(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 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
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
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
"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,
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)