Rio de Janeiro State's Public Ministry has filed legal action with a state court calling for the suspension of work on Latin American steelmaker Ternium SA (TX)'s Acu steel project in Rio de Janeiro, southeast Brazil.

Public ministry prosecutors allege there were irregularities in the process that resulted in an installation license being granted to Ternium for the steel plant on March 27 by Rio de Janeiro state's environmental authorities, Public Ministry spokesmen said Monday. The process didn't complete in-depth studies on the possible environmental impact of the works, said the prosecutors, adding that less-polluting technology could be adopted at the works.

Ternium gained a preliminary license last year to set up a steel slabs plant at Acu port with a capacity to produce up to 8.4 million metric tons a year of steel slabs at a 1,300-hectare site. The works has been designed to use coal as a raw material, which the ministry says would be highly polluting. According to people with knowledge of the situation, Ternium has been seeking supplies of natural gas to use as a substitute for coal in a less-polluting process, but gas supplies haven't yet been confirmed.

Ternium had no immediate comment on the technology to be used at the works, nor on the ministry's action, when contacted by Dow Jones Newswires.

The ministry action calls for a suspension of work on the project until the alleged irregularities in the licensing process can be corrected. The action will be judged by a Rio de Janeiro state court, which will rule whether or not work can continue on the Ternium steelworks project, the ministry spokesmen said. No date has yet been fixed for the hearing in the state court, they said.

According to LLX Logistica SA (LLXL3.BR), the company building Acu port, construction work on the Ternium steel mill project hasn't yet started. The mill will source iron ore for its steel production from the Minas-Rio iron ore project being developed by Anglo American PLC (AA.LN) in Brazil.

Barclays Capital said in a research note Monday it expects the start of construction at Ternium's Acu steel mill may "take longer than expected...the development of the project is still subject to some factors, such as the availability of natural gas at competitive prices and the entrance of potential partners (i.e. Usiminas, Nippon (Steel), Tenaris)."

"Problems in obtaining licenses for mineral/steel projects in Brazil have been a constant and a key source of delays," Barclays said in the note to clients.

-By Diana Kinch, Dow Jones Newswires, 55 21 2586 6086 diana.kinch@dowjones.com

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