* Miner has put brakes on $6 billion potash project
* Sources say wants VAT exemption, favorable exchange rate
* Production seen starting three years late in 2017-2018
By Guido Nejamkis
BUENOS AIRES, Feb 4 Production at Vale's giant
potash mine in Argentina could be delayed by three years as the
Brazilian company lobbies for tax cuts and a more favorable
exchange rate to help meet rising costs, two market sources
Vale , the world's second-largest mining
company and top iron ore producer, said in December it was
putting the brakes on the $6 billion Rio Colorado project.
Last month, it said vacation time for the 4,000 workers had
been extended indefinitely, a move that drew an ultimatum for
progress from provincial government officials.
Costs at the venture are rising sharply due to annual
inflation estimated privately at about 25 percent, and the
sources said the company was asking the national government to
waive the value-added tax (VAT) until production starts.
"The project's going to go slower than had been planned. It
will possibly start to produce in 2017 or 2018," said one market
source, asking not to be identified. "Vale is asking to be
exempted from VAT until production begins and for a better
Production is currently scheduled to start in the second
half of 2014.
A senior government official, who also spoke on condition of
anonymity, said Vale had requested a break on the VAT. He did
not provide any further details.
Another market source said the Brazilian miner wanted to
reduce its tax costs by $1 billion and get a better exchange
rate for the foreign currency its brings into the country.
Argentina's central bank controls the level of the peso
. While the currency's depreciation against the dollar
has sped up in recent months, many industry leaders think it is
still overvalued -- further raising their costs in dollar terms.
On the black market, the peso is worth 55 percent less than
in formal trade where the central bank intervenes.
Vale spokespeople in Rio de Janeiro and Buenos Aires
declined to comment, but one reiterated that construction work
would remain on hold while the company "analyzes variations in
the project's economic fundamentals."
Argentina's Mining Secretariat did not respond to requests
to comment about Rio Colorado, which could make the South
American grains exporter one of the world's biggest producers of
potash fertilizer with nominal capacity estimated at 4.3 million
tonnes per year.
While Vale is reviewing all spending to focus on iron ore,
responsible for about 90 percent of profit, it is under pressure
from the Brazilian government to boost fertilizer investments.
Brazil, one of the world's biggest agricultural exporters,
imports about 90 percent of its potash needs, much of it from as
far away as Canada and the Middle East. A potash mine in
neighboring Argentina could slash costs, strengthen regional
agricultural links and help Argentina address trade imbalances
Demand for potash has been rising due to a growing global
population, rising incomes in developing countries and a
declining amount of arable land.