Vale shelves potash project in Mendoza

Brazilian miner Vale said yesterday it is suspending investments in its six-billion-dollar Rio Colorado potash project in Argentina which 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.” The Rio de Janeiro-based company’s decision was communicated to Argentina’s government, according to the e-mailed statement. Vale had placed the project under formal review in December, the results of which were presented to shareholders yesterday 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.

Although the world’s second-largest mining company says it remains committed to the fertilizer 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 percent.

Folha de Sao Paulo newspaper reported over the weekend without naming sources that Rio Colorado’s cost overruns

had jumped 86 percent since the initial estimate to 11 billion dollars. Part of the problem has been inflation in Argentina, which according to private estimates has surpassed 25 percent per year, driving up labour and materials costs. Vale said in an e-mailed response to questions about the Folha report that it was seeking no changes to Argentine labour or tax law and was looking for ways to make the project financially viable.

The project’s economics “are not in line with Vale’s commitment to discipline in capital allocation and value creation,” the company said in yesterday’s statement.

“Vale will keep honouring the commitments related to the concessions and searching for alternatives which enhance the economics of the project, to then evaluate its resumption.”

If the company eventually exits Rio Colorado, it will be a blow to President Cristina Fernández de Kirchner, who had promised that this project with a capacity to produce 4.3 million metric tons would make Argentina the world’s third-largest exporter of potash, a key fertilizer component. The mine in Mendoza province, along with a railway from the Andes to the Atlantic Ocean and an overhauled port terminal in Bahía Blanca, would have started production in the second half of 2014.