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January 31, 2014

Vale Indicates a Desire to sell its Potassium Mine in Argentina

In a recent meeting with analysts in Rio de Janeiro, an executive from Vale indicated that the company intends to sell their Rio Colorado potassium operation in Argentina. In April of 2013, the company decided to not develop the project any further after investing US$ 2.5 billion dollars into the project.

The decision to stop develop on the project was based on a number of factors including: some of the highest inflation rates in the world estimated at 25% to 30%, declining fertilizer prices, and the uncertainly of future economic growth in Argentina. Especially troublesome for the company is the Kirchner's administration record of nationalizing key industries as a way to increase governmental revenue.

Located in the province of Mendoza, the mine was projected to produce 4.3 million tons of potassium per year and the project including 800 kilometers of railway to a proposed port terminal in the city of Bahia Blanca in southern Buenos Aires province. The entire cost of the project was estimated at US$ 10 billion. If the project is not sold within four years, which is the end of their license period, the company indicated that it will be closed permanently.

Vale's major product is iron ore and recent declines in iron ore prices have forced the company to reassess its various operations.