Iron Ore
Despite headwinds, Brazilian mining’s engine continues roaring
Iron ore prices suffered a 24.8% fall due to lower demand from China. As the dominant mineral produced in Brazil, comprising 61.4% of all minerals produced in the country according to IBRAM, any change in iron ore prices has a dramatic impact on the Brazilian mining industry. Indeed, in 2021 Brazil exported 358 million tons (t) of iron ore with a total value of US$44.6 billion, while in 2022, the country exported 3.79% less iron ore, at 344.1 million t, but experienced a 35.2% drop in value, with iron ore exports of only US$28.9 million. Lower ore prices are not, however, stymying expansion: Approximately US$17 billion is expected to be invested in iron ore production in Brazil between 2023 and 2027.
Vale, which celebrated its 80th anniversary in 2022, continues to drive iron ore production in Brazil, with a recent US$2.7 billion investment to expand iron ore production in the Amazon. At the company’s operations in the mountains of Carajas, Vale intends to add 30 million metric tons of capacity. It is part of the company’s reorientation away from mature, low-grade mines in the south, part of their value-over-volume focus. “This is part of our strategy to expand operations in Northern Brazil, especially the S11D mine, where we have the best reserves of 65% iron content and most competitive in cost,” said Vale’s CEO Eduardo Bartolomeo, noting the demand for richer ore: “The higher iron content in the ore extracted from underneath Carajas’ rich topsoil helps reduce the amount of fossil fuels needed to make steel as the world strives to decarbonize.”
"We have divided our production process into two steps to increase efficiency, reduce costs, reduce our water consumption, and eliminate the need for tailings dams."
Fabio Assumpção, Mining operations, Logistics, and Sales Director, 3A Mining
3A Mining’s project entered production in December 2022, and has the installed capacity to produce 1.5 million t/y of iron ore, although it is limited to 300,000 t/y until it receives its definitive license. Fabio Assumpção, the executive director of 3A, is hampered by the logistics costs of transporting iron ore to steel producers. He called for further investment in logistics for the transport of raw materials from blast furnaces in other regions to Minas Gerais and the ports, noting: “Today, most of our costs are logistical, and considering the current product prices (pig iron around $400 on the international market), even with a very low production cost, it is not possible to generate good margins.”
Although logistics costs are high, the industry is seeing targeted investment to expand logistics infrastructure, including a significant investment by Vale in the Carajás railway, and new port and railroad projects in Bahia by Bamin. Júlio Nery, Director of Sustainability and Regulatory Affairs at IBRAM said, “For iron ore, our logistics infrastructure is quite competitive, probably better than for other minerals. We have three different railways, two out of Minas Gerais and one out of Carajás, and very good ports for iron ore export.”
There is significant interest in expansion to meet future demand. Assumpção stated: “I believe that the direct cargo to blast furnaces consumption in the region is around 10 to 15 million tons per year (considering the installed capacity) and due to that, and the current availability of products, more investments in logistics will be necessary.”
Samarco, which ceased operations in 2015 after the Fundão dam failure, resumed operations in late 2020, and is currently operating at around 30% capacity. The company obtained approvals in June 2023 for a project that will more than double production by 2025, including the development of a new filtration facility. Rodrigo Vilela, CEO, noted: “Despite operating at around 30% capacity, our production costs are competitive, and we have been able to achieve good results due to positive iron ore pellet prices.”
Samarco is on track to continue increasing production, while simultaneously focusing on remediation efforts after the Fundão dam collapse in 2015. Carla Wilson, general manager of BHP Brasil, a shareholder in Samarco, described the forward-looking investment in the company: “We have recently approved R$1.3 billion investment to restart a second concentrator, which will increase pellet production capacity to approximately 16 million t/y (100% basis).”
"Brazil has excellent and competitive iron ore deposits and a good logistics system. We have international class ports, railways, and heavy-haul highways."
Jayme Nicolato, CEO, Mineração Morro de Ipê & Porto Sudeste
Cedro Mineração, founded only four years ago, initially produced 3 million t/y iron pellets from Extrativa Mineral, a mine in Belo Horizonte, and will incrase production to 5 million t/y in 2023 with the start of operation at a new mine in Mariana. As an independent producer that sells directly to producers such as Vale, Cedro’s capex is dependent on market conditions. José Carlos Martins, senior business advisor at Cedro, noted that Brazil’s dominance in iron ore benefits companies of all size: “The infrastructure in the country is very well developed because the big mining companies own the infrastructure to operate, and other smaller companies can benefit as long as they have long-term contracts and commitments with the bigger producers.”
However, excessive regulation and long delays in licensing have been a scourge to development across the industry. Martins said: “Since the tailings accidents in 2015 and 2019, it has become difficult to significantly increase iron ore production.”
"I believe that medium and small companies have an advantage over large producers, as small operations have a much lower impact on the environment."
José Carlos Martins, Senior Business Advisor, Cedro Mineração
70% of Brazilian iron ore is exported to Asia, and particularly to China. China’s outlook for iron ore has been challenging recently. Jayme Nicolato, CEO of Mineração Morro de Ipe & Porto Sudeste, explained: “China has an installed capacity of 1.2 billion t/y. Therefore, any challenges in the Chinese economy will impact everybody.”
The iron ore industry is dominated by a handful of major players, but to dramatically increase development and generate further tax money and employment, encouraging the development of new juniors is essential. Fomento do Brasil, a junior iron-ore company that is part of Fomento Group, is advancing Ferro Potiguar, a project expecting to produce 1.5 million t/y of iron-ore pellet. Rodrigo Santos, the general manager, pointed out: “The Ferro Potiguar project will generate more than 2,000 jobs and allow the government to collect around R$1.5 billion in taxes that can be used to build infrastructure and promote development in the municipalities.”
Image courtesy by Vale