Argentina Gives Vale Ultimatum in Stalled Potash Concession

Argentina said it will strip Vale SA of licenses for a $6 billion potash project if the Brazilian miner fails to resume work at a venture that represents more than half the country’s annual foreign investments.

Vale’s decision this week to shelve the Rio Colorado project in Mendoza province, after the government refused to grant $3 billion in tax breaks and other benefits, is a breach of concession rules, Planning Minister Julio De Vido said.

“If they don’t exploit it, they will lose the license,” De Vido said today in televised comments from the presidential palace. “There is a blatant violation of the concession.”

While Rio de Janeiro-based Vale said the project had become unfeasible because of inflation, exchange rate fluctuations and demands from provinces, Argentine authorities say the decision is part of global cutbacks by mining companies amid losses fueled by lower metal and mineral prices.

“Their demands have nothing to do with Argentina’s macroeconomic conditions and everything to do with their financial losses and scaling back of projects worldwide,” De Vido said. “Vale wanted to pay its losses with our money.”

Shares Drop

Vale’s press office in Rio declined to comment. Company executives including Vale’s country manager Sergio Leite are holding a meeting with Argentine authorities in Buenos Aires, according to press advisers for the Mendoza government.

Vale shares slid 3.7 percent to 33.36 reais in Sao Paulo, the lowest closing price Sep. 5.

The company had spent $2.23 billion on Rio Colorado at the end of last year, completing 45 percent of a project that includes a mine in Mendoza as well as rail and port investments.

The initial $5.92 billion budgeted for the project, which has an estimated annual output capacity of 4.3 million metric tons, compares with 2011 foreign direct investment in Argentina of $7.24 billion, according to United Nations data.

Argentina will complete the project with or without Vale, President Cristina Fernandez de Kirchner said, according to comments today by Mendoza Governor Francisco Perez. Abu Dhabi’s Mubadala Development Co. is one of at least two companies interested in investing in Rio Colorado even if Vale decides to exit, Carlos Molina, Mendoza’s head of mining, said this week.

Before it's here, it's on the Bloomberg Terminal.