Brazil OKs Amazon iron ore mining project

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RIO DE JANEIRO, July 6 (UPI) -- Brazil is going ahead with a controversial iron ore mining development in its Amazon region as it weighs export potential for what may become one of the largest mines in the country.

Digging through vast reserves of iron ore in the Amazonian forest region was debated for long, mainly because of potential environmental costs, but developer Vale Doce received the green light this week for the project.

The "environmental license" will allow Vale to tap into a mine that is said to hold $1 trillion of iron ore reserves at current prices.

Compared to the deposits' cash potential, the cost of developing the mine appears small, but the $8 billion price tag is also based on current estimates.

The mine will start operating in 2016 and will likely produce 90 million tons a year of iron ore, Vale data indicated.

The S11D mine, formerly known as Serra Sul, will be an extension of Vale's existing Carajas complex, one of the company's major assets that make it the world's largest iron ore producer.

Brazil's iron ore exports have fluctuated in recent months, partly in response to the dollar-real parity that makes some of Brazilian exports less attractive because of the overvalued national currency. Recent monetary interventions by the central bank have helped to reverse the trends in exports, which showed a decline, but investor interest in Brazilian iron ore development remains strong.

Iron ore exports from Latin America's largest economy have also been hurt by weak demand from China and adverse weather conditions that disrupted work at Brazilian mines earlier in 2012.

China accounts for 60 percent of the world market for iron ore but weak demand from Chinese factories has played a part in depressing iron ore exports from Brazil and other countries.

Vale produces about 300 million tons a year of iron ore and the planned development of the new complex is expected to boost that capacity.

Vale says development of S11D "extension" to the existing Carajas complex will help it maintain production and export targets, replenishing output known to be declining at other, older mines. Overall global demand for iron ore remains strong, despite fluctuations in China, and Vale faces competition from Australian rivals Billiton and Rio Tinto as well as up and coming producers in Africa, Asia and Latin America.

Vale says it still needs to build up and find new reserves of iron ore reserves to stay on top of the competition.

The company is also investing about $4 billion to improve production from older mines in southern Brazil.