July 26, 2017
Newsletter - Changes on Brazilian Mining Sector
On July 25th, 2017 Brazilian President Michel Temer, the Minister of Mines and Energy Fernando Coelho Filho, the Chief of Staff Eliseu Padilha and Rodrigo Maia, the Speaker of the House of Representatives hosted an event to announce the Brazilian Mining Industry Revitalization Program, aiming to recover the mining sector credibility, attract new investments, ensure legal and regulatory certainty, reduce bureaucracy of the sector and increase geological reconnaissance of the Brazilian territory.
Some changes introduced through the issuance of Executive Orders (“Medidas Provisórias” - MP) No. 789, No. 790 and No. 791 from 2017 to Brazilian legislation include the creation of a Brazilian Mining Agency (ANM), changes on the calculation of the mining royalty (CFEM) and changes in the Mining Code (decree-law No. 227/1967), as detailed below:
MP No. 789/2017: modifies the calculation method regarding CFEM, the mining royalty:
- Assignor and assignee of mining rights are jointly liable for CFEM existing debts;
- The new tax basis will consider the gross revenue of the mineral sale, not including taxes. Currently, the tax basis considers the net sales. The new rules will be enforceable on August 1st;
- Tax rates set forth by law, on a maximum of 4%:
- 0,2%: gold and diamond, when extracted through small scale mining permission regime, and other gemstones;
- 1,5%: rocks, sand, gravel, clay and other minerals used in civil construction;
- 2%: gold and other minerals, except for iron ore; and
- 3%: bauxite, manganese, diamond, niobium, potassium and halite;
- For mining ore: progressive tax rates, according to the international price:
- 2%: below US$ 60;
- 2,5%: from US$ 60 and below US$ 70;
- 3%: from US$ 70 and below US$ 80;
- 3,5%: from US$ 80 and below US$ 100; and
- 4%: from US$ 100 on.
- Changes in the tax rates will be enforceable on November 1st, 2017;
- In cases where the miner consumes the mineral, the tax basis will be its price in the local, regional, national or global market, according to the case, or previously established by the mining authority. Nowadays, there is legal uncertainty because DNPM considers the price on the moment of the mineral transformation.
MP No. 790/2017: changes some sections of the current Mining Code, maintaining the current legal regime (first-come, first-served principle). For example:
- Allows additional mining exploration after the issuance of a final exploration report;
- Changes the exploration deadlines (that may vary from 2 to 4 years), at ANM’s sole discretion. The deadline is renewable once, for the same amount of time;
- Extraordinary deadline extension if the miner, despite its best efforts, cannot access the area or obtain environmental licenses;
- New procedures for available areas (in which there was already someone holding mining rights over the area, but the mining rights were voided, relinquished or forfeited, for instance): electronic tender through higher bid criteria;
- If miners have debts with ANM, negotiating mining rights will not be possible;
- Readjusts fines and fees, which will be enforceable on January 1st, 2018:
- The Annual Fee per Hectare will have a progressive value, according to regulation of the Ministry of Mines and Energy;
- Simple fines that may vary from BRL 2,000 to BRL 30 million;
- Daily fines that may vary from BRL 100 to BLR 50,000.
- Mine closure plan and the National Policy for Waste Dams are now part of the mining activities.
MP No. 791/2017: creates the ANM, responsible for regulating and inspecting mining activities, and also new charges:
- Transformation of the National Department of Mining Production (DNPM) in ANM, a regulation agency connected to the Ministry of Mines and Energy, with headquarters in the Federal District, authorized to have regional branches (currently, DNPM has one branch in each Brazilian state);
- Creation of terms for a collegiate directorship: currently, DNPM is directed by one director-general that can be removed from office at any time. The new ANM model contributes to regulatory certainty and less political interference, once the office of the 5 directors should have a 5 year term;
- ANM Directors should have professional requirements before taking office, and there are also prohibitions related to conflicts of interest;
- Creation of Mining Activities Inspection Fee (TFAM) that will vary from BRL 500 to BRL 5,000 on a yearly basis for each mining right, depending on the current phase.
According to the procedure set forth on Section 62 of the Constitution, the Executive Orders have full force of law and can be used by the president on urgent and relevant matters, and depend on Congress approval to be signed into law.
When received by the Congress, a Commission with both Senate and House of Representatives members should issue a report on the matter. Then, the executive orders should be voted in the floors of the House of Representatives and the Senate, separately.