Iron ore production at Brazilian mining company Vale SA (VALE, VALE5.BR) continued to recover in the third quarter after heavy rains affected production to start 2012, the world's largest producer of the key steelmaking ingredient said late Wednesday.

 

In a regulatory filing ahead of the release of the company's third-quarter earnings results next week, Vale said that the company produced 83.9 million metric tons of iron ore. That was up 4.2% in the second quarter, driven largely by better output at Vale's southeastern Brazil mines that were affected by heavy rains earlier this year.

 

Vale, however, said that it continued to face environmental licensing issues that have affected expansion of its massive Carajas mining complex in northern Brazil. The issues caused Vale to continue "mining older deposits, which resulted in lower productivity, lower iron content and higher costs," the company said.

 

But Vale said that the situation was improving, with the initial environmental license approval to develop the Carajas S11D project and the operating license for the N5 Sul mine at Carajas. The N5 Sul mine, which contains reserves of more than 1 billion tons of iron ore, is expected to start production by the end of the year, Vale said. Output at N5 Sul should reach about 25% of Carajas's current output of about 100 million tons per year by 2013, the company said.

 

Vale's pellet operations were feeling the affect of the sluggish global economy, which has caused a shift by steelmakers away from using blast-furnace pellets, Vale said. Vale's pellet output was 1.4% higher quarter-on-quarter in the third quarter, at 14.5 million tons, the company said.

 

But Vale has temporarily halted pellet production at three plants and slowed down output at several others during the quarter in response to the shift, the company said. Vale has instead increased output of sinter feed, which steelmakers consider a more economical and environmentally friendly alternative to pellets.

 

Output of coking coal slipped during the quarter as the company slowed down the ramp-up at the Moatize project in Mozambique, the company said. Vale produced 1.2 million tons of coking coal and 524,000 tons of thermal coal in the third quarter. That was down from record coking coal output of 1.3 million tons in the second quarter, while thermal coal production was at 1.2 million tons in the same period.

 

Ongoing troubles at Vale's nickel operations continued to undercut output at the world's No. 2 nickel producer in the third quarter, the company said. Vale produced 49,000 tons of nickel, down nearly 20% from the second quarter. Vale said that the slide in nickel production was related to programmed maintenance at the Sudbury and Thompson mines in Canada, as well as operational troubles at the Onca Puma mine in Brazil and New Caledonia's VNC facility.

 

Nickel production at the company's VNC project in New Caledonia remained shut down after an accident in May at the operation's acid plant. The company is completing repairs at the plant and expects to start production in the fourth quarter, Vale said.

 

Production at the Onca Puma nickel project in Brazil also remained shuttered during the quarter as the company continued to evaluate troubles with two ovens, which were shut down in May and June. Vale does not yet have a timeline for when output at Onca Puma will be restarted, but said that operations will remain halted in the fourth quarter.

 

Fertilizer production advanced quarter-on-quarter in the third quarter as the company improved mining infrastructure and ramped up output, Vale said. Potassium output rose 9.5% from the second quarter, to 141,000 tons, while phosphate production advanced 3.1%, to 2.08 million tons, Vale said. Phosphate output once again set a fresh record in the quarter, reflecting the ramp up of production at the Bayovar project in Peru, Vale said. (Source: MarketWatch)