Brazil's Vale Q2 profit falls 34 pct, beats outlook

(Adds size of profit fall, additional results, analyst estimates)

RIO DE JANEIRO, July 28 (Reuters) - Brazilian mining company Vale SA said on Thursday that second-quarter net income fell 34 percent as provisions for potential losses at its Samarco subsidiary and higher taxes undermined productivity gains.

Vale, the world's largest iron ore producer, reported net income of $1.11 billion in the quarter, beating analyst estimates, compared with $1.68 billion a year earlier, the company said in a statement.

The average estimate of 10 analysts surveyed by Reuters was for net income of $1.03 billion in the quarter.

Net (LSE: 0LN0.L - news) sales, or sales minus sales taxes, also fell 5 percent to $6.63 billion.

Vale, though, managed to cut its operational costs, allowing it to boost profit from mining and other operations by 29 percent to $1.27 billion.

This helped lift adjusted income before interest, taxes, depreciation and amortization, or adjusted EBITDA, 8 percent to $2.38 billion. Adjusted EBITDA does not include non-recurring costs and gains or losses from the sale of assets. It does include dividends from related companies.

Improved operational results were undermined by the provision of $1.04 billion against potential losses from a deadly tailings-dam burst at Samarco Mineração SA in November. Samarco is a 50-50 joint venture that Vale owns with Australia's BHP Billiton Ltd.

Profit was also reduced by higher social and income taxes. (Reporting by Jeb Blount and Guillermo Parra-Bernal; Editing by Adrian Croft)