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BRAZILIAN MINING LAWS Brazil Considers New Mining Laws Although no decision has been made yet, the effort to improve efficiency and transparency will likely increase production costs for miners By Affonso Aurino Barros da Cunha On June 18, President Dilma Rousseff announced a single Law Project comprising all of the changes to the Brazilian mining legal frame. The market finally had access to the contents of the draft text of the Law Project, which is still to be discussed and voted on in the Brazilian Congress, and therefore subject to possible changes. Generally speaking, the Law Project did not bring great surprises, but the private sector received it with mixed relief and caution. On the one hand, the best news is the fact that the government will respect all previous mining tenements and concessions. In addition, what the government had been calling "special participation" in highly profitable projects (which would be subject to higher taxation) was left out of the new rules. On the other hand, the reason for the caution is the increase of the cap for mining royalties (known as CFEM) to 4%. Even though the rates applicable to several minerals will be defined by Presidential Decree only after the new law is enacted, there is a general sense that all rates will be increased, leading to an increase in production costs. The CFEM amounts to be paid shall be calculated with a basis on the companies' gross income, after deduction of taxes effectively paid, as levied on the commercialization of the minerals. As forecast, the Law Project creates the National Council for Mineral Policy (CNPM). It also transforms the DNPM (the government body linked to the Ministry of Mines and Energy that currently supervises mining activities in Brazil) into the National Mining Agency (ANM). It will be incumbent upon the CNPM to propose guidelines and planning for the sector, stimulating exploration and innovation. The ANM will be Demonstrations Could Delay the Process Parliament recess does not delay the period for passing the bill—45 days in the House of Representatives followed by 45 days in the Senate—otherwise the agenda of the Congress is locked. However, in view of the demands made in public demonstrations, the president of the Republic will, in due course, withdraw the request for urgency. This may have the effect of throwing cold water on the intentions of the Executive Branch, but could allow a large number of additional proposals to "tailgate" the bill. However, this is mere speculation. As to what lies ahead, our assessment is that negotiations will be as difficult as in the case of the Forest Code, the Oil Royalties and the Ports Provisional Law because, even though there is a bill, the proposal of the Executive Branch excessively concentrates decision-making in this branch. The Brazilian Mineral Policy Council (CNPM) centralizes more future decisions than CNPE and is not as democratic as CONAMA or CNRH, for example. We believe the conversion of DNPM into a reg58 E&MJ; • AUGUST 2013 ulator will not be difficult to approve in Congress, but the reality of this conversion in the short and medium term will be very complicated due to technical and operational problems in relation to the coexistence of two legislations, namely the former law and the new law. It is only now with the pre-salt tenders that the ANP will start to work with two regimes. Because the mining bill is essentially based on the oil and gas model, the difficulties involved in controlling approximately 80 mineral substances in the continent via tender offers, signature and discovery bonuses, as well as minimum national contents in the projects that will receive exploration authorizations, for example, are immense. Commencing tenders with the CPRM's inventory of areas will be a major challenge given suspicions on the part of investors as to why this was not done earlier if nothing in the law prevented the state-owned company from tendering exploration areas. Smalland medium-sized mining companies are apprehensive about the potential outcome of tenders and public invitations to bid. Large mining companies will adapt quickly. The environmental issue has not been addressed by the bill, which is bound to result in a number of discussions since it proposes a single mining title for research, exploration and closing deposits, whereas environmental laws contemplate 03 licenses (Prior, Implementation and Operation Licenses) with specific valid dates. How will these administrative acts become compatible? Indigenous land, independent open air mining and radioactive materials are outside the scope of the bill, which is likely to lower the pressure involved in the debate. For towns and states, the problem will basically be the taxation of CFEM (Financial Compensation for Exploration of Mineral Resources) since the bill provides that this tax is to be regulated by a presidential decree under the future law, whereas towns and states want to define this issue at once. There is much to come and we can only wait for future developments. www.e-mj.com