UPDATE 2-Vale may sell Brazil potash project on tax dispute -CEO (Reuters U.S. – February 19, 2014)

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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.

Vale preferred shares, the company’s most-traded class of stock, rose 1 percent to 30.90 reais in Sao Paulo on Wednesday, its first gain in three sessions and biggest rise in a week.

Brazil must import 90 percent of its potash, much of it from as far away as Russia, Canada and the Middle East, a situation the government wants to reduce. Potash is a source of potassium, which along with nitrogen and phosphorus are the three main crop nutrients.

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