November 23, 2017 / 4:09 PM / in 23 days

UPDATE 1-Vale says Brazil iron royalty hike could hurt high-cost mines

(Adds details, share price, additional Vale comment)

RIO DE JANEIRO/BRASILIA, Nov 23 (Reuters) - Brazil’s Vale SA , the world’s largest iron ore producer, said on Thursday that a hike in the country’s royalty rates for the mineral could compromise its ability to maintain high-cost mines and would hurt its ability to compete.

Congress passed the higher royalties in votes on Wednesday with the bill now moving to President Michel Temer for signature. Vale said in a statement that it hoped Temer would veto some of the changes to the proposal made by Congress.

“Congress has made profound changes to the original text, resulting in a model that affects our competitiveness, especially at a time of depressed prices, as well as compromises the maintenance and operation of high-cost mines,” Vale said in a statement.

The higher royalties are one of three planks of Temer’s reform proposal for the sector aimed at boosting the economy, even as Vale praised separately the proposed creation of a new mining regulator to speed up approvals.

Proponents argue that the new regulator, along with a third proposal to streamline the mining code, offset the impact of higher royalties with greater efficiency. Congress has yet to fully approve those other measures.

Vale said that although it was not the right time to increase costs for the domestic industry, Temer’s original proposal for iron ore royalties to rise and fall with market prices was in line with what the company is able to pay.

However, Congress amended the bill to eliminate that sliding scale and replace it with a flat 3.5 percent rate, up from the 2 percent rate currently.

A provision does allow for lesser profitable mines to apply for a rate as low as 2 percent, with the criteria including scale and ore quality, in a move seen favoring smaller miners over companies like Vale.

The miner also said that some parts of the proposal were unconstitutional, adding mining companies could question them in the country’s courts.

Vale’s common stock was up 1.2 percent to 35.15 reais in Sao Paulo, amid thin trading on Thursday due to the Thanksgiving holiday in the United States. (Reporting by Marta Nogueira and Jake Spring; editing by Diane Craft)

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