Brazil's Congress Won't Approve Mines Laws This Year

RIO DE JANEIRO -(Dow Jones)- Brazil's Chamber of Deputies is unlikely to approve the country's proposed new mining code this year and new legislation that could boost mining royalties is still further off, a mining sector lawyer said late last week.



Discussions on proposals already made for the new mining law bill will be protracted due to the impractical nature of some proposals and the need for consistency, including in tax rules, for investors in the capital-intensive mining industry, said Carlos Vilhena, partner and head of mining practices at Pinheiro Neto Advogados, based in Brasilia.



Brazil's President Dilma Rousseff, as a former mines and energy minister, is likely to want to have greater personal involvement in elaboration of the new code, the legal specialist said during an mining sector congress organized by CRU Group in Rio de Janeiro.



The proposed new laws for the mining sector include fixed time periods for mining concessions, special rules for mining of so-called strategic minerals such as uranium and rare earths, and minimum investments in exploration. The minimum exploration investments requirement is "a retrograde step," according to Vilhena, as it tends to be very difficult to control, and police, the exact level of investments at the exploration stage, as progress depends on the degree of success in drilling work, he said.



"Nothing will happen (with the new mining bill) this year," Vilhena said. "The bill needs to go from the (mines and energy) ministry to the presidency and then on to congress. There could be a proposal to congress this year. However, the royalties issue is still a long time off."



The new legislation will be divided into three sections: the mining code establishing basic operational rules for the sector, rules for the sector's institutional framework and legislation on royalties, the lawyer said.



President Rousseff is unlikely to want any discrimination between Brazilian and foreign-owned companies investing in the Brazilian mining sector, nor will she seek to boost state control in the sector so as not to interfere with the sector's healthy investment levels, according to Vilhena. According to Brazilian Mining Institute Ibram, $62 billion is already committed to the sector from local and international investors in projects to be developed over the next four years.



Brazil is the world's biggest producer of niobium, producing 98% of global supplies, the second biggest in iron ore with 20% of the total produced, and the third biggest in bauxite, contributing 17%, according to sector figures.



Deciding on mining royalties levels in Brazil will meanwhile involve political negotiations between Brazilian states and municipalities, which receive most of the funds paid in royalties, Vilhena said.



"Brazil's mining royalties are low compared to other countries," Vilhena said. "But overall, considering other taxes, Brazil has a very high tax burden." A general tax reform in Brazil has been debated since the 1990s without any conclusion, he noted.



Edmo Chagas, analyst with BTG Pactual, said at the event that he believes Brazilian mine royalties will rise to 6%-8% from the current ceiling of 3%, affecting companies' earnings before interest, taxes, depreciation and amortization performance and forcing them to seek more efficiency, for instance in shipping practices, to maintain their competitiveness, he said. An integrated iron ore mining and steelmaking company would see its margins fall 5% if royalties were to increase to that level, he said.