Vale changes to "probable" its chances of losing royalty payments dispute

Tuesday, September 4, 2012

Brazilian miner Vale (NYSE: VALE) has changed from "possible" to "probable" its chances of losing an ongoing dispute with the federal government over royalty payments, the company said in a statement.

Consequently, the company has raised its royalty provision by 1.1bn reais (US$400mn) to 1.4bn reais, from the 314mn reais previously earmarked.

However, the amount set by Vale is still smaller than that claimed by the government.

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The disputed royalty payments could reach 4.8bn reais, according to previous estimates.

Vale has claimed that the calculation of the royalties, known locally as the CFEM tax, is erroneous.

The amount is related to the miner's production in the 2001-07 period.

The government, through its minerals production department DNPM, has started to review the results of a technical working group set up to analyze the case in early February, DNPM press official Adauto Fraga told BNamericas previously.

Vale and DNPM created the working group in early 2011 to reach a consensus on the amount due. If no final agreement is reached, the matter is likely to be decided in the courts.

Rio de Janeiro-based Vale is the world's largest iron ore producer and exporter.