Vale SA (VALE3) received a preliminary environmental license for its $8 billion project to double output at Carajas, the world’s largest iron-ore mine, in northern Brazil.
The Serra Sul project will add 90 million metric tons of capacity, about the same as current installations at Carajas are capable of producing, the Rio de Janeiro-based company said in a regulatory filing today. The unit, slated to start operations in the second half of 2016, includes a mine and a mill to process the mineral.
The world’s biggest iron-ore producer received the permit at a time Chief Executive Officer Murilo Ferreira is reviewing a $21.4 billion investment plan as economic growth in China, Vale’s biggest buyer, is forecast to slow. The project will allow Vale to boost total output 30 percent, while cutting costs and improving the average quality of its ore, Itau BBA’s Marcos Assumpcao said today.
“The granting of the environmental license for the Serra Sul project reduces investor concerns regarding Vale’s growth prospects,” Assumpcao, a Sao Paulo-based analyst at Itau, said in a note to clients. It’s “a positive trigger for Vale.”
Vale will invest 16.5 billion reais ($7.9 billion) to develop the mine and 23.5 billion to build a railway and a port, Ferreira said on a conference call with journalists today. The addition of the Serra Sul mine will help Vale boost its iron-ore production to 230,000 tons a year by 2017, he said.
Serra Sul will increase Vale’s market value by about 10 percent, or $10 billion, Assumpcao said.
Vale may sell bonds to help finance the project, Ferreira said. The project will produce high-grade ore with an average 66.5 percent iron content, the company said.
Vale dropped 0.2 percent to close at 38.84 reais in Sao Paulo. The shares have climbed 2.7 percent this year, compared with a 6.4 decline in Brazil’s benchmark Bovespa index.
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