Brazilian miner Vale said it has suspended a $6 billion potash project in neighbouring Argentina that has been plagued by cost overruns, a decision that could renew trade tensions between South America’s two largest economies.

Vale said its Rio Colorado potash project in Mendoza province was no longer “in line with Vale’s commitment to discipline in capital allocation”. The company had put the project under review for suspension in December.

Vale left the door open to restarting the project, however, if terms were to improve. It said more than 4,000 of the project employees would have preference in rehiring “if construction resumed,” setting the stage for more negotiations with Buenos Aires over terms that would make it viable. 

Vale has invested $2.2 billion in Rio Colorado to date, one of the biggest foreign capital investments in Argentina, and has completed work on 40 per cent of the mine, railway and port. If Vale eventually exits Rio Colorado, it would be a blow to Argentina’s president, Cristina Fernandez, during a legislative election year. The project would have made Argentina one of the world’s leading suppliers of potash, an essential fertilizer component in food production.

Argentina’s government said in a statement it “regretted Vale’s unilateral decision to abandon (the project) despite the efforts of the government and provincial and municipal authorities to guarantee the project’s continuation.” The government said Vale was demanding a series of concessions including advance rebates of value-added tax, export tax waivers and a reduction in investment commitments that would have cost the state some $3 billion over the course of two years.

The failure to find middle ground on the project complicates relations between Brazil and Argentina at a time when growth in global trade is slowing and tension between the two countries is already growing.