* 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 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
The company, which is seeking a financial partner for the
project, halted work on it in December and put 4,000 workers on
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
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,
The paper also said that the Argentine government declined
Vale's tax requests and ratcheted up its own demands on the
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)