* Pellets production soars 264 percent (Recasts, adds details, background)

RIO DE JANEIRO, May 5 (Reuters) - Brazilian miner Vale (VALE.N)(VALE5.SA) said on Wednesday its iron ore production in the first quarter increased 43 percent year-on-year to 69.1 million tonnes as the company restarted operations idled during the financial crisis.

"In the transition toward full capacity, two mines in the Southern System, Jangada and Mar Azul, resumed production during Q1," Vale said in a statement.

The company said the massive Carajas mine began expanding operations at the end of March to add an additional 20 million tonnes per annum of capacity.

Vale said that project was originally seen adding 10 million tonnes per year but that the company doubled the production without affecting costs through increased efficiency.

Iron ore production was up 8.9 percent from the fourth quarter, when unexpected rains and maintenance problems at Carajas cut into output.

First quarter production of iron pellets soared 264 percent versus the same period a year earlier to 10.49 million tonnes.

"Currently, all seven plants of Tubarao, Vargem Grande, Sao Luis and Fabrica are in operation, with a total nominal capacity of 48.0 million tonnes per annum," Vale said.

Production of pellets was hit hard by the financial crisis. China's steel mills, which among the only consistent iron buyers in the wake of the financial crisis, mostly use fines ore rather than pellets.

Pellets are generally higher priced than fines or because they can be put directly in steel-making blast furances while fines ore usually needs additional processing before it can be used for steel.

Total iron ore production in 2009 fell 21 percent to 238 million tonnes as Vale mothballed expensive projects and slashed production across the board in response to the crisis. 

(Reporting by Brian Ellsworth; Editing by Marguerita Choy)

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