OREANDA-NEWS. November 7, 2011. As Brazil's Vale takes on bigger greenfield mining projects, especially overseas, it is pouring USD 550 million by the end of 2012 from its vast profits into a non-profit global research initiative to facilitate the miner's expanding reach over the iron ore, metals, coal and fertilizer businesses.

The aim is to hire 100 world-class researchers, 60 by the end of 2012, from a team of 11 Vale has already secured, and fund as many as 500 PhD and masters-level studies, said Luiz Mello, a leading academic that now serves as executive director of Vale Technology Institute (ITV).

The 2009-founded institute alongside work of in-house organizations such as the Ferrous Metals Technology Center (CTF) in Belo Horizonte will help deploy best practice techniques in mining and logistics for coal, iron ore, nickel and other metals, he explained in an interview Wednesday in London.

"The world is moving from higher-grade easier to access ores to harder to mine resources and to new techniques to beneficiate ores," Mello said, citing advancements to achieve longer mine lives than initially expected. "I expect incremental innovation with small advancements to continue," he said.

Improving pelletization to ensure a lower cost process and a better furnace product able to withstand environments in transportation to the final point of use is one area he flagged. Vale expects grants to universities including those in Minas Gerais state, the birthplace of Brazilian iron ore mining, will complement its own research to drive further advances in extraction and processing of iron ore and for pig iron making, such as under Vale's Tecnored program.

The initiative seeks to bankroll research for best use of water and minimizing other impacts to the environment, studies in future energy and commodity market opportunities, and for tracking changes to global climates, Mello said. Study related to palm trees and its impact on biodiesel output, and extracting gas from coal seams are two such areas.

Environmental licensing

The institute's aims predates Vale's recent drive to push environment planning at the top of its agenda to help prevent delays in permitting to ensure it can meet allocated capex budgets and project development schedules.

Vale in June announced a cut to its annual iron ore output target for2015 to 469 million mt from prior guidance of 522 million mt on permitting delays. It produced 297 million mt in 2010.

Vale's project pipeline has consequently been put under review, including its 90 million mt Serra Sul (S11D mine) iron ore expansion in Carajas earmarked for a 2014 start.

Vale said in its latest quarterly earnings last week that environmental licensing "has become the main risk factor in project development," and it now has several initiatives to improve project development from environmental licensing until transition to the operational phase.

"These projects may be too early to see direct benefits as the timeframe for ITV is longer than for these projects alone," he said. "But, for example, if we can show in environmental licensing that we have state of the art technology to decrease water consumption this will be reassuring, and good for our reputation in future."

Vale's group capex excluding acquisitions in the first nine months of2011 of USD 11.3 billion is "still largely below budget...due to delays in environmental licensing and the tightness in labor, equipment and engineering services supply," the company said. The delays put pressure on Vale meeting its USD 24 billion capital expenditure budget for the year.

Research partnerships with MIT, China

ITV seeks to be a central point of managing new research particularly through partnerships with institutions in Brazil and across the world in awarding grants.

Mello described ITV as performing a hybrid centralized and decentralized role. The company has already spent USD 250 million since 2009 when the institute was founded, on top of Vale's own research funded by businessunits.

Committee members are made up of top company executives, such as Eduardo Ledsham, executive director for exploration, energy and projects, who oversee their own research programs in metals, planned to enable wider relevance and influence across ITV's research footprint for the core units.

ITV has already entered into 97 research and development agreements including with universities such as Massachusetts Institute of Tech (MIT), Central South University in Changsha, China, and with others in Brazil, Europe and Indonesia.

Vale is investing Reais 350 million (USD 203 million) in two research centers in Minas Gerais and Para states as the first of several under ITV intended for development of which the new PhD recruits will staff.

The projects ITV funds may be directly and indirectly beneficial to Vale, but as Mello explains, the scale of Vale's multi-billion dollar projects in little developed areas such as Para state, northern Brazil, and in Mozambique, requires the mining giant to be responsible for consequences to the wider community.

It wants to play a role in supporting the future of local economies where Vale operates. ITV has already funded fields as diverse as stem cell research into the fat of water buffalo, which herd in Para state, home to its main Carajas iron ore mine.