RPT-UPDATE 1-Vale to sell Argentine Rio Colorado potash project -source

Wed Mar 13, 2013 4:40pm EDT
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* Miner seeks sale to recoup $2.2 bln of investment

* Vale bought mine project in 2009 from Rio Tinto

* Argentina says scrapping project would violate contract

By Sabrina Lorenzi

RIO DE JANEIRO, March 13 (Reuters) - Brazil's Vale SA plans to sell the Rio Colorado fertilizer project in Argentina to recoup the $2.2 billion it has invested in the suspended potash mine, a source with direct knowledge of Vale's plans told Reuters on Wednesday.

Vale said on Monday it was halting operations at the $6 billion project after failing to get tax concessions from the Argentine government. Vale asked for the tax breaks to help ease soaring costs it attributes to Argentina's rampant inflation and controlled exchange rate.

The planned sale comes only four years after Vale bought the project, then in the feasibility study phase, from global miner Rio Tinto Ltd . The Rio Colorado purchase was part of an $850 million deal that also included potash exploration rights near Regina, Canada, according to Rio Tinto.

It is a blow to left-leaning President Cristina Fernandez, and her government warned Vale that scrapping the project for good would violate the terms of the mining concession.   Continued...