--Mendoza Governor says Vale will lose concession if it doesn't
resume construction
--The Brazilian company has until Feb 4. to submit new
timeline
--Company says the project is still advancing
By Shane Romig
BUENOS AIRES--Argentina's Mendoza province is threatening to
revoke the concession for Brazilian mining giant Vale SA's (VALE)
$6 billion potash mine if the company doesn't get back to work on
the suspended project.
"The project is going to move forward with or without Vale,"
Mendoza Governor Francisco Perez told provincial radio station LV
Diez.
In December, Vale put the project on ice as it embarked on a
company-wide belt tightening. The company has said that the Rio
Colorado mine will come on line in the second half of 2014 and
would produce up to 4.3 million metric tons per year of potash,
used to make a key fertilizer for booming soybean production in the
south of Brazil.
Amid harsh criticism from the provincial authorities, the
company has backpedaled from earlier comments indicating that
construction had been indefinitely suspended. In a statement
Friday, Vale said it has simply extended the roughly 4,500 workers
"end-of-the year break while it evaluates changes in the economics
of the project."
President Cristina Kirchner has become involved and negotiations
are expected during the coming weekend, said a source close to the
provincial government, who spoke on condition of anonymity.
Last week, the company assured the province it would resume work
on Feb. 4, the source said. Vale hasn't said when it expects
building to get back on track. A Vale spokesman said the company
has no additional comment at this time.
Vale has cut its 2013 investment budget for Rio Colorado to $611
million from $1.08 billion last year, as part of the company's
austerity efforts. The company has already spent about $2.6 billion
on the mine since it bought the project in 2009.
The project also includes railroad work--along with construction
of a maritime port terminal--that will bring the potash across the
Argentine plains from the Andean province of Mendoza for shipment.
The company complains that the provinces of Neuquen, La Pampa and
Buenos Aires have backed out of agreements and raised the cost of
the land purchases needed to construct the railway to the coastal
port of Bahia Blanca, the person said.
Mendoza's governor has given the company until Monday, Feb. 4,
to submit a new timeframe for construction. If not, the project
will be considered "abandoned" and the "concession will expire due
to non-compliance with [Vale's} commitments," the Governor's office
said in a statement.
If Vale quits the project, investors form the Arab Emirates and
China have expressed interest and the Federal Government may take a
stake, Governor Perez told LV Diez.
"The Argentine state not only could intervene, it clearly is
already doing it," Mr. Perez said.
Investors have turned a wary eye to Argentina since last year,
when the government expropriated 51% of oil and natural-gas company
YPF SA (YPF, YPFD.BA) from its majority shareholder, Spain's Repsol
SA (REPYY, REP.MC), in a dispute over investment and falling
production. Repsol says it is owed about $10 billion for its
shares, but the government counters that Repsol won't see a dime
after failing to boost output and bleeding the company dry with
dividends in recent years.
The suspension also comes at a difficult time for Argentina's
mining sector, with a number of companies sidelining or putting off
projects.
Since late 2011, mining companies have had to contend with new
rules that have made it virtually impossible to repatriate profits
and also made it increasingly difficult to import equipment and
supplies.
That comes on top of soaring inflation--estimated at an annual
rate of over 20% by private economists--which has caused mining
costs to soar.
In addition, Argentina's glacier-protection law threatens to
derail several multibillion-dollar mining projects including
Barrick Gold Corp.'s (ABX, ABX.T) $5 billion Pascua-Lama mine.
Companies will have to conduct an inventory of nearby glacial
ice before proceeding with construction. The Supreme Court is
expected to rule on the constitutionality of the law soon, with
companies and provinces challenging the law blocking all activity
affecting the country's numerous glaciers.
--Paul Kiernan in Rio de Janeiro contributed to this
article.
Write to Shane Romig at shane.romig@dowjones.com
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