October 12, 2008

Vale raises Onca Puma nickel project CAPEX by 60%

Brazilian mining giant Vale said that rising costs and impact from gains in the local currency made it lift the total investment estimate in the Onca Puma nickel project by about 60% to USD 2.3 billion.

Mr Roberto Castello Branco investor relations director of Vale said that a third of nearly USD 900 million in the CAPEX increase for the Amazon project stemmed from the currency effect and the rest from rising costs of equipment and electromechanical assembly. He added that "This cost increase is in line with the environment the mining industry is facing, where currency volatility and input prices are rising."

Onca Puma, with a planned 58,000 tonne annual ferronickel capacity, is scheduled to start producing in the first half of 2009. Investment this year should total USD 581 million.

Vale put the budget estimate for Vermelho nickel mine in Brazil at USD 1.91 billion up from USD 1.42 billion estimated a year ago, but Mr Branco said the project was still being structured for the board's approval and the numbers were preliminary. He said that Goro and Onca Puma's coming on stream would help the development of Vermelho, which should start producing only in 2012, as Vale will acquire more expertise in nickel. Vale became a major nickel miner through the acquisition in 2006 of Canada's Inco.

Mr Branco said that Vale had several laterite and limonite nickel projects in the pipeline for the next decade, including in Indonesia. Referring to iron ore, Vale's core business, he said that it maintained its projection for a key Carajas mine expansion project to be delivered in the second half of 2009. Carajas has high quality ore reserves and additional capacity there will cut Vale's operating costs for iron ore.