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UPDATE 3-Brazil's Vale Q3 net falls 66 pct; Guinea mine on hold

* Vale profit hurt by slowing economy, iron ore price

* Net income in quarter worse than expectations

* Vale sidelines $5 bln Simandou iron project in Guinea

* Company considering asset sales as economy cools

(Adds financial detail, investment cuts, Nickel project problems, asset sale outlook)

RIO DE JANEIRO, Oct 24 (Reuters) - Brazil's Vale SA , the world's No. 2 mining company, said on Wednesday that third-quarter profit fell 66 percent compared with a year earlier, prompting the company to delay major mining projects and consider the sale of assets.

The result, largely due to tumbling iron ore prices, was slightly worse than the average of analysts' expectations. Among investments now on hold is Vale's $5 billion Simandou iron ore project in the West African country of Guinea.

Net income in the three months ending Sept. 30 was $1.67 billion, compared with $4.94 billion a year earlier. Vale is the world's largest producer of iron ore, the main ingredient in steel.

The average profit estimate of 19 analysts surveyed by Reuters was $1.92 billion. Profit fell 37 percent compared with the second quarter.

``Vale's performance in the third quarter reflected the challenges resulting from volatility of falling prices that happened as a result of the slowing of growth in the world economy,'' the company said in a statement.

Falling prices and weak demand in China, Vale's largest market, have led the Rio de Janeiro-based company to delay spending, close operations and consider cuts to investments and dividends. The third-quarter result was the worst in nearly three years.

Net sales, or total sales minus sales taxes, fell 34 percent to $10.7 billion. The average net sales estimate in the survey was $10.4 billion.

Iron ore , responsible for about 90 percent of Vale's profit, averaged $112.12 a tonne in the quarter, 36 percent less than a year earlier. The price of iron ore fell to a three-year low of $86.70 a tonne on Sept. 5. Vale's iron ore output fell 4.5 percent from the third quarter last year.

The expected sales drop hurt the outlook for earnings before interest, taxes, depreciation and amortization, or EBITDA, a gauge of operational profitability. EBITDA adjusted for non-recurring items fell 62 percent to 3.74 billion reais, the statement said, more than analysts expected.

The average analyst estimate was for EBITDA to fall 58 percent.

EBITDA as a percentage of sales fell to 35 percent from 59 percent a year ago, a sign costs are rising faster than revenue. One of the reasons is because the company is spending on new projects that have yet to provide revenue, Banco Itau BBA mining company analysts Marcos Assumpção and André Pinheiro said in a report on Oct. 19.

NICKEL PROJECTS FALTER

Investments in nickel, used to make steel rust resistant, has been one of the largest drags on profit. In recent months Vale nickel mines in Canada suffered shutdowns. Its Goro nickel cobalt mine on the French Pacific island of New Caledonia, and Onca Puma, in Brazil's Amazon, are producing far below expected levels because of processing problems.

Equipment and processing at Goro are so troubled that Sumitomo Metal Mining Co and Mitsui & Co said they will cut their joint investment with Vale in New Caledonia to 14.5 percent from 21 percent.

Goro, which was supposed to produce 60,000 tonnes of nickel a year, making it the world's largest nickel mine, produced no nickel or cobalt in the third quarter.

Vale, which hoped that nickel would reduce its dependence on iron ore, has spent more than $10 billion on nickel expansion in recent years with little result.

Vale's total investments fell 5.3 percent to $4.29 billion from a year earlier and were little changed from the second quarter. Weak sales and falling operational profitability could result in bigger spending cuts when a review of investment plans is announced in December.

Vale is now considering selling businesses to concentrate on projects such as its giant Serra Sul iron ore mine in Brazil's Amazon and massive Moatize coal project in Mozambique as the world economy enters a slower phase, Vale said.

``The sale of assets that do not add value will improve the allocation of capital and free up funds to help finance world class investments,'' the company said.

GUINEA MINE ON HOLD

Chief Executive Murilo Ferreira has already put investments in Canada and Brazil on hold. On Oct. 4 Vale said it was suspending operations at three Brazilian iron ore pellet plants.

On Wednesday, the company added the Simandou high-grade iron ore deposit to the list of projects on hold.

The $1.3 billion Zogota mine at Simandou was to have started output by year end, but Vale said the mine's scope and timetable are now under review and gave no startup date.

Reuters reported on Sept. 26 that the company might suspend the project.

By putting off investment at Zogota, Vale will save $131 million in 2012, Vale said. In 2012, Vale agreed to pay $2.5 billion for 51 percent of the Simandou project from London-based Israeli businessman Beny Steinmetz's BSG Resources, but the overthrow of the military government and public concern about foreign investment caught Vale off guard.

Profit was also hurt by the company's decision to set aside about $542 million for the possible payment of back royalties in a dispute with Brazil's government.

Vale preferred shares, the company's most-traded class of stock, fell 0.8 percent to 34.29 reais on the Sao Paulo BM&FBovespa exchange on Wednesday before the results were announced.

(Additional reporting by Sabrina Lorenzi; Editing by Jim Marshall, Gary Hill and Ed Davies)