Vale announces ‘unfortunate, but not surprising’ delay in $3-billion mine

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Brazilian mining giant Vale SA is postponing a $3-billion potash project in Saskatchewan, but the province says this is just a minor setback in the huge runup in potash investment that will continue to flow in the coming years.

The huge mine was to be developed near Kronau, a town of about 200 people, 30 kilometres southeast of Regina. It would have employed more than 1,000 workers during construction, and hundreds would have been needed to operate it once it was opened. The mine was expected to produce 2.9 million metric tonnes of potash a year.

But the mine, set to be built over the next three years, will not go ahead as planned because of global economic uncertainly, Vale chief executive officer Murilo Ferreira told reporters in Rio de Janeiro Thursday. Vale is committed to austerity, and may delay other investments as well, he said.

The mine was expected to be a boon to the region, not just in terms of employment, but in sectors that traditionally spring up around big projects, including housing and retail.

Vale Canada spokesman Cory McPhee said the project is being postponed, but not cancelled.

"We are simply re-evaluating it," he said, because of the current economic conditions. "We are looking at all the projects we have on our plate and prioritizing."

Some work on the project, such as environmental impact studies, will continue in the meantime, he said. The company will provide details of the delay to its shareholders in the near future, but won't elaborate until then.

Vale bought the Kronau project from Australia-based Rio Tinto PLC in 2009 for about $850-million (U.S.)

Saskatchewan's Minister of the Economy, Bill Boyd, said it was "unfortunate, but not surprising" that Vale was putting the brakes on the Kronau project. As a new entrant into potash, "I am sure they are trying to time their arrival into the marketplace with future demand," he said.

Potash Corp. of Saskatchewan Inc. said Thursday that its Lanigan potash mine is being shut down for a month in mid-September to match supply with market demand.

Over all, however, there is an "explosion of investment" in potash mining in Saskatchewan, with $12-billion being pumped into the sector by existing and new players, Mr. Boyd said. "We see a very large ramp up of spending in the potash sector, and we expect that to continue."

Erwin Beitel, Reeve of the regional municipality that includes the town of Kronau, said he spoke with representatives of Vale last week and they told him they are "holding back" on the project. The company will continue some work and get "as close as they can to production, when things do turn around." Now it may be four or five years before the mine is open, rather than three, he said.

Mr. Beitel said the company appears to be "a little leery about competition and the price of potash right now."

He noted that there are two other companies looking at mining potash in the area: Rio Tinto, which now has a new project under way, and Western Potash Corp.

There has been some opposition to the mine in the area because of the potential impact of an influx of workers, and concerns over the large amount of water the mine would use, Mr. Beitel said. The planned mine would use a technology that involves vast quantities of water that would have to be brought in from a nearby lake by pipeline.

However, "it is disappointing for a lot of people who were looking for work," Mr. Beitel said. "Instead of travelling a long way for work, they could work at the mine site."

Some houses were also being built in anticipation of renting them out to incoming workers, and hotels and franchises such as Tim Hortons were interesting in moving into the area, he said.

However, he noted, things are booming in Saskatchewan and potash is still a crucial commodity for making fertilizer, and in the long run the mine will likely get built.