Brazil prosecutor seeks halt of Vale nickel mine

RIO DE JANEIRO Mon May 28, 2012 5:48pm EDT

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RIO DE JANEIRO (Reuters) - Brazilian federal prosecutors in the country's state of Para have asked a court to suspend operations at Vale's Onça Puma nickel project in the Brazilian Amazon, alleging Vale failed to meet obligations to two Indian tribes in the region.

The mine suspension is part of a lawsuit that the prosecutors have filed against Vale, the Para-state environmental secretariat and Brazil's Indian affairs foundation on behalf of the Xikrin and Kayapó tribes, the prosecutors said on their website.

Vale is the world's second-largest producer of nickel, a product primarily used to protect steel from corrosion. Its $2.65 billion Onça Puma mine began full operations in the third quarter of 2011 and is still at a start-up phase. In the first quarter of 2012, it produced 4,000 metric tonnes (4,409.2 tons), or 6.3 percent of Vale's output.

Onca Puma is eventually expected to produce about 55,000 metric tonnes a year of the metal in the form of ferronickel, according to Vale's website. Nickel is Vale's second-most important product after iron-ore. Vale is the world's largest producer of iron-ore.

Vale produced 242,000 metric tonnes of nickel in 2011.

Prosecutors allege that Vale has failed to provide compensation to the Indian groups or mitigate the impact of the mine on their communities for the two years the project has been in operation, the statement said.

Vale, they allege, should not have received a license to operate the mine in Ourolandia do Norte, Brazil, because it has failed to meet these conditions which were set out in the preliminary license for the mine.

The lawsuit seeks at least 48 million reais in damages ($24.24 million), or $1 million a month for each tribe, since the project began, the statement said.

Indian groups in Brazil's Amazon have a long history of protest against Vale. They have blocked the company's rail lines and delayed metals shipments.

Vale officials have said that many of the tribes protests are an attempt to get Vale to pay for services that the government is obligated to provide but doesn't.

($1 = 1.9828 Brazilian reais)

(Reporting by Jeb Blount; Editing by Kenneth Barry)

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