March 13, 2013

Brazil's Vale suspends investment in Argentina's potash project

Brazilian miner Vale SA is suspending its US$6 billion investments in Argentina's Rio Colorado potash project that has been plagued with cost overruns.

The company said in a press statement that the project was not "in line with Vale's commitment to discipline in capital allocation." Vale had put the project under formal review in December, the results of which were presented to shareholders today for a decision on whether to suspend investments indefinitely.

Officials in Argentina were not immediately available for comment.

Vale posted its first quarterly loss in 10 years last month, taking a US$5.7 billion hit from money-losing operations. Though the world's second largest mining company says it remains committed to the fertiliser sector, it is part of a broader shift among miners away from less profitable assets in the face of lacklustre metals prices.

Preferred shares of Vale reversed losses in Sao Paulo trading after the announcement, gaining 0.4%.

It was reported over the weekend without naming sources that Rio Colorado's cost overruns had jumped 86% since the initial estimate, to US$11 billion. Part of the problem has been inflation in Argentina, which according to private estimates has surpassed 25% per year and driven up labour and materials costs.

Vale said in an e-mailed that it was seeking no changes to Argentine labour or tax law and was looking for ways to make the project financially viable.

If the company eventually exits Rio Colorado, it will be a blow to President Cristina Fernandes. The mine in Mendoza province, along with a railway and port terminal would have made Argentina into one of the world's leading suppliers of potash, an essential fertiliser component for food crops.