Argentine court bans Vale from closing down $11bn potash project

In a surprising turn of events threatening to boost long-term rivalry between Argentina and Brazil, an Argentine provincial court ruled late Thursday that Vale (NYSE:VALE) is not allowed to abandon its $11 billion Rio Colorado potash project, in the province of Mendoza.

On Monday the world's second largest miner officially announced Rio Colorado was no longer viable, giving a new estimate on the investment needed for its Mendoza province potash project to almost double the original $6bn capex budget.

According to Argentina’s provincial government, Vale was demanding unrealistic tax breaks (up to $3 billion), which were denied. The authorities also barred the Brazilian company from firing at least 6,500 workers and subcontractors involved in the project.

On its website the province said a local court had agreed to a petition filed by Argentina's main construction trade union, and ordered Vale to "abstain from … dismantling installations (and) removing tools, machinery and other work implements" from Rio Colorado or face heavy fines otherwise.

Work on the Rio Colorado potash mine has been halted since January, but only this month Vale said it would no longer pursue the project.

Vale acquired Rio Colorado from Anglo-Australian miner Rio Tinto in 2009.

Start-up was scheduled for 2014, and mine life was expected to exceed 50 years. Average annual production is estimated at 2.4 million tonnes in phase 1 rising to 4.3 million tonnes per year.

Vale is also said to be selling its Canadian Kronau potash project, after putting the $3 billion project on hold last August.

Potash has been trading at around the $400 – $430 a tonne level this year, down from $470 in 2012 and above $500 the year before.

(Image courtesy of Veja)