Vale looking to sell Rio Colorado potash project

13 March 2013 23:01  [Source: ICIS news]

HOUSTON (ICIS)--Striving to recover the $2.2bn (€1.7bn) invested in its suspended potash mine, Brazil mining company Vale is reportedly looking at selling the Rio Colorado project, which was expected to generate 4.3m tonnes/year of potash.

While the company thinks this is in its best interest, the announcement has drawn the disapproval of the Argentina government, which has publicly accused Vale of breach of contract and using the situation to force the country to concede on the issues of tax breaks that the multinational had been seeking in order to resume work on the project.

“The rule of law is a two-way track when it comes to investment. The state has to do its part, but so do the companies,” said Julio De Vido, Argentina planning minister. “If there is a failure to fulfill the terms, as there is flagrantly in this case, and Vale fails to exploit the potash reserves, it violates the concession that the province awarded to Vale.”

On suspension since January, the project centered on the developing of a potash mine and related facilities in Mendoza that was expected to begin production in the second half of 2014 with initial output estimated at 2.4m tonnes/year.

The company on Monday decided that the Rio Colorado, citing the economic conditions within the country, was not in line with the company’s commitment to capital allocation and value creation.

Vale had been seeking the tax breaks to help offset rising costs related to inflation and exchange rates. Initially projected to cost $5.9bn, the company had realized that due to annual inflation rates within Argentina measured at around 25% and that the Rio Colorado could have had a price tag estimated at $11bn.

The decision to put the project up for sale comes four years after Vale bought the venture for $850m from mining company Rio Tinto.  Vale has been looking for a strategic partner since the suspension decision was made, and according to Brazilian media reports, there have been at least two ventures interested in joining forces to see the completion come forth.

One of the groups interested has been identified as Abu Dhabi’s Mubadala Development Company, an investment and development company founded in 2002 to focus on managing long-term, capital-intensive investments for the United Arab Emirates.

The value of having an operation capable of producing significant supplies of the essential crop nutrient would have been considerable for both Argentina and the expanding agricultural industry within Brazil, which imports roughly 90% of its potash needs from foreign exporters. The Rio Colorado was expected to be a boost to local employment as it was expected to create thousands of jobs within the western province of Mendoza.

Local governor Francisco Perez was quoted as telling local media that while they were not directly informed of this latest decision, it was his intention and the country’s goal to see the project still become a completed facility.

“When we were analysing the different options President Fernandez told us ‘We’re going for it, the project will go ahead whatever happens, with or without Vale,” said Perez.

($1 = €0.77)

By: Mark Milam
+1 713 525 2653

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