Brazil's Vale likely to cancel $5.9 bln mine in Argentina -Folha
* Argentina rejected tax rebate plea, Folha says
* Fertiliser mine budget could hit $11 bln
* Project seen as key to Brazilian agriculure
RIO DE JANEIRO, March 10 (Reuters) - Brazilian mining giant Vale SA is likely to cancel a $5.9 billion potash project after failing to gain tax breaks from Argentina, the Folha de S. Paulo newspaper reported on Sunday.
Without relief from the Argentine government, the cost of the Rio Colorado potash mine, railway and port system is expected to soar 86 percent to $11 billion, making it unviable, Folha said, citing unnamed Vale officials.
The possibility of Vale pulling out of the project would also be a blow for the Brazilian government, which was counting on the mine in Argentina to help to secure new supplies of potash, a critical fertiliser, for its agricultural industry.
Brazil imports about 90 percent of its potash needs, from as far away as Canada, Jordan and Russia. Supplies closer to home, including neighbouring Argentina, are seen as a strategic necessity for the world's largest producer of coffee, orange juice and beef.
Market sources last month said that Vale was seeking tax breaks for the project to help to compensate for soaring costs related to inflation and exchange rates. Unofficial estimates measure inflation in Argentina at about 25 percent a year, well above the official rate of 10.8 percent in 2012.
Vale is seeking no changes to Argentine labour or tax law and is looking for ways to make the project financially viable, the company said in an e-mailed response to questions about the Folha report.
The company, which is seeking a financial partner for the project, halted work on it in December and put 4,000 workers on paid leave.
The delay in Argentina came as Vale put mining projects around the world on review, took a $5.66 billion writedown on assets and sought partners or buyers for other projects to bolster its accounts after a downturn in iron ore prices in 2012.
Rio de Janeiro-based Vale is the world's largest producer of iron ore, the main ingredient in steel, and the second-largest producer of nickel.
Vale's board meets on Monday to discuss the potash project, Folha said.
The paper also said that the Argentine government declined Vale's tax requests and ratcheted up its own demands on the mining company.
Argentine government officials in Buenos Aires were not immediately available for comment on Sunday and the Mining Secretariat in Buenos Aires did not immediately respond to an e-mail request for comment.
The country's Embassy in Brasilia did not immediately respond to telephone and e-mail requests for comment.
(Reporting by Jeb Blount; Additional reporting by Jorge Otaola in Buenos Aires; Editing by David Goodman)