Brazil: Reform Of The Brazilian Mining Sector – Key Aspects

Last Updated: 30 August 2017
Article by Christian Galvão Davies and Isaac Cattan

On 7/25/2017, President Michel Temer approved 3 Provisional Measures (PMs) to reform the Brazilian mining sector: (i) PM No. 789, which alters the regime of the Financial Compensation for Exploitation of Mineral Resources (Compensação Financeira pela Exploração de Recursos Minerais – CFEM); (ii) PM No. 790, which amends several provisions of Decree-Law No. 227, of 2/28/1967 (the so-called Brazilian Mining Code); and (iii) PM No. 791, which replaces the National Department of Mineral Production (Departamento Nacional de Produção Mineral - DNPM), with the newly formed Mining National Agency (Agência Nacional de Mineração - ANM)1.

The reform has a positive intent of modernizing the Brazilian mining legal framework, by establishing that reports on mineral research and the determination of reserves in mineral deposits shall comply with internationally adopted criteria, and by increasing the independence and supervision prerogatives of the Brazilian mining regulator, including with respect to compliance by the miner of environmental laws. On the other hand, the new PMs have the downside of increasing the tax burden and other costs applicable to mining activities. The key aspects of the Brazilian mining reform are set out below.

Mining Regimes

PM No. 790 has maintained the regimes set forth in the Brazilian Mining Code for the research and exploitation of mineral resources. The mining concession (concessão de lavra) is the regime applicable to the exploitation of most minerals in Brazil and is preceded by a research authorization (autorização de pesquisa)2.

As a general rule, the party interested in exploiting mineral resources in Brazil will first apply to the ANM for a research authorization for a certain area and a given term. The ANM will deny or impose amendments to the application if the relevant area is already covered in whole or in part by existing mining rights. Once the interested party obtains the research authorization, performs the mineral research and obtains ANM approval of a final research report presented within the term of the research authorization demonstrating to ANM that the economic exploitation of the required mineral in the applicable area is viable, a mining concession may be requested to the Minister of Mines and Energy. The minimum term of the research authorization was increased from 1 to 2 years under the reform. Such term is extendable only once, upon demonstration to ANM that reasonable research has been performed in the applicable area3.

Mining concessions and research authorizations may be transferred to third parties upon consent of the Minister of Mines and Energy and the ANM, respectively. No transfer of mining rights can be authorized in case assignor or assignee has debts with the ANM that have been recorded as federal collectible debt (dívida ativa, i.e. debt that is not appealable before the administrative tax court and can be foreclosed on).

The relatively low barriers for private parties to commence mineral research is a positive aspect of the Brazilian mining framework, especially taking into account the substantial costs involved in mining research. Furthermore, the possibility of transfer of mining rights stimulates business in the sector.

Another positive innovation of the reform is the possibility to extend the research authorization after the delivery to ANM of the final research report, which allows the owner of the mining right to refine knowledge of the mineral deposit in question.

Electronic Public Auctions

The mining reform also introduced a system to allow the continuation of mining activities in areas previously occupied by third party miners that lost their titles. The area considered free (desonerada) by a decision of ANM or of the Minister of Mines and Energy, or as a result of any other loss of the mining rights by the previous holder, shall become available for research or exploitation following electronic public auctions, in which the highest amount offered shall determine the winner. Such payment is one of the newly established sources of revenue for ANM. Failure to pay such amount subjects the highest bidder to a fine equivalent to 50% of the minimum price established by ANM, as well as temporary suspension of such party from any process of obtaining mining rights.

Mining Regulator Independence, Supervision Prerogatives and Applicable Penalties

The replacement of the DNPM with the ANM aims primarily to increase the independence and budget of the Brazilian mining regulator. The body will have a collegiate board (diretoria colegiada) formed by 5 members with fixed terms. Regulation proposals are to be discussed in public consultations, which shall enhance independence and transparency of the body. PM No. 791 brings an array of sources of funds for ANM, which seeks to resolve the historical underfunding of the regulator which affected its efficiency.

ANM may demand biannual reports on the progress of researches. All research reports shall follow international standards. Failure to report is subject to penalties.

Although such disclosure requirements may increase compliance costs, they will also work as a deterrent against parties who seek authorization and subsequently failing to perform research in the applicable area, thus obstructing the possibility of research by other parties. This has been a frequent issue in the Brazilian mining sector.

ANM is also to have a greater level of supervision over the environmental licensing procedure preceding the granting of the mining concession. The private party having requested a mining concession shall report to ANM every 6 months the status of the environmental licensing and evidence of compliance with requests of the relevant environmental authority, under penalty of denial of the mining concession.

The reform has increased the amounts of previously existing penalties for the breach of mining laws and regulations. Fines now vary from R$2,000.00 to R$30,000,000.00. Additional penalties have been included: (i) daily fines of R$100.00 to R$50,000.00; (ii) temporary suspension, in whole or in part, of mining activities; and (iii) seizure of minerals, assets and equipment, in addition to the cancellation of mining rights.

Tax Burden, TFAM and Other Costs

The reform seeks to increase the CFEM tax burden. CFEM is calculated based upon net sales (faturamento líquido) of mining products4, and the taxes levied upon such sale and expenses with insurance and transportation are deductible therefrom. In case PM No. 789 is timely approved by Congress, CFEM shall be due following the sale of mining products, based on the gross revenues (receita bruta) of such sales, maintaining the deductibility of the taxes levied thereupon5.

PM No. 791 creates a Surveillance Charge for Mining Activities (Taxa de Fiscalização de Atividades Minerais - TFAM). TFAM is payable for the inspection of mining activities by ANM and shall be charged once a year, until April 30, from the owners of mining rights under the regimes of research authorization, mining concession, licensing and independent mining.

Annual amounts of TFAM applicable to the regimes of research authorization, mining concession and licensing are as follows: (i) R$2,000.00 per research authorization, between the date of its granting until the delivery of the final report; (ii) R$1,000.00 per research authorization between the delivery of the final research report to ANM until the granting of the mining concession; (iii) R$5,000.00 for each effective mining concession; and (iv) R$3,000.00 for each licensing in force. Late payments of TFAM shall be punished by fines of 50%.

The assignee of a given mining right shall be jointly liable for any prior debts of CFEM and TFAM. This is to be taken into account in due diligence procedures for the acquisition of mining enterprises.

Other costs to which miners are subject will also be increased. Brazilian law sets forth that owners of lands where mining activities take place cannot oppose such activities by the holder of relevant mining rights, but are entitled to a portion of the results of the exploitation, corresponding to 50% of amounts paid as CFEM. With the increase of the CFEM, these amounts will also increase. This is without prejudice to other amounts due by miners to landowners, not revoked by the mining reform: (i) revenues for the occupation of the land – corresponding to the loss of revenues of the landowner due to the occupation of the area by mining activities, in whole or in part; and (ii) indemnification for damages caused by mining activities to the respective land.

Environmental Aspects

According to the new wording of Articles 7 and 47 of the Brazilian Mining Code, the closing of a mine is an integral part of mining activities and executing a mine closing plan adequately is a condition for the extinction of the mining concession. This includes the mitigation, to the furthest extent possible, of environmental impacts stemming from mining activities during and after the useful life of the mine. The performance of mining activities entails the liability of the miner for the environmental recovery of the affected areas.

Footnotes

1. Such Provisional Measures must be approved, i.e. converted into law, by the two houses of Congress within 120 days of July 25, failing which the PMs will lose effectiveness retroactively to the date of their issuance.
2. The Brazilian Mining Code also sets forth the regimes of: (i) permission for independent mining (permissão de lavra garimpeira), applicable to individual independent miners; (ii) monopolization (monopolização), applicable to minerals under special regimes and exploitable solely by the Brazilian Federal Government; and (iii) licensing (licenciamento), applicable to the exploitation of sand, rocks and clay for immediate use in civil construction.
3. Previous legislation did not specify how many times a research authorization could be renewed. This was left to the interpretation of the former mining regulator.
4. Pursuant to Law No. 7,990, dated 12/28/1989, and Law No. 8,001, dated 3/13/1990. Amendments to tax burdens set forth in PM 789 shall only become effective as from 1/1/2018, if it is timely converted into law.
5. Additionally, CFEM will be levied upon: (i) the consumption of mining products, based on the calculated revenue, considering the price of the product in the local market; (ii) exportation of mining products to legal entities based in tax havens, based on the calculated revenues, considering standards defined by the Brazilian Federal Revenue Secretariat; (iii) public auctions of mining products, as applicable, based on the price paid; and (iv) first acquisition of mining products extracted by independent miners (garimpeiros), based on the value of such acquisition.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Levy & Salomao Advogados
Levy & Salomao Advogados
Felsberg e Associados
Levy & Salomao Advogados
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Levy & Salomao Advogados
Levy & Salomao Advogados
Felsberg e Associados
Levy & Salomao Advogados
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions