BRAZILIAN mining giant Vale is likely to cancel a $5.9bn (£4bn) potash project after failing to gain tax breaks from Argentina, the Folha de S. Paulo newspaper reported yesterday.
Without relief from the Argentine government, the cost of the Rio Colorado potash mine, railway and port system is expected to soar 86 per cent to $11bn, making it unviable, Folha said, citing unnamed Vale officials.
The possibility of Vale pulling out of the project would also be a blow for the Brazilian government, which was counting on the mine in Argentina to help to secure new supplies of potash, a critical fertiliser, for its agricultural industry. Brazil imports about 90 per cent of its potash needs, from as far away as Canada, Jordan and Russia. Supplies closer to home, including neighbouring Argentina, are seen as a strategic necessity for the world’s largest producer of coffee, orange juice and beef.
Market sources last month said that Vale was seeking tax breaks for the project to help to compensate for soaring costs related to inflation and exchange rates. Unofficial estimates put inflation in Argentina at about 25 per cent a year, well above the official rate of 10.8 per cent in 2012.
Vale is seeking no changes to Argentine labour or tax law and is looking for ways to make the project financially viable, the company said in an e-mailed response.
The company, which is seeking a financial partner for the project, halted work on it in December and put 4,000 workers on paid leave.
The delay in Argentina came as Vale put mining projects around the world on review, took a $5.66bn writedown on assets and sought partners or buyers for other projects to bolster its accounts after a downturn in iron ore prices.
City A.M. Reporter