By Paul Kiernan
RIO DE JANEIRO--Brazilian mining company Vale SA (VALE,
VALE5.BR) said Tuesday it has secured a 6.2 billion real ($2.8
billion) financing package from the National Bank for Economic and
Social Development, or BNDES, for its massive iron-ore project in
the Carajas region of the Amazon.
Vale should receive the funds within three years and will have
10 years to pay them back. Additional terms of the financing
weren't disclosed.
The new contract comes in addition to some BRL12 billion in
existing credit lines and financing packages that Vale already has
with BNDES, the company said.
The world's largest producer of iron ore has one of the most
robust investment budgets among companies in both Brazil and the
global mining industry, as it seeks to cash in its vast reserves at
a time of relatively high prices and growing demand from China's
steel industry.
Vale has some of the highest-grade reserves of iron ore in the
world at Carajas, and prices for the commodity have been supported
for years by China's reliance on costly, low-grade domestic
production.
To get that ore out of the ground, Vale plans to invest $8.09
billion to open a new mining block, known as S11D, at Carajas. To
bring millions of tons of ore per month to megaships bound for
China and elsewhere, the company needs to spend another $11.58
billion expanding its railroads and port capacity in northern
Brazil.
But when all is said and done, Vale says, it will be able to
produce an additional 90 million metric tons of iron ore per year
at Carajas--where capacity currently stands at about 140 million
tons--for a cash cost of $15 per ton. The company last year churned
out 311 million tons of iron ore across Brazil, selling it for an
average realized price of $107.43 per ton.
Vale executives say China's high-cost mines and need to continue
growing its steel output should prevent ore prices from falling
significantly below that.
The company's shares, however, have fallen more than 45% since
their 2011 peak, weighed down by slowing economic growth in China
and a downturn in the global mining industry. Shares recently
traded 4.8% lower at BRL27.82 amid a broader selloff in Brazil's
stock market.
BNDES, an arm of the Brazilian government that gives subsidized
financing to local companies and projects, is one of the biggest
shareholders in Vale, which was privatized in the late 1990s.
"The BNDES's support will contribute to the generation of 30,000
jobs at the peak of construction and an significant increase in ore
exports, with a positive impact on the Brazilian trade balance,"
the BNDES said.
Write to Paul Kiernan at paul.kiernan@dowjones.com
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