(Adds executive quote, analyst comment and share price)
By Alberto Alerigi and Stephen Eisenhammer
SAO PAULO/RIO DE JANEIRO, July 13 (Reuters) - Vale’s head of iron ore said on Monday the Brazilian miner is replacing 25 million tonnes per year of higher-cost iron ore production with new, cheaper tonnes, which should lower Vale’s costs as it battles a slump in the price of iron ore.
Despite removing higher-cost production, Vale is maintaining its 2015 output target of 340 million tonnes, executive Peter Poppinga said on the sidelines of a steel conference in Sao Paulo.
“That is our target. ... We will try to reach 340 million tonnes,” he told reporters.
The news drove Vale’s preferred shares, the company’s most traded stock, up 5 percent.
Analysts at Citi said the comments indicated a potential upside to Vale’s results and lower overall production costs.
“Lower-cost mines are exceeding estimated production allowing for high-cost closures without reducing targets,” Citi analysts Alexander Hacking and Thiago Ojea said in a note.
The market was wrong, however, to interpret Vale’s move as reducing supply in order to balance the iron ore market, which touched an all-time spot price low of $44.10 per tonne last week, analysts at Banco BTG Pactual SA said.
“Vale is not cutting its volumes guidance... so essentially there is no supply and demand impact,” BTG analysts Leonardo Correa and Caio Ribeiro said in a note.
The 25 million tonnes being substituted are from the south system and “a little” from the southeast system in Minas Gerais, as well as from third parties, Poppinga said.
The company later said in a securities filing that the higher-cost production being replaced was between 25 million and 30 million tonnes per year of high-silica iron ore. (Reporting by Alberto Alerigi; and Stephen Eisenhammer,; Editing by Jeffrey Benkoe and Leslie Adler)