CORRECTED-Brazil may cancel, pay for 'strategic' mine rights
(Corrects spelling of Potassio do Brasil in 13th paragraph)
* Changes considered as Brazil reviews mining code
* Gov't concerned with lost tax, royalty revenue
* Sources see new rules ending chaotic mining claims
* Miner says proposals run afoul of Brazil constitution
By Sabrina Lorenzi
RIO DE JANEIRO, June 27 (Reuters) - Brazil is considering cancelling some mineral rights in areas considered "strategic" and compensating mining companies for prospecting work done on those claims, high-level Brazilian government and mining industry officials told Reuters.
If enacted, the plan could limit exploration rights and raise prospecting costs of companies with mining operations in the country, such as Brazil's Vale SA and MMX Mineração e Metalicos SA, Great Britain's Anglo American Plc and Australia's BHP Billiton.
Metals and minerals being considered as "strategic" include potash, rare-earth metals and phosphates, the sources said. Large iron-ore deposits that have not yet been leased may also be set aside as strategic and held for special auctions.
Brazil is the world's largest exporter of iron ore, the main ingredient in steel, a major producer of bauxite, the main ingredient in aluminum, and a growing producer of nickel and copper, key industrial metals.
The proposals are part of discussions regarding a new Brazilian mining code, which the government of President Dilma Rousseff expects to present to Brazil's Congress in the coming weeks or months.
Under the expected legislation, which is part of governmental efforts to boost revenue and increase state control over energy and natural resources, Brazil will sell some mineral rights to the highest bidder under rules similar to its petroleum-rights auction system.
In anticipation of the new legislation, Brazil's Mining Ministry and National Mineral Production Department (DNPM) have stopped issuing new mineral rights and exploration licenses, the sources said.
"We've stopped everything. You can't permit what's going on, things that don't exist in any other country," a senior executive-branch official said. He did not want to be identified because he is involved in drafting the legislation.
Brazil's mining ministry did not immediately respond to telephone and e-mail requests for comment.
While all subsurface mineral rights belong to Brazil's federal government, the concessions to develop them go to the first person to file a legitimate claim, a situation some in the government consider chaotic. They also believe that the system does not bring the government enough revenue.
These officials, who have been holding meetings with industry leaders for several years on mining-code changes, also worry that many concession holders sit on their rights and never develop them.
Some industry executives say that efforts to expropriate mineral rights, even with compensation, will never happen under Brazil's constitution, which makes it nearly impossible for a government to take away a person or company's "acquired rights."
"Governments have tried to do something like this for years and they have never been able to get past the industry or the constitution," said Helio Diniz, managing director of Potassio do Brasil, a Belo Horizonte-based junior miner prospecting for potash deposits in Brazil's Amazon region.
"The last time they got close to something like this was in the 1930s with some gold mines," he said. "Not only is the legal basis weak, the government doesn't have the money to develop or pay for the resources. I tell you right now, it won't happen."
Despite Diniz's confidence, many in Brazil's mining industry are concerned that the government is preparing a nationalist intervention in the economy.
It has already limited the involvement of all oil companies except state-led Petrobras in future development of the country's most promising offshore oil reserves. The government has also moved to limit foreign ownership of farmland and is reportedly trying to reduce foreign ownership of electricity distribution utilities and steel works.
PROVISIONAL EXPLORATION RIGHTS
The government's overhaul of the mining code may get around acquired rights issues by changing the rules for exploration and licensing in the new mining code, sources said. Under new rules, exploration rights may be provisional and cancelable, with compensation, before actual mining concessions are granted.
The government is particularly concerned about how the private sector extracts Brazil's reserves of potash, or potassium chloride, a key fertilizer, sources said.
Brazil, the world's second-largest soybean producer and exporter, must import 90 percent of its potash, limiting returns from agriculture, one of Brazil's important sectors.
Diniz's Potassio do Brasil has already had its $94 million winning bid for Amazon potash assets owned by state-led Petrobras blocked by the government, the controlling shareholder of Petrobras.
Potassio do Brasil has raised capital from Brazilian and foreign investors and is controlled by Forbes & Manhattan, a Canadian merchant bank. (Writing and additional reporting by Jeb Blount)