons of potash next year, it said in the filing.

Chief Executive Officer Murilo Ferreira is reviewing the company’s projects amid delays and cost overruns. He said Oct. 27 this year’s spending will be between $18.5 billion and $19 billion, down from the $24 billion originally planned.

“Vale faces some hurdles for the implementation of its portfolio of world-class projects: environmental licensing, human capital constraints, cost pressures and longer lead times,” Vale said in today’s statement.

The company’s previous spending plan had “very aggressive targets” for its projects and anything that makes them seem “more credible and realistic” will increase shareholder confidence, said Rene Kleyweg, an equity analyst at UBS AG.

‘Enhance Credibility’

“The message is that they want to enhance credibility in the marketplace,” Kleyweg said in a Nov. 25 telephone interview from London. “That creates a very compelling environment where our main concerns about capital discipline and political influence are reduced by returning money to shareholders.”

Vale said today that the start of the $8.04 billion Carajas Serra Sul mine expansion will be delayed for two years to the second half of 2016. That follows at least five other projects delayed by the company during 2011, including its $5.92 billion Rio Colorado potash project in Argentina, its nickel and copper Totten mine in Canada and its Salobo copper mine in Brazil.

Some of Vale’s projects approved by its board may be delayed further because of a lack of workers and environmental permits, Chief Financial Officer Tito Martins told investors during a presentation in New York today.

Vale rose 1.3 percent to 39.50 reais in Sao Paulo today. The stock has fallen about 19 percent during 2011, in line with the decline of the Brazilian benchmark Bovespa Index. BHP Billiton Ltd., the world’s biggest mining company, lost 23 percent in Melbourne during the same period.

Rio Tinto

Rio Tinto Group, the world’s second largest iron-ore producer after Vale, expects to increase capital spending by 17 percent next year to at least $14 billion, the company said today in a webcast presentation. London-based Rio raised its iron ore expansion target for its Australian operations by 20 million metric tons a year to 353 million tons to meet demand.

Vale paid a record $12 billion to shareholders through dividends and share buybacks this year, boosting capital returns after postponing its investment plan. The company is forecast to post a record $25.7 billion in net income excluding some items during 2011, 49 percent more than the $17.3 billion of last year, according to 15 analyst estimates in a Bloomberg survey.

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