Vale Shelves Potash Venture in Argentina to Preserve Cash – by Juan Pablo Spinetto ( – March 11, 2012)

Vale SA (VALE3), the third most valuable miner, mothballed a $5.9 billion potash venture in Argentina as the Brazilian company drops projects and writes down assets.

The Rio de Janeiro-based company’s decision was communicated to Argentina’s government today, according to an e- mailed statement. Vale’s shares rallied in Sao Paulo.

Work at Rio Colorado, billed to make Argentina the third- largest exporter of the crop nutrient, was suspended in January so Vale could reassess the project in light of inflation, exchange rate fluctuations and demands from provinces, Chief Executive Officer Murilo Ferreira said Feb. 28. Vale sought tax breaks and partners to make the venture more profitable.

“Major miners are continuing to shed assets, especially those that have greatly surpassed their cost expectations, and slash budgets,” said Robert Verderese, a trader at Knight Capital Group Inc. in New York. “I would expect more to come from Vale.”

Vale erased a loss to rise after the announcement 1.4 percent to 35.22 reais at the close of trading. The stock was the most traded by value on the Brazilian Bovespa index today at 84 percent of its three-month daily average volume.

The project’s economics “are not in line with Vale’s commitment to discipline in capital allocation and value creation,” the company said in today’s statement. “Vale will keep honoring the commitments related to the concessions and searching alternatives that enhance the economics of the project, to then evaluate its resumption.”

Prospective Partners

The company said it will give preference to the project’s current employees if construction resumes.

Ferreira, who took over as CEO in May 2011, is selling assets and cutting spending after a two-year metals boom led by China stalled, causing iron-ore prices to slump 55 percent from a February 2011 peak to a three-year low in September, before rebounding. Reporting a record quarterly loss, he said Feb. 28 that Vale is poised to benefit from a price recovery and a balance sheet cleanup.

Vale, the world’s largest iron-ore producer, announced $1.47 billion of asset sales last year, including a coal mine in Colombia and 10 large vessels, while putting projects on hold in Canada and Guinea.

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