Vale Full-Year 2017 Production Review: S11D Ramp-Up Propels Iron Ore Output To Record High

Vale (NYSE: VALE) released its production report for the fourth quarter and full-year 2017 towards the end of last week, with record iron ore production levels the standout takeaway from the report. The company reported production of 366.5 mil metric tons of iron ore in 2017, a 5% year-over-year (Y-o-Y) increase in the production of iron ore fines, mainly driven by the ramp-up of production at the company’s S11D mine. However, iron ore sales dipped by 0.7% despite China’s enhanced demand for high-grade iron ore.

The below figure highlights the key production figures for the company in 2017 along with the anticipated output volumes in the upcoming year. Further details of the company’s production report are summarized in our new interactive platform.

The S11D mine represents one of Vale’s lowest-cost iron ore deposits and the ramp-up of production from the mine will lower average cash costs for the company’s iron ore mining operations. The average cash cost for the S11D is expected to be ~$8/ ton, almost 50% lower than Vale’s current per ton production cost of $15. S11D is anticipated to be at full scale from March 2018 onward and thus would provide a significant cost advantage to the company in 2018.

Apart from iron ore, another significant highlight from Vale’s production report was the company’s declining nickel output. Vale is the world’s largest nickel producer and as explained in our previous article, the company plans to lower its nickel output through the next four years in order to benefit from a future environment of increased nickel prices and additionally to support the company’s ongoing debt-reduction strategy. Nickel output fell by  7% Y-o-Y in 2017 and is expected to decline by another ~9% in 2018.