On June 17th, the Brazilian Government submitted to the National Congress a bill of law that sets forth the new legal framework for the mining sector in the country. If approved, the New Mining Code, as it is called, should introduce substantial change to the provisions of the current Mining Code, which dates from the 1960s.
One of the most significant innovations being proposed is the introduction of a new method for the concession of mining titles. Inspired by the oil & gas legal framework, the new National Mining Agency (NMA) shall be endowed with the authority not only to regulate and supervise the mining sector, but also to organize public bidding for the concession of new mineral rights. However, the selection of the mining rights to be offered at those auctions will fall within the competency of the so called National Counsel of Mining Policies (NCMP), a counsel that will report directly to the President.
The winning criteria for the concessions should be defined by the NMA for each public auction, but should include Signature Bonus, Discovery Bonus, the participation in the revenues offered, and/or the minimum exploration plan. Notwithstanding those competition criteria, the concessionaires should also have to comply with minimum local content standards and prove minimum financial and technical capabilities, as will be set forth in the tender protocol.
Notwithstanding the general rules regarding the bidding process, the bill of law introduces two other alternative methods for the granting of mineral rights. The first is through “public calls” made by the NCMP aiming to grant areas of interest to mining companies that have not been offered in the public auctions, but which one or more mining companies have shown interest to acquire. The second alternative is the mining authorization for the exploitation of civil-construction raw materials, such as clay and ornamental rocks, as well as the production of mineral water. The granting process of both should be simplified.
Also, the bill of law proposes the unification of the exploration and production rights under a single title. The new mining rights would, however, be limited to a term of 40 years, but renewable for 20 more years, successively, so long the requirements set forth under the concession agreement have been complied with. Another significant change proposed is the requirement for NMA’s prior approval for change of control of companies holding mining titles.
Changes proposed to the royalty provisions are also important. The proposed New Mining Code sets forth that the royalties shall be levied not on the net revenues of the mineral sales, but on the gross revenues, discounting, however, other taxes also levied on the commercialization of the mineral production. The bill of law also proposes that the maximum level of the royalty be now 4%, but the royalty levels levied to each specific mineral shall be regulated by the Executive Authority.
Further to the changes to the royalties, the bill of law proposes the creation of a Surveillance Tax of BRL80,000.00 to be paid annually, but reducible to one fifteenth under certain circumstances, such as based on the company’s gross revenues.
The bill of law also guarantees full respect to the mineral rights granted under the current Mining Code, provided, however, that the works are in course or under an authorized suspension and the mining companies are in full compliance with the other commitments sets forth under the respective exploration or exploitation plan. Also, exploration titles already requested but not yet granted under the current Mining Code should continue valid, subject to certain conditions, but it will be granted in the form of the “public calls” by the NCMP.
The bill of law must still pass through the National Congress and, only upon approval, shall it revoke the current Mining Code.
Observations in this update about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.