Vale 'uncomfortable' with Brazil's mining bill

Brazilian mining giant Vale doesn't welcome the changes to the country's mining code announced on Tuesday by President Michel Temer.

CEO Fabio Schvartsman (pictured) said the changes will bring some legal uncertainties to the local minerals sector.

In a call on Thursday to discuss the company's latest earnings results, Schvartsman argued that the hike in royalties on iron ore, the company's most important mineral, is just one of the negative points in the bill..

"The government decided to apply new taxes on freight, and worse, on pellet production. But they must decide what they want, as Vale already pays the taxes collected from industrialized goods [IPI]," Schvartsman told the call.

He said the legal uncertainties created by the bill will cause Vale a loss of competitiveness in international markets. "We were very uncomfortable with the changes," Schvartsman added.

MINING BILL

Among the changes to be introduced, mining royalties, known as the CFEM tax, will be charged on gross sales. Under the current system, miners pay 0.2-3.0% royalties – depending on the mineral – on net sales, on top of corporate income and additional federal, state and local taxes.

But royalties applied to iron ore, the country's most important mineral, will have a rate fluctuating between 2% and 4%, depending on international prices.

Royalties over the past 12 months totaled 1.70bn reais (about US$540mn). CFEM revenue for 2016 was 1.80bn reais. That figure is equivalent to around 2% of the net sales of Brazil's iron ore miners.

RESULTS

Vale posted net income of US$16mn for the second quarter compared with US$1.11bn a year earlier.

In an earnings report, Vale said its net debt fell to US$22.1bn from US$27.5bn a year earlier, with a cash balance of US$5.73bn. Average debt maturity is 8.1 years with an average cost of debt of 4.88% a year.

The Brazilian miner's net operating revenue for Q2 rose to US$7.24bn from US$6.16bn. Adjusted Ebitda increased 16.1% to US$2.73bn, Vale said.

Capex dropped to US$894mn in Q2, "the lowest for a quarter since 3Q06," the company said.

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