World's Worst Currency Is Boon to Vale as Project Costs Sink

Updated on
  • The S11D project is expected to be delivered on time
  • Project will add 90 million tons of capacity to global supply

Brazil’s plunging currency is saving the world’s biggest iron-ore miner billions of dollars in project costs.

Vale SA expects its S11D project in northern Brazil to be delivered on time at a cost of $14.4 billion, 27 percent below an initial budget, it said in a presentation posted on its website Wednesday.

In December, Vale lowered the original $19.7 billion estimate for the project to a range of $16 billion to $17 billion, citing currency depreciation and a change in scope. Since then, the real has become the worst-performing major currency, losing another 29 percent against the dollar, as the economy faces its longest recession since the 1930s.

While that’s made it harder for companies that make money in local currency to keep up with interest payments on foreign loans, it’s boosting revenue for exporters and pushing down their costs in dollar terms.

The S11D project -- the iron-ore industry’s largest and, according to Vale, the most profitable -- will add 90 million metric tons of annual capacity to global supply. It looms as another strain on an iron-ore market buffeted by a series of expansions by Vale and its main rivals in Australia at a time of slowing Chinese growth.

The mine and plant was 75 percent complete as of September, it said. In an interview last month, Chief Financial Officer Luciano Siani said the project was on track to beat a targeted December 2016 start date. Vale, which plans to use a truckless mining system, intends to control the speed at which it hits the market. 

Iron-ore prices are down 31 percent this year, heading for a third straight annual decline. A price index compiled by Metal Bulletin rose 0.1 percent to $49.18 a ton on Wednesday. Vale shares have lost 27 percent this year, in line with a peer-group average. The shares fell 2.2 percent in Sao Paulo on Wednesday.

(Updates with share price in last paragraph.)
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