Vale announced that it has suspended its $6 billion Rio Colorado potash project in Argentina because of cost overruns.
Brazil-based miner 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.
It is feared that the decision could renew trade tensions between South America's two largest economies, Reuters reported.
If terms were to improve Vale said it might reconsider the decision. 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 percent 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.
If Rio Colorado does not go ahead, the farm sectors in Brazil and Argentina will remain dependent on potash imports from a small cartel of global suppliers in Canada, Russia and Jordan. Brazil imports 90 percent of its potash.
Analysts said Rio Colorado likely will not have a major financial impact on Vale, no matter whether the project is sold or resumed, considering that 90 percent of the company's revenues and much of its investments are still in iron ore.
Vale posted its first quarterly loss in 10 years last month, taking a $5.7 billion hit from money-losing operations. Though the world's second largest mining company says it remains committed to the fertilizer sector, it is part of a broader shift among miners away from less profitable assets in the face of lackluster metals prices.