Vale, Argentina reach exit agreement for Rio Colorado potash mine

29 April 2013 17:17  [Source: ICIS news]

HOUSTON (ICIS)--Brazilian mining company Vale confirmed on Monday it has reached an agreement with the government of Argentina to abandon the suspended Rio Colorado potash mine project in the western province of Mendoza.

Ordered by Argentina’s Labour Ministry to undergo mandatory mediation between the company and its employees earlier in the month, Vale officials said it has reached an accord with the local government and the construction union, by which the company has agreed to pay 2.5 months of salary to approximately 4,900 workers and subcontractors.

On suspension since January, the Rio Colorado project centred on the developing of a potash mine, which was expected to begin production in the second half of 2014, with initial output estimated at 2.4m tonnes. The project was expected to eventually generate 4.3m tonnes/year of potash and have a life span exceeding 50 years.

The company in March decided that the Rio Colorado project was not the best use of its resources, citing the economic conditions within the country.

Vale estimated that due to annual inflation rates within Argentina, which have been measured at around 25%, the Rio Colorado could have a price tag in the range of $11bn (€8.5bn). In order to recover the $2.2bn already invested, Vale was considering putting the mine up for sale.

The company was seeking a reported $3bn in tax breaks to help offset rising costs related to inflation and exchange rates but was denied the relief by Argentina.

In a conference call last week company officials said it was Vale’s desire to find a peaceful exit to the situation in Argentina, which had grown increasingly contentious, especially from country’s point of view as it displayed a mix of disappointment and frustration over the results of the ambitious potash mine.

As to the future of the potash mine, which is estimated at being 45% completed, Argentina is said to be courting investors and companies from China and India, who are interested in restarting the project.

It has considerable potential for the right operator as the mine would have the opportunity to directly capitalise on the booming agricultural markets in South America, particularly in Brazil, which is ranked as the world’s fourth-largest consumer of fertilizers.

($1 = €0.77)

By: Mark Milam
+1 713 525 2653

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