Vale looks to other potash projects after Argentine mine halted

SAO PAULO, March 18 Mon Mar 18, 2013 4:15pm EDT

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SAO PAULO, March 18 (Reuters) - Brazilian miner Vale may try to develop potash mines in Brazil and Canada that it had put on hold, as the company tries to make up for the suspension of its $6 billion Rio Colorado project in Argentina, a source with direct knowledge of the situation said on Monday.

Vale's Carnalita project in the Brazilian state of Sergipe and Kronau mine in Canada have not been a priority for the company, which is trying to reduce costs outside of its core iron ore business after posting its first loss in 10 years.

But finding new sources of potash, a source of the fertilizer potassium needed for Brazil's giant agricultural sector, has become more important now that Rio Colorado's future is uncertain.

"Vale has not given up on its plans to produce potassium," the source told Reuters, adding that both Kronau and Carnalita would soon be presented to Vale's board of directors.

Vale, the world's No. 2 miner, said on March 11 the Rio Colorado project was no longer economically viable, threatening to renew trade tensions between South America's two largest economies. The Argentine government says Vale is demanding unrealistic tax breaks for the project.

Brazil, the largest producer of coffee, orange juice and beef, imports about 90 percent of its potash needs from as far away as Canada, Jordan and Russia and the Brazilian government had been counting on new supplies from Argentina.

Fertilizer production would also benefit Vale, allowing it to make greater use of its extensive port and railway systems by filling trains for trips from the coast to the Brazilian interior. Most of its rail traffic comes from shipping iron ore in the other direction, to the coast.

Vale has invested $2.2 billion in Rio Colorado to date, one of the biggest foreign capital investments in Argentina, and completed work on 40 percent of the mine, railway and port.

The company last year rented mining assets in Sergipe from state-run oil company Petrobras for a 30-year period with the goal of developing Carnalita, but has so far made little progress.

Vale's former Chief Executive Murilo Ferreira said last August that Vale was reconsidering the Kronau project in Canada, which requires an investment of $3 billion in its initial phase.

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