MercoPress. South Atlantic News Agency

Argentine macroeconomic context forces huge 6bn potash project suspension

The project was 45% finished but Brazil’s Vale is streamlining the corporation

Brazilian mining giant Vale announced on Monday it has suspended the 6 billion dollars Río Colorado potash project in Mendoza province. The mining, main producer of iron had halted the work on the project back in December, awaiting tax breaks for the project to help to compensate for soaring costs related to inflation and exchange rates.

Vale reported the Argentina government that it “has pulled out of the Río Colorado project, taking into account that under the current macro-economic context, the economic basis of the project is not aligned with Vale's commitment.”

Work at Rio Colorado, billed to make Argentina the third- largest exporter of the crop nutrient, was suspended in January so Vale could reassess the project in light of inflation, exchange rate fluctuations and demands from provinces, Chief Executive Officer Murilo Ferreira said Feb. 28. Vale sought tax breaks and partners to make the venture more profitable.

The project’s economics “are not in line with Vale’s commitment to discipline in capital allocation and value creation,” the company said in Monday’s statement. “Vale will keep honouring the commitments related to the concessions and searching alternatives that enhance the economics of the project, to then evaluate its resumption.”

The company said it will give preference to the project’s current employees if construction resumes.

Ferreira, who took over as CEO in May 2011, is selling assets and cutting spending after a two-year metals boom led by China stalled, causing iron-ore prices to slump 55% from a February 2011 peak to a three-year low in September, before rebounding. Reporting a record quarterly loss, he said Feb. 28 that Vale is poised to benefit from a price recovery and a balance sheet cleanup.

Vale, the world’s largest iron-ore producer, announced 1.47 billion of asset sales last year, including a coal mine in Colombia and 10 large vessels, while putting projects on hold in Canada and Guinea. The company announced last month 5.66 billion in write-downs after failed nickel, coal and steel investments.

Abu Dhabi’s Mubadala Development Co. is one of at least two companies interested in investing in Rio Colorado even if Vale decides to exit the project, Carlos Molina, head of mining for Mendoza province, said in a telephone interview today.

Brazil’s only potash producer, Vale said Feb. 27 it had spent 2.23 billion on Rio Colorado and completed 45% of the project. The venture includes developing a mine in Mendoza, western Argentina, renovation of 440 kilometres of railway trucks and the construction of a 350 kilometre-long railway spur to transport the potash to a terminal in the port of Bahia Blanca for export.

With the capacity to produce 4.3 million metric tons, the project would make Argentina the world’s third-largest potash exporter, President Cristina Fernandez said in July after signing agreements with Vale to proceed with the project.