(VALE) Vale S.A.’s Potash Project Suspended

The Rio Colorado potash mine development project of Brazilian miner, Vale S.A. (VALE), has been suspended by the government of the Argentine province of Mendoza. The suspension, according to the Mendoza government authority, is solely due to Vale’s lack of compliance with the local labor law and insufficient information provided with respect to the investment plan.

The government of Mendoza, a far western province of Argentina, needed a series of data on issues such as the buying of local goods and hiring of local workers. Such database is required by the government to control and verify the actual compliance with that of the agreed requirements. Earlier in 2011, before the final suspension, the government of Mendoza has already complained and warned Vale against its failure to hire 75% of the local labor and services. The suspension, according to the authority, however, will be lifted as soon as the company comes back to compliance.

The present as well as the earlier disputes however have been perceived by the company, as a barrier to import, which has been affecting the mining giant Vale, as well as the country’s other Brazilian and Chinese trade partners. Such barrier, according to Vale, has been set across by the Argentinean industrial sector for raising sales of their local products.

Vale is expected to invest around $5.9 billion on the Rio Colorado potash mine development project, which was bought from Rio Tinto plc (RIO) in 2009. The project, scheduled to start by late 2013, entails construction of railroad for output transportation to the Atlantic Ocean port and an electric power plant; with the target of producing potash at a rate of 2.4-4.3 million metric tons a year.

The project is still at the equipment purchase stage and is expected to start-up not before 2014 and production is anticipated to gear up by the second half of 2013. However, the company reported delay in production due to a setback in civil engineering works and environmental licensing. The company expects to leverage on the rising potash-based fertilizer demand in Brazil, backed by the expansion of soybean cultivation in the recent years.

Vale S.A, the world’s largest producer and exporter of iron ore and pellets,engages in the mining and production of ferrous and non-ferrous metals, and aluminum-related operations, primarily in Brazil.

We currently maintain a Neutral recommendation on the stock. Vale S.A. has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

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