50th Anniversary of Brazil’s Mining Code – Is Change Finally Imminent?

Fifty years ago, Brazil reached a major milestone with the establishment of exploration and mining regulations. While the mining code was considered progressive in 1967, subsequent changes have not kept pace with political and economic developments and the mining industry has long called for the code’s review. After reform attempts stalled in 2013, discussions have been renewed and the country’s mines and energy minister, Fernando Coelho Filho, has indicated that a new bill is expected to be introduced to the National Congress in April, 2017. Amongst other issues, this bill will address the contentious issue of royalties.

During the mining code’s early years, its stringent restrictions on foreign exploration and mining investments hindered the growth of the mining sector and, in turn, the Brazilian economy. For example, the need for voting share majorities to belong to Brazilian citizens and/or companies often blocked investments or led to dubious shareholder agreements. In an attempt to increase transparency and stimulate investment, in 1969 the government created the Geological Survey of Brazil (CPRM) with the legal mandate of gathering data on Brazilian geology, minerals, and water resources and sharing its results with potential investors and other interested parties. The government’s relaxation of several mining code restrictions in 1995 also presented mining companies with new opportunities, and Brazil started attracting attention on the international mining stage. Similarly, improvements to environmental and other aspects of the code somewhat boosted mining activity. However, growth of the industry only really took off decades later, after Vale’s 2007 approval of the expansion of Carajás, the largest iron ore mine in the world. This was the mine’s first significant enlargement since its 1980s construction.

In spite of these changes, certain aspects of the mining code remained unsatisfactory, and in 2013 the government proposed a new code. Notwithstanding some improvements, this code’s provisions spawned a number of controversies; these included the rule imposed by the National Department of Mineral Production (DNPM) requiring exploration permit applicants to renounce all existing rights and comply with the terms of the new code, even though these were still under debate. Following negative reactions from the mining and exploration sector, this rule was rejected in August, 2015.

Now, with a new government leading Brazil and the worldwide mining industry showing signs of recovery, it seems that better, more modern mining regulations are on the horizon for Brazil. In line with global trends, these are likely to include higher taxes and stricter environmental rules. The new legislation will also address criticisms of the 1967 code and adjust government royalties. Given the few, substantial alterations to the mining code over the last 50 years, the changes are a long time coming, but perhaps now—finally—a new chapter in Brazilian mining can begin.


George Borinski is a geologist with 40 years of mining industry experience and is the technical director of SRK Brazil. He specializes in environmental due diligence and achieving compliance with Equator Principles/International Finance Corporation (IFC) Performance Standards. George has worked on the development of kaolin mines in the Amazon region and, since joining SRK in 2007, has conducted due diligence reviews of iron ore assets for several Brazilian mining companies.  His commodity experience also includes gold, bauxite, lithium, quartz, feldspar, and slate.

 

 

SRK Latin America