Home > Corporate Social Responsibility, Market change > Argentina suspends $5.9bln Vale potassium project

Argentina suspends $5.9bln Vale potassium project

June 20, 2011

“A $5.9bn potassium project in Argentina has gone into limbo after authorities in Mendoza province suspended development, alleging that Vale, the Brazilian miner, had failed to meet requirements to hire and buy supplies locally. The project, which includes the construction of a railway and a port on Argentina’s Atlantic coast to transport potassium, is still in its initial planning phase. In its first-quarter earnings report, Vale said it had pushed back the planned start of production to the first quarter of 2014 from the second half of 2013.

The company expects the project to have a nominal annual capacity of 2.1m tonnes of potash. A second phase would increase capacity to 4.3m tonnes. The Mendoza government said on its website that the decision had been taken ‘because of insufficient information supplied regarding the plan and the level of investment … The sanction will be lifted when the company complies with the request’.”

Source: Financial Times, June 18 2011

Observations:

  • One of Vale’s strategic priorities is to build a strong potash business. The Argentinian Rio Colorado project, which should start production in 2014 with some 20% of Vale’s current potash production, is key part of this strategy.
  • Argentina’s province of Mendoza is situated in the region del Nuevo Cuyo in the midwest of the country, bordering to Chile. The province has set strict ‘buy local’ and ‘hire local’ regulations in order to stimulate the economy, forcing Vale to hire 75% of total workforce locally.

Implications:

  • Both the provincial government and Vale are very polite in their communication, signalling the importance of the project to both of the parties. The province is using a rather uncertain moment in the development phase of the project to stress the importance of collaboration with local authorities. However, this discussion is not expected to seriously derail the project, unless governmental changes chance the standpoints of the provincial government.
  • In the worst case for Vale issues on development of a port for the same project in a different province will be made part of new negotiations with Mendoza province, indicating involvement of the national government.

©2011 | Wilfred Visser | thebusinessofmining.com

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