(Government corrects royalty figure to say it will be up to 4
percent with some exceptions in 8th and 9th paragraphs (not 0.5
percent to 4 percent)
* Bill to require rights to be developed or lost
* Introduces auction system for some mining prospects
* Vale CEO says would have "major impact" on companies
By Jeb Blount
RIO DE JANEIRO, June 18 Brazil, the world's
second-largest producer of iron ore, unveiled a long-awaited
bill to reform the country's 46-year-old mining code on Tuesday,
proposing royalties of up to 4 percent, double the current rate.
Murilo Ferreira, chief executive of Vale SA, the
world's largest iron ore exporter, said the bill would hit
miners hard. He estimated the government's total take from
royalties would rise to $4.2 billion reais ($1.93 billion) from
$1.7 billion reais.
Even so, provisions of the bill are less onerous than the
mining industry had feared when the discussion of reforms began
nearly four years ago. The top rate under the proposal is only
one-third of basic royalties charged in Australia, for example.
Brazil is getting ready to enact the reforms at a time when
the mining industry is experiencing a sharp slowdown. When the
bill was first proposed in 2009, the industry was in one of its
most prosperous periods ever.
Vale's preferred shares, the Rio de Janeiro-based company's
most-active class of stock, rose 1.8 percent in early afternoon
trading in Sao Paulo.
The legislation will test the government's efforts to reduce
tensions with investors, many of whom have criticized President
Dilma Rousseff's economic polices as erratic and her attitude
toward business "heavy handed."
Rousseff, in a televised statement announcing the bill, said
the government wanted miners to have contractual stability and
security and for concession renewals to be contingent on them
meeting investment and environmental goals.
The bill proposes royalties of up to 4 percent calculated on
the basis of the gross income, minus taxes, generated by mining
projects. Under the bill the government has the right to make
excptions to the royalty, charging lower rates on a case by case
After the bill becomes law, the government will set the
actual rates by presidential decree. Brazil's mines and energy
ministry said. Each decree is subject to congressional review.
Currently, royalties are determined on the basis of net
income. The change could place a heavier burden on mining
companies such as Vale, which could no longer deduct the cost of
Such costs are particularly significant because Vale's
competitors, including Australia's BHP Billiton Ltd and Rio
Tinto Ltd, are closer to China, the main global market for iron
ore and other metals.
In addition to iron ore, Brazil is also a major producer of
copper, gold, bauxite, nickel and manganese.
The bill also proposes the creation of a new mine regulatory
agency and would require holders of mining rights to develop
their claims or lose them. It envisions an auction system for
some mining rights with concessions of 40 years, renewable for
Congress will likely debate and vote on the bill by the end
of the year, Mines and Energy Minister Edison Lobão said. He
said Brazil would start to strictly enforce all clauses in
existing mining rights immediately, ending previous leniency.
The government believes that too many mining rights are
being left undeveloped. Some companies and families have
accumulated rights to large areas but have done little or
nothing to actually mine their claims holding them to prevent
them from falling into the hands of rivals or waiting for some
large future payout.
While royalties of up to 4 percent could be charged under
the bills provisions, they will be set at levels between 0.5
percent and 4 percent buy a future presidential decree, a
statement from the mines and energy ministry said.
Some products or regions could have different royalties than
The bill would maintain current royalty divisions among
jurisdictions, with 65 percent for municipalities affected by
mining, 23 percent for producing states and 12 percent for the
($1 = 2.17 Brazilian reais)
(Additional reporting by Leonardo Goy and Peter Murphy in
Brasilia; Writing by Caroline Stauffer and Jeb Blount; Editing
by Gerald E. McCormick, Sofina Mirza-Reid, Maureen Bavdek and