The Conversation (0)
Brazilian mining heavyweight Vale has come to an agreement with the Argentine government to drop its Rio Colorado potash project.
In a possible end to months of indecision, global mining giant, Vale (NYSE:VALE) inked an agreement last Friday with the Argentine government allowing the Brazilian miner to shed the $6 billion Rio Colorado potash project. Rising inflation and exchange rate fluctuations have resulted in the cost of operating the Rio Colorado to nearly double to $11 billion, leaving the company with of the opinion that the project is no longer viable. Vale benched Rio Colorado in December, and and announced its intention to pull out of the project in March, following the Argentine government’s refusal to grant the company a $3 billion tax break.
According to the agreement between the Argentine government and Vale, the company’s “existing concession at the mine remains in place for up to four years. In the meantime, Vale is free to seek a buyer or partner for the venture,” a company spokeswoman told Reuters. Vale, it seems, will aim to gain back the $2.2 billion it has already spent on the mine and other infrastructure by selling the project.
Selling the project might not be terribly difficult. In a Mining.com commentary, it seems that both Chinese and Indian companies have expressed interested in the potash project.
A main concern now for the Argentine government is the 6,500 jobs at the Rio Colorado site. Per the agreement, Vale will continue to pay a salary for two and a half months to roughly 4000 employees, as well as maintaining the site.
In Q1 2013, Vale posted a decline in its potash sales. Q1 saw volumes of potash dropped to 120,000 tonnes change hands for an average price of $471.66 per tonne. In comparison, Vale sold 142,000 tonnes of potash at an average price of $552.45 per tonne in Q4 2012. Like its peers, BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO), Vale is shelving some of its projects or cutting spending as the decade-long mining boom shows signs of having come to an end.
Rio Colorado is not the only potash project that Vale has suspended. In August 2012, the company put its Kronau potash project in Canada on hold. Speculation is also floating around that Vale is considering selling the $3 billion project.