Tax dispute over Brazil fertilizer project not settled - Vale CEO

28 February 2014 00:03 Source:ICIS News

HOUSTON (ICIS)--Vale's Carnalita fertilizer project is still being jeopardised because the local municipal governments appear unable to resolve a dispute over how the operation will be taxed, the Brazilian mining company said on Thursday.

Last week, it was announced that the tax dispute between neighboring cities, Capela and Japaratuba in the northeast Brazil state of Sergipe where Carnalita is located, was resolved after a battle over the location of the mine's facility and which municipality would reap the benefits of the increased tax valuation.

Sergipe officials had stated that an agreement had been reached to resolve the dispute and furthermore that the governor of Sergipe would be proposing a law to the legislative assembly which would guarantee the proportional distribution of a tax. Specifically, the tax would be split based on the amount of ore each city contained.

Speaking to media following the company Q4 2013 earnings call, Vale CEO Murilo Ferreira said that it has not been resolved as far as Vale management is concerned and presently there were no plans to present the project to the board of directors. He further stated that the company is still considering selling the investment.

Previously, Ferreira said that the company and its shareholders cannot be subject to fiscal uncertainties and that unless a solid accord was reached that allowed the fertilizer project to be financially and operationally feasible, it was prepared to walk away from another massive project.

In March 2013, the company abandoned its efforts to develop the $5.9bn Rio Colorado potash mine project located in the western province of Mendoza, Argentina, saying that the economic conditions within the country were not in line with the company’s commitment to capital allocation and value creation.

Ferreira said that he had been present at the Brazilian Senate to discuss the matters with Sergipe officials and the two governors of the towns, but he did not feel that there was much accomplished.

Frankly, I don't even expect progress because the mayor of Capela was so aggressive with his counterparts at the Senate meeting that I consider it improbable that they've arrived at an agreement,” Ferreira said.

Vale had said that the company will stop work at the project on 28 February until there is a final resolution or a firm decision by the company’s management to part ways with the project.

Vale had said that the Carnalita project was expected to cost about $4bn and begin production before 2017. Initial capacity was estimated at 1.2m tonnes which would be enough volume to provide about 15% of the potash demand from Brazil. The company plans to mine potash by using solution mining techniques to dissolve the potassium, which would be pumped to the surface where the crop nutrient would be extracted.

By Mark Milam