beyondbrics

Vale, Brazil’s iron-ore giant, is looking to diversify. It wants to invest over $4.3bn on a giant potassium mine in Argentina, providing fertiliser for Brazilian agriculture.

But when it comes to foreign investment, Argentina has a peerless ability to shoot itself in the foot. Following a typically creative Greenpeace campaign, the country’s congress may ban mining near glaciers – scuppering Vale’s potassium ambitions.

Investors in Argentina already face arbitrary and fickle government rules, heavy state intervention in key sectors, rampant inflation and political squabbling.

The proposed glaciar law would ban mining and hydrocarbons projects in and around glaciers and so-called periglacial areas. This week Greenpeace placed a huge block of ice outside congress, together with two red English-style phone boxes for people to call legislators and urge them to back the bill.

Vale acknowledges that, if the law is passed, the potassium project – located in Rio Colorado, a periglacial area in south Argentina – could be at risk.

And Canadian company Barrick Gold would also be affected. It owns Veladero, a high-altitude gold mine, and is co-developing, with Chile, the Pascua Lama project which straddles the Andes. Barrick is investing $2.8-$3bn in Pascual Lama – a third is already committed – and says it is on track to start production in early 2013.

Greenpeace says Barrick had to rework parts of the project because of Chilean objections to its impact on glaciers. Like Chile, Argentina is home to some of the world’s biggest glaciers – some 350,000 visitors make the trek to southern Patagonia every year to gaze in awe at the size and beauty of the Perito Moreno glacier. The wish to conserve such wonders is understandable.

At the same time, Argentina has important mineral resources, a big potential money-spinner. The government notes that the number of mining projects has grown nine-fold and investment in the mining sector eleven-fold since 2003. Exploiting Rio Colorado’s potassium would turn Argentina into the world’s number five potassium producer.

Vale’s board expects to meet next month – no date has yet been set – to approve the project. A company source in Buenos Aires said construction could start in January or February 2011, with production from 2013. The project, which the source added would probably result in investment of higher than $4.3bn, includes the construction of a cargo railway and port facilities in the Atlantic port of Bahía Blanca, plus a deal to secure energy supplies.

Rio Colorado contains 40 to 50 years of high-quality potassium reserves, according to Vale. In a first phase, Vale’s mine would supply 2.4m tonnes of potassium a year, but that could rise to 4.3m tonnes by 2019 (providing the company can obtain additional environmental permits).

The glacier law has had a rocky history. An earlier version was passed by congress but vetoed by Cristina Fernández, the president, in 2008. A similar project was then submitted and passed by the senate, but changes were incorporated when it passed to the lower house. It was due to return to the senate this week for approval.

But the vote was delayed – deliberately held up by lobbying from Argentina’s mining provinces, according to Greenpeace. The bill is now expected to go before congress at the end of the month.

Vale’s expansion hopes hang in the balance.

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