Brazil: The Brazilian Mining Sector Starts 2015 With Regulatory Changes And A New Minister

Last Updated: 19 January 2015
Article by Pedro Garcia, Catarina Freitas and Thiago Valente

By the end of December 2014, the National Department of Mineral Production ("DNPM") issued ordinances 540, 541 and 542 bringing various regulatory changes for the mining sector with respect to mineral waters, administrative proceedings applicable to all mining segments and extraction of fossils. Some of the most relevant aspects of these ordinances are highlighted below.

Also, the new year began with the new Minister of Mines and Energy taking office, Mr. Eduardo Braga, who, in his inauguration speech, indicated that he will revisit the Government's proposal for the new mining regulatory framework, taking the current economic scenario into account. Mr. Braga was the Mayor of the City of Manaus, in the State of Amazonas, from 1994 to 1996, Governor of Amazonas from 2003 until 2010, and, finally, while a senator, he was the Government leader in the Senate from March 2012 to 2014.

Ordinance on Mineral Waters

Ordinance 540, which is more specific to companies in the mineral waters segment, came into force on the same date of its publication, December 19, 2014. The Ordinance on Mineral Waters establishes minimum thresholds of elements or substances for the classification of Mineral Waters by the DNPM. Such classification shall be made according to the predominant element and the need to establish, in the appropriate proportions, the limits of ions or elements and substances in mineral waters, in accordance with Brazilian regulations and international standards. In this regard, the Ordinance on Mineral Waters classifies as mineral waters the waters from natural sources or artificially collected sources that contain elements or substances with the following minimum thresholds:

a) Fluoridated Water - when containing at least 0.02 mg/L of fluoride;

b) Vanadium Water - when containing at least 0,03 mg/L of vanadium;

c) Lithia Water - when containing at least 0,01 mg/L of lithium; and

d) Selenium Water - when containing at least 0,006 mg/L of selenium.

Administrative Proceedings Ordinance Ordinance 541 has a broader scope and applies to mining companies in various segments. This new Administrative Proceedings Ordinance will only come into force on February 2, 2015, but will in some circumstances apply to ongoing proceedings before the DNPM. The new fees relative to the extension of small scale mining permits and to the issuance extraction (experimental) permits (the so-called "Utilization Permits"), on the other hand, will only apply to requests submitted after the effective date of the ordinance.

The new ordinance regulates various proceedings adopted by the DNPM, including through amendments to several former ordinances, such as those that regulate the transfer and assignment of mineral rights and the Utilization Permits, and increases some administrative fees. The ordinance also establishes new rules for the change between mining regimes, the communication of decisions issued during administrative proceedings and determines that certain acts shall require specific powers in the respective powers-of-attorney for representation before the DNPM.

On the assignment of mineral rights, it is worth highlighting that the Administrative Proceedings Ordinance provides that mineral rights may still be assigned and transferred, as long as the following requirements are met: (i) there are no pending debts of the annual fee per hectare with respect to the mineral right subject to the assignment; (ii) any inspection fees in relation to the mineral right subject to the assignment have been paid; (iii) there are no pending debts as to the governmental royalty, the Financial Compensation for the Exploitation of Mineral Resources ("CFEM"), in relation to the mineral right subject to the assignment. It is worth noting that the rule applicable to the CFEM debts does not apply to M&A transactions involving companies within the same economic group.

In addition, the new ordinance altered several rules that apply to the Utilization Permits (again, these are experimental/extraction permits), as follows:

i. the trade of minerals extracted in the context of Utilization Permits shall only be authorized at the DNPM's discretion and in accordance with applicable public policies;

ii. those interested in receiving new Utilization Permits or in renewing existing ones should pay close attention to the validity terms of their respective exploration permits, to any applications for the suspension of decisions regarding exploration reports or to applications for the approval of final exploration reports, since these proceedings are now interconnected and interdependent with the Utilization Permits (i.e., the Utilization Permits shall depend on the status and validity of such other proceedings); and

iii. whenever a decision over an application for the renewal of an Utilization Permit is pending, the ordinance provides that the existing permit shall remain effective for another 60 days counted as from its expiration date, as long as its respective environmental license is still in force. After such 60 days, the Utilization Permit shall expire and the extractive activities must be interrupted.

Tender proceedings for areas made available to third-party proposals have also been modified. In particular, the new ordinance sets forth new rules for cases where only one proposal is submitted. In such cases, (i) the Judging Commission, the DNPM Superintendent or any official having been appointed by him must certify that only one proposal has been submitted; (ii) the documents that integrate the sole proposal shall be forwarded to the department's protocol and will be deemed as an original application for mineral rights; and (iii) the proceeding pertaining to the very tender proceeding shall be closed.

The new Administrative Proceedings Ordinance also determines that the proceedings pertaining to applications for mining concessions must be instructed with the respective environmental licenses, subject to denial of the application and the respective area being made available to third parties in a tender proceeding, in case the company fails to submit the license within 180 days from the DNPM's request (this deadline may be extended, at the discretion of the DNPM, as long as the request for extension is justified and submitted within the period established for meeting the requirement).

The Administrative Proceedings Ordinance also regulated in details the possibilities of certain mineral rights being converted into other types of mineral rights. In particular, the ordinance provides for the change from the exploration license regime to either the licensing (which is applicable to, among others, civil construction minerals) or to small scale mining permit regimes, and vice-versa. The change from a small scale mining permit regime to the exploration license regime may also occur by initiative of the DNPM, when so deemed necessary.

The Administrative Proceedings Ordinance determines that the following acts, among other that may be determined by the DNPM, shall require specific powers in the respective powers-of-attorney for representation before the DNPM: transfer and assignment of rights, cancellation or waiver of rights, obtaining copies of Annual Mining Reports and applications for exploration licenses, licensing permits or small scale mining permits.

Fossils Extraction Ordinance

Finally, Ordinance 542 entered into force on the same date of its publication, on December 22, 2014. This Fossils Extraction Ordinance defines the procedures for communication and prior authorization for fossil extraction. The ordinance sets forth that the extraction of fossil must always be preceded by an authorization and take place with the supervision of the DNPM, except when performed by federal and/or state museums, and similar official institutions, in which cases a simple prior notice to the DNPM would suffice.

The extraction of fossils shall be authorized to activities related to projects of paleontological preservation or scientific projects and activities of scientific nature. The extraction of fossils for trading purposes shall not be allowed. Moreover, the Ordinance also provides that the permit holder or the author of the communication will be liable for any damages and losses that may be caused to third parties as a consequence of the fossil extraction activities.

The request for extraction must be prepared in accordance with the specific procedures and within the term provided by the Ordinance. After the respective technical analysis by the DNPM officials, such request for authorization shall be submitted to the DNPM Director of Mining Activities Surveillance, who shall then issue a detailed decision. Lastly, it is important to highlight that the Fossils Extraction Ordinance sets forth that, whenever possible, the paleontological preservation affecting mining areas shall be performed in tandem with the mining activities. Furthermore, the holder of the authorization for extraction of fossils is not exempted from complying with any further legal requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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