Argentine court tells Vale it cannot dismantle potash project

BUENOS AIRES, March 21 Thu Mar 21, 2013 10:20pm EDT

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BUENOS AIRES, March 21 (Reuters) - An Argentine court has ordered Brazilian miner Vale SA to refrain from dismantling its Rio Colorado potash project, which the company suspended last week saying it was no longer viable, a provincial government said on Thursday.

Vale, the world's No. 2 miner, says the estimated $6 billion project has been hit by soaring costs it attributes to Argentina's rampant inflation and controlled exchange rate, in a row that is threatening to renew trade tensions between South America's two largest economies.

The Argentine government says Vale is demanding unrealistic tax breaks, and has barred the company from firing at least 6,500 workers and subcontractors on the fertilizer project.

The government of Mendoza province said on its website that a provincial court had agreed to a petition filed by Argentina's main construction trade union, and ordered Vale to "abstain from ... dismantling installations (and) removing tools, machinery and other work implements" from Rio Colorado.

A spokesman for Vale in Argentina was not immediately available to comment.

A source with direct knowledge of Vale's plans told Reuters previously that the company, the top global producer of iron ore, plans to sell the fertilizer project to recoup the $2.2 billion it has invested so far.

Vale may also try to develop potash mines in Brazil and Canada that it had put on hold to find new sources of the mineral, a source of potassium needed for Brazil's giant agricultural sector.

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

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