Reform finally on the way for Brazil's mining sector

Brazil has been making progress on reform for the mining sector. After withdrawing a long-debated bill for a new mining code earlier this year, the mines and energy ministry has presented a series of modifications to the existing code and institutional structure with a view to attracting new investment.

The changes include creation of a national mining agency to replace mineral production department DNPM, electronic auction of thousands of state-held mining concession areas, the introduction of the technical concept of reserves and resources and longer, extendable exploration periods, among others.

Meanwhile, a new royalty policy aims to simplify calculation procedures and also raise the rates companies must pay. BNamericas spoke with Maria José Gazzi Salum, director of mining, mineral transformation and sustainable development at the ministry's secretariat of geology, to learn more about the upcoming changes.

BNamericas: After withdrawing the previous new code, the ministry has proposed changes to the existing code. Are all of these now in the congress being evaluated?

Salum: No, not yet. Probably in the coming weeks. What will be sent to congress is a provisory measure. So the president signs it and it goes to a specialized congressional committee. They will discuss this and after that they will put it up for plenary debate. This is very important because, what's the message we have in this kind of procedure? The president is supporting that law.

BNamericas: However, the specific point of the creation of the national mining agency is being evaluated separately, correct?

Salum: Yes, it's separate. One of the things we did was to separate the code from the mining agency. So the agency will be approved by decree, it will not go to the congress to be voted. It's an act of the president. The moment he has signed, the agency is created. That is the next step. It is in his office. It took a long time to be approved at the ministry of planning and development; we have a specific ministry for this kind of programs and government plans. So finally they approved everything and it is at the point of the signature of the president.

BNamericas: The progress has been very fast in recent months considering how long mining code reform has been under proposal.

Salum: Yes, how long we have been working on this project! And now in six months we are approving everything. And with the support of the mineral industry in Brazil.

BNamericas: Will the future agency be in charge of bidding processes and mineral concessions?

Salum: Yes. The agency will use electronic auctions. DNMP will be replaced by the agency. The agency will incorporate the staff of the DNMP. But in a different way, with less political interference.

BNamericas: The CFEM tax, or the royalties. What are the proposed rates?

Salum: When the iron ore price is US$100/t or over, it is 4%. Today it is 2%. The rate will continue to be 2% when the price is below US$60/t. There is a scale of rates in between. The minimum is 2% and the maximum is 4%. The basis for calculation currently is the net revenue and we are changing it to gross. So, it really will increase the value itself of the royalty.

BNamericas: Do those prices refer to the price of 68% iron concentrates? Because there are different grades of concentrates being produced.

Salum: No, it is all the same.

BNamericas: What is the approach to address industry concern about increased royalties, especially at a time of economic and price uncertainty?

Salum: I think that what is very important, for the government, and also for the mining companies and mainly for the municipalities, is the distribution of this royalty. 65% is addressed to the municipality where the mine is, 32% goes to the state and 12% to the federal government. So, it's very important for the municipality to receive the royalty. What happens? There is a legal dispute over the basis for calculation. For example, transportation is included in the net revenue calculation. We have some cases where the transportation from the mine to the mineral processing plant is inside the mining site, and was being discounted with the present system. That makes no sense.

One of our biggest legal issues is at what point of the mining process will the royalty be applied. Do you include in the royalty minerals from the first mineral transformation for example? The pelletization? Or not? We have a lot of legal disputes with respect to this. So, in general, the royalty increases, but not as much as the last bill under discussion in congress.

BNamericas: Brazil has just approved a new labor law. How does that impact mining?

Salum: We have a very strict law for labor and it doesn't allow workers and companies to establish a good relationship. So it will be freer, less taxes, things like that. It is beneficial for mining and all of Brazilian industry.

BNamericas: There is also a proposal to open up the 33,000km2 National Copper Reserve in Pará and Amapá states to mining activity, and many believe the future of Brazilian mining in general is in the country's northern Amazon region. If that is the future in mineral terms, how to approach the challenges specific to that area?

Salum: Yes, the environment. I think Brazil needs to change its vision about what is really environmental preservation. In our environmental law, it is not allowed to enter a park. Why not? In my opinion people need to be educated to preserve. They need to share with the government, with mining companies, and industry in general, in taking care of our natural resources and not see the environmental preservation areas as untouchable. They need to contribute. I think there is a mistake. And unfortunately there are a lot of groups that think exactly this way. It is a park, so it is only for plants and animals, not for humans. Why?

For example, we have one of the best preserved forests in Pará [state], where Vale is working because it started to work there before it became a park. So Vale shares with the government all the responsibilities by that place. We have very good examples of mining and environmental preservation in Pará state. So I think that it's very important to consider that because, what happens? Sometimes the government, the ministry of environment, turns a very, very big area into a park. But the government doesn't have money to take care of this area. So how can the mining company help? Sharing all the costs involved in taking care of that area.