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Vale increases 2010 investment budget by 43% to $12.9 billion

Vale increases 2010 investment budget by 43% to $12.9 billion

(Dorothy Kosich, Responding to pressure from Brazilian President Luiz Iancio Lula da Silva, Brazilian über iron ore miner Vale said late Monday it will increase its 2010 investment by 43% to US$12.9 billion.

After meeting with Lula earlier in the day, Vale Chief Executive Roger Agnelli told the news media, "It's the largest investment in Brazil ever carried out by a private company."

Lula and other government leaders have criticized Vale in recent months for not investing enough in Brazil to help strengthen the nation's economy, fueling rumors published in the Brazilian news media that the President would seek to oust Agnelli during Monday's meeting.

Brazil's Mines and Energy Minister Edison Lobao has already proposed Vale pay more royalties.  Analysts have said an increase in iron ore royalties could hurt Vale's international competitiveness. The Brazilian Government is also considering creating an export tax on iron ore.  New taxes would make it more difficult for Vale to expand into China because its iron ore has to compete with Australian iron ore in the Chinese market.

Lula has recently urged Vale to process more of its iron ore into steel domestically to increase Brazil's exports of higher-value products. In an interview last month with Valor Economica, Lula said, "I've insisted, systematically, that Vale build steelworkers in Brazil. Vale can no longer afford the luxury of just being an iron-ore exporter."

Without a domestic increase in steelmaking capacity, Brazil may have to start importing steel from China. Lobao has publicly come out in favor of Vale becoming an international steel producer to compete with ArcelorMittal, one of Vale's largest iron ore customers.

Lula has also encouraged Vale to increase its Colombian investments after a recent meeting between the Presidents of Brazil and Colombia to seek ways to double bilateral trade next year.

After the meeting between Agnelli and Lula Monday, Vale announced that its board of directors had approved a 29.3% increase in the capex budget for 2010 to $12.9 billion. The company said 76.6% of the budget is allocated to R&D and greenfield and brownfield project execution.

‘Although iron ore and nickel will continue to be our main businesses, we plan to boost the production capacity of copper, coal and fertilizers, creating a more diversified portfolio of world-class assets," the company said in a news release Monday. "Give the current project pipeline, we expect to reach the following production flows in 2014: 450 million metric tons of iron ore, 380,000 metric tons of nickel, 650,000 metric tons of copper, 30 million metric tons of coal, 3.1 million metric tons of potash and 6.6 million metric tons of phosphate rock."

"To enhance the competitiveness of our operations, we will continue to invest a sizeable amount of funds in our railroads, maritime terminals, shipping and power generation," Vale added.

Vale intends to spend US$621 million on global mineral exploration, $488 million for studies to develop existing mineral deposits, and $119 million in new processes, technology innovation and adaption.

Next year, Vale intends to invest $4.1 billion in non-ferrous minerals, while ferrous minerals will be allocated $3.4 billion in expenditures. Another $2.66 million will be allocated to logistics in which the bulk will be dedicated to supporting Vale's iron ore business.

The company also plans to spend $892 million in coal and only $343 million in steel projects next year, despite the Brazilian Government's wishes to expand the domestic steel industry.

Nearly $8.2 billion or 63.3% of the 2010 capex budget will be invested in Brazil, while $1.15 billion will be invested in Canada. The 2010 program also involves investments in Argentina, Australia, Chile, China, Indonesia, Malaysia, Mozambique, Oman and Peru, among other nations.

While Vale intends to spend $829 million in environmental protection and conservation next year, the company has only allocated $170 million for corporate social responsibility projects.

Vale stressed that the future of its iron ore capacity relies on the Carajas mineral province in Brazil. Investment plans include a capacity expansion of 176 million tonnes to be delivered over the next five years.

Among the company's nickel projects are Goro in New Caledonia, Onca Puma in Brazil, Totten in Sudbury and a nickel processing facility at the Long-Harbour plant sought by the Provincial Government of Newfoundland and Labrador.

Three copper projects are now being developed by Vale in Chile and Zambia with four other projects planned in the Carajas district over the next few years.  Meanwhile coal mines are being developed or ramped up in Mozambique and Queensland, Australia.

Vale is also building two hydroelectric power plants in Indonesia and Brazil, as well as in biodiesel through a Brazilian consortium aimed at fueling locomotives in the Carajas railroad and the bulk equipment of the Carajas mines.

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