* Bill seen doubling mining royalty to 4 percent
* Govt. expected to set up new mining regulator
* Some future rights likely to be sold at auction
By Jeb Blount
RIO DE JANEIRO, June 17 Brazil, the world's
second-largest producer of iron ore and a major producer of key
metals, plans to unveil a bill overhauling its 46-year-old
mining law on Tuesday in President Dilma Rousseff's latest
effort to tighten state control of natural resources.
The bill will also test the government's efforts to reduce
tensions with investors, many of whom believe Rousseff's
economic polices are erratic and her attitude toward business
Her previous reforms of the oil and electricity industries,
designed when she was chief of staff to her predecessor and
implemented during her presidency, have triggered a surge in
costs and a decline in revenue in those industries, causihg
share prices to fall.
In addition to iron ore, Brazil is also a major producer of
copper, gold, bauxite, nickel and manganese.
The mining industry also faces a slowdown as growth eases in
China, the main mineral and metals markets. When the bill was
first proposed in 2009, the industry was in one of its most
prosperous periods ever, despite the impact of the U.S. real
estate and banking crisis.
While the bill is expected to saddle mining companies with
new taxes and regulations, companies like Brazil's Vale SA
, the world's No 2 mining company, Canada's Yamana
Gold Inc., and Norway's Norsk Hydro ASA could
see a smaller impact than many feared when the legislation was
first proposed in 2009.
"The overarching concern here is that the government is
facing a crisis of confidence in the business community," said
Christopher Garman, Latin America director with Eurasia Group, a
political risk advisory. "That crisis is forcing them to
moderate. Because of it, while the bill is largely a negative
for the industry, it's probably going to be less of a negative
The government's slow, four-year gestation of the bill may
also turn out to be a blessing in disguise, he added.
"If the industry was still growing robustly the pressure to
raise taxes and regulation would have been stronger," he said.
ROYALTIES TO DOUBLE
The bill is expected to double royalties on mineral output
to 4 percent and tighten rules for owners of mining claims,
forcing them to explore and develop their areas or lose their
The bill will also create a mining agency to regulate the
industry and a system of mineral-rights auctions, similar to
those used for oil and gas, to speed development of large
mineral reserves and resources considered "strategic", such as
potash, an essential fertilizer.
Brazil, the world's largest producer of beef, chicken,
coffee, sugar and orange juice and No. 2 soybean exporter, must
import 90 percent of its potash needs even though it has some of
the world's largest deposits of the mineral.
Despite new costs and rules, most in the industry agree the
existing 1967 code needs revision. In anticipation of the bill,
the government stopped issuing nearly all mining permits more
than a year ago, putting the industry's future in doubt.
"Tomorrow (Tuesday) we'll finally know the rules and have
clarity on how the industry will develop," said Marcelo Tunes,
director of Brazil's National Mining Association or Ibram. "In
any case, the unblocking of the industry has begun."
USE OR LOSE
Because all Brazilian subsurface mineral rights belong to
the federal government and owners of the surface property have
no direct say in their development, the government is the only
arbiter of who can exploit those resources.
Currently mining concessions are granted on a
first-come-first-served basis and holders of concessions are
under no obligation to develop them.
In some more extreme cases, individuals and families have
snapped up key rights to iron ore and other minerals and sat on
them for decades, passing them onto their offspring as assets
with little thought as to how or when they will be developed.
Mines and Energy Minister Edison Lobao has long decried such
practices and has vowed to end them.
But if "use-it-or-lose-it" provisions pass they could lead
to years of legal challenges. Brazil's constitution strictly
prohibits laws that reduce or eliminate existing rights.
NEW ROYALTY FIGHT?
As for the bill's royalties provisions, they threaten to
deepen fresh, political wounds from the country's unfinished
debate over offshore oil and gas royalties. Brazil's 2010 oil
reform took away royalties from producing states that may try to
claw them back in the mining bill.
The stakes, though, are lower. Oil royalties earned Brazil
26 billion reais ($12 billion) in 2012. A doubling of mining
royalties will only add about 4 billion reais to government
coffers, Garman said.