April 27, 2016 / 7:42 PM / in 2 years

UPDATE 1-Vale eyes restart of Argentina potash project

(Recasts with company comment)

BUENOS AIRES, April 27 (Reuters) - Brazilian miner Vale SA is considering a restart of its Rio Colorado potash project in Argentina after a long delay, the company said on Wednesday, the latest sign that international investors are eyeing a return to the country.

Vale suspended work on its Rio Colorado project in the western province of Mendoza in 2012, having already invested $2.2 billion, as prices for the key crop nutrient crashed and after the former government refused to offer tax concessions to mitigate soaring costs related to Argentina’s inflation and exchange rate.

Vale is now looking to invest $1.5 billion to restart construction at Rio Colorado in coming months, a spokesman at Mendoza’s energy ministry said. Vale said it had discussed a possible development plan with the Mendoza government, without giving figures.

Vale’s efforts to jump-start the venture come as Argentina’s new center-right government tries to create a more business-friendly environment for mining companies. Some companies have already announced their interest in investing.

To ensure profitability, Vale told the local government that it was cutting forecast capacity for the project to 1.3 million tonnes annually from a previous goal of 4 million tonnes, the Mendoza energy ministry spokesman said.

Vale confirmed the project would have a lower output target than originally planned.

“A reduced model will make it easier to attract the investors needed to reactivate work,” it said in a statement emailed to Reuters.

The company said the modified plan included scrapping an idea to build an upgraded railway to transport the potash. The company will now use trucks and has put up for sale assets related to the railway construction.

“This new proposal is still in development and its final design is conditional on the project getting the needed financing for a pre-feasibility study,” Vale added.

Prices for potash have been falling since 2012, hit by bloated capacity, the breakup of a cartel, and weak currencies in major consumers like Brazil and India.

Last month, Argentina’s mining minister told Reuters that Vale did not want to sell Rio Colorado and was looking to bring in a partner to contribute investment.

Reporting by Walter Bianchi; Additional reporting and writing by Rosalba O'Brien; Editing by Tom Brown and Peter Cooney

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