UPDATE 2-Vale may sell Brazil potash project on tax dispute -CEO

Wed Feb 19, 2014 3:53pm EST
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* Sergipe potash mine seen replacing Argentine project

* Municipalities fighting over location of plant

* Mine to cost about $4 bln, supply 15 pct of Brazil potash

BRASILIA, Feb 19 (Reuters) - Vale SA may sell a $4 billion potash fertilizer project in Brazil's northeastern state of Sergipe if it is unable to reach a tax accord with municipal authorities, Chief Executive Officer Murilo Ferreira said on Wednesday.

Shareholders "cannot be subject to fiscal uncertainties" about the project Ferreira said during a hearing before a Senate committee in Brasilia. Vale, the world's No. 3 mining company by market value, is the world's largest iron ore producer and a growing fertilizer producer.

Vale plans to shut down its planning work at the site on Feb. 28 if there is no resolution, Ferreira said.

Sergipe Governor Jackson Barreto said at the same hearing that the state will find a solution to the tax problem. The impasse stems from a battle between rival Sergipe towns Capala and Japaratuba over the location of the mine's planned processing facility on their territory so they can reap the expected tax benefits.

"We won't do anything to hurt the state, but lacking a political solution we'll hire a bank to sell the project to somebody interested in developing it," Ferreira said.

Vale plans to build the Carnalita potash mine and processing facility to help meet Brazil's demand for fertilizers. Brazil is the world's largest sugar, coffee and orange-juice producer and is expected to surpass the United States this year as the world's No. 1 soybean producer. But its extensive farmlands have low nutrient levels.   Continued...