Brazilian miner Vale's iron ore fines production is likely to be reduced by a net 64 million mt in 2019 from the levels that were expected before the Brumadinho dam failure on January 25, BMO Capital Markets London-based analyst Edward Sterck said Monday.
This figure comprises various production curtailments, including at the company's Timbopeba mine, where a production halt was announced by Vale late Friday.
As both the Timbopeba and Brucutu mines may be expected to come back on stream in the final quarter of 2019 following curtailments due to civil actions, the company's net production loss compared with pre-Brumadinho expectations is likely to fall to 39 million mt in 2020 and to 36 million mt in 2021, Sterck said in a note Monday.
In addition to the expected restart at Timbopeba, which has a capacity of 12.8 million mt/year, and that of the 30 million mt/year Brucutu mine, the company's stoppages may be alleviated by some other restarts of around 3 million mt/year to 4 million mt/year in the company's Southeastern system, the analyst added in an interview.
The restarts from the Southeastern system may be stepped up to produce 14 million mt in 2020 and 15 million mt in 2021, according to the analyst's estimates.
"Nonetheless, additional materials from this system will reduce the average received prices as Vale has been reducing output from the Southern and the Southeastern systems during the last few years in order to increase the average quality of its products and maximize the received prices," Sterck said.
After Friday's announcement of a suspension of operations at Timbopeba in the Southeastern system, BMO is assuming a cut of 7.8 million mt from this asset this year. BMO understands from Vale filings that Timbopeba is a beneficiation plant processing materials from Fabric Nova mine and that its own open pit mine has not operated for many years.
Following the most recent curtailment announcements, BMO expects Vale to produce 336 million mt of iron ore fines in 2019, compared with expectations of around 400 million mt before the January dam accident.
BMO estimates Vale's fines output at 379 million mt in 2020 and 378 million mt in 2021.
BMO recently increased its estimate for the average 62% Fe delivered China iron ore fines price this year to $78/mt, up $10/mt on its previous forecast.
Vale "will make more money as a result of these closures due to the higher iron ore prices, although they will incur extra costs," Sterck said.
