Vale Tables Potash Project

March 12, 2013 05:20 AM

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Vale SA announced on Monday that it will table its $5.92 billion Rio Colorado potash project. The project was expected to make Argentina one of the world's largest producers of potassium fertilizer, producing 4.3 million metric tons each year. The project was nearly 40% complete when the company decided to take a closer look at the numbers in December, 2012.

"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," Vale said in a statement. The company left the door open for the venture to resume sometime in the future, however, saying it plans to keep "searching for alternatives that enhance the economics of the project."

The Rio Colorado project included the potash mine, but also a rail line and a shipping port, employing around 4000 workers, who may get their jobs back -- if the project is restarted in the future.

The company had invested $2.23 billion in the project by the end of 2012 and expected another $611 million in capital expenditures in the coming year. But a series of factors including the decline of the Argentine peso and disputes with provincial governments have threatened Rio Colorado's viability.

Vale Chief Executive Murilo Ferreira said in a conference call at the end of February that the company "has presented since March of last year a series of alternatives" to make the project viable. But Vale has taken a financial hit as iron-ore prices fell last year and $5.66 billion in write downs during the fourth quarter alone have weighed heavily on the bottom line. The result is Vale SA management paring down 2013 investment plans, and hoping for better opportunities in the future.

  Photo credit: Captain Blood / / CC BY-SA

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