The Rio Colorado Potash mine project in Argentina's Mendoza Province marks Rio Tinto's first large-scale step into the fertilizer industry.

The company is eyeing strong demand for the fertilizer additive from Brazil, one of the world's largest consumers of potash. Expanding soy production in the south of Brazil has led to widespread clearing of land and cultivation of soil deficient in potash, Fox said.

"The Brazilian market is key to the success of this project," he said.

China and India are also major potash consumers, and have no local production of the fertilizer ingredient, he added.

The Rio Colorado mine is expected to produce 2.4 million metric tons of potash per year within three to five years of coming on line, Fox said.

The mine has estimated reserves of 100 million tons of potash, with a productive life of at least 40 years, Fox said.

The mine will make Argentina the largest potash producer in Latin America, and the fifth-largest producer in the world. Canada, Russia and Belarus currently dominate potash production.

With current world production at 52 million tons per year, the Rio Colorado mine would increase worldwide output by 4.6%, Fox said.

Production Planned For 2009

Rio Tinto is close to finishing its feasibility study and social and environmental impact assessment and expects to launch its applications for permits in November, Fox said. Permission for the mine and associated transport projects will be needed from the provincial authorities of Mendoza, Neuquen, Rio Negro and Buenos Aires.

"We expect to receive approval from the provinces in the middle of 2007 and then will seek approval from the Rio Tinto Board to start construction," Fox said.

With construction expected to take between two and 2 1/2 years, the earliest production date would be in mid-to-late 2009, Fox said, but added that was assuming they receive all approvals by the middle of 2007.

The project is expected to cost between $750 million and $800 million to develop, according to Fox. Rio Tinto has already spent $35 million on development.

Rio Tinto has been working on the project since 2003, when the company bought the mineral rights at the site from Potasi Rio Colorado S.A.

The company built a pilot plant on the site, which has been operational for two years. Employees are flown in from the nearby town of Malargue, in Mendoza Province, to man operations.

Pumping Out Potash A Kilometer Underground

Rio Tinto is planning to use a system of solution mining, where water is pumped 1,000 meters below the surface to dissolve the potash deposits. The fluid is then extracted and the potash recovered through an evaporation process on the surface.

This marks the first time that the solution process had been employed in Latin America, Fox noted.

The successful tests have left the company "convinced that this process works," he said.

The mine will consume an estimated 250 liters per second of water from the nearby Colorado River, sparking concerns about the heavy water use of the project.

However, the use represents less than 1% of the low end of river flow, Fox said. Moreover, the mine will use a closed process, recycling significant amounts of the water consumed, he added.

There is growing resistance to mining projects across the Andes from environmentalists and local communities.

However, most opposition to mining is centered on open-pit gold and copper mines due to their use of toxic chemicals and surface impact, Fox pointed out.

"There are no chemicals involved in the extraction phase of this project and the net effect on the surface will be small," Fox said.

In addition, Rio Tinto has operated a small-scale borax mine in Argentina's northern province of Salta for over 30 years. The Salta mine provided "valuable operational experience" for the company as it presses forward with the Rio Colorado project, Fox said.

The project requires cooperation from the authorities in five provinces, which involves a complicated process of negotiation and providing benefits to each, Fox said.

Getting It To Docks

A significant element of the company's plans involves developing transport infrastructure to get the potash from high in the Andes, across the pampas and to port.

Rio Tinto is currently negotiating with Ferrosur Roca S.A., the Brazilian-owned rail network, to extend the rail line to a transfer station at Chanar, 250 kilometers from site, and make necessary improvements, Fox said.

The company is also planning to build a new $100 million port facility at the coastal town of Bahia Blanca in Buenos Aires Province. The complex will involve a 200,000-ton storage facility, a conveyor belt and a new dock for loading ships, Fox said.

Rio Tinto is also considering the construction of a secondary processing plant at the Bahia Blanca site to conduct compaction on the potash, Fox said. Compaction converts the potash from powder form to particles ready for soil application.

And The Power?

One potential issue that could stall the project is Argentina's chronic energy shortages, Fox said.

The mine will require over one million cubic meters of natural gas per day and 60 to 65 megawatts of on-line electricity, he said.

Argentina has faced chronic natural gas shortages since early 2004, leading government planners to restrict shipments to industrial users and switch power generators over to more costly fuel oil.

"That is, right now, probably our greatest uncertainty...whether we'll be able to obtain long-term agreements for long-term energy supply for the project," Fox said.

"Essentially, no energy, no project for us," Fox said