Vale tells the Argentine government that the $6-billion Rio Colorado mine is a no go

Vale (NYSE:VALE) affirmed today that it will be shelving its $6-billion Argentine potash project, Potasio Rio Colorado in the Mendoza province.

Work on the potash mine was already halted. Back in January Vale said it was suspending work on Rio Colorado.

BNamericas reported that nationalization worries and excessive government regulations may have caused Vale to pull the plug.

Inflation is also running at 25% annually, which was harming the economics of the project.

Vale released a terse press release regarding the suspension:

Vale S.A. (Vale) informs that it communicated today to the Argentinean government that is suspending the implementation of the Rio Colorado project, in Argentina, as in the current macroeconomic environment the economics of the project are not in line with Vale’s commitment to discipline in capital allocation and value creation. In case of resuming the implementation, preference will be given to the project’s current employees.

Vale will keep honoring the commitments related to the concessions and searching alternatives that enhance the economics of the project, to then evaluate its resumption.

Vale’s stock is up after hours, 0.65% to $18.59 a share.

Potasio Rio Colorado is a potash development project located in the Mendoza Province of Argentina. The mining project is owned by Vale and was acquired from Rio Tinto back in 2009.

Vale was expected to invest $5.9 billion in the project. Start-up was scheduled for 2014, and mine life was expected to exceed 50 years.

Average annual production is estimated at 2.4 million tones potash in Phase 1 and rising to 4.3 million tones per year in Phase 2.

vale potash rio colorado

Update: The story was updated with additional information: work at the mine had already been halted before today’s announcement.