Mining 2024 Comparisons

The mining sector plays an important role in the Brazilian economy. Throughout the first semester of 2023, the mining sector accounted for USD333,7 billion in exports (free on board, or FOB). The 2023 numbers did not match the records in 2021 and are a bit lower than the revenues accounted for in 2022. Nevertheless, the mining sector accounted for 12.80% of the total Brazilian exports in the first semester of 2023. Iron ore was the most exported mineral substance, although the revenues from sales to foreign countries have dropped around 9% in 2023.

The National Mining Agency (ANM) has progressed with regulatory efforts to improve transparency and governance standards in the Brazilian mining business environment, adding greater certainty to business.

ANM Initiatives

The administrative model introduced in 2018 with the creation of ANM is being consistently developed, with the aim of increasing transparency and legal certainty in the mining sector. ANM has repeatedly organised public consultations to discuss regulatory changes with the mining sector and allowed participation of interested parties in meetings of its board of directors. In the course of 2022, ANM also put in place the regulatory framework for matters such as (i) reporting of resources and reserves according to international standards, (ii) tailings dams safety, (iii) liens on mineral rights, (iv) administrative sanctions, and (v) aerial survey. In the course of 2023, ANM also enacted relevant regulations on standards for geographical data submitted to ANM and on the prevention of money laundering and terrorism financing related to transactions with precious metals and gemstones. The regulations enacted over the past few years indicate the development of the administrative model towards the best regulatory practices. Notwithstanding that, in September 2023, ANM decided that the effectiveness of the Regulatory Agenda for 2022/2023 will be postponed to the end of 2024. The expectation is that topics such as liens over mineral rights to be granted as securities in financial transactions and insurances to cover mining activities related risks will be part of the Regulatory Agenda and new regulations in this respect should be issued in 2024.

According to the Regulatory Agenda of 2024, availability of new exploitation areas, determination of new methodologies for conflict resolutions (eg, mediation, private agreements for conduct adjustments) and regulation in respect of illegal mining are first-priority topics. In addition to that, on the indicative agenda, government has projects to regulate the destination of equipment collected from illegal mining activities and to further develop regulations with respect to mining in communities’ areas, urban area perimeters and archaeological sites.

Public Offer of Areas

The public offer applies to areas that had been previously subject to exploration or exploitation rights that for some reason expired or were terminated. As a consequence, some geological knowledge regarding such areas presumably exists. The public offer procedure does not extend to areas deemed as free, which will remain subject to the first-come, first-served system.

The regulations establish a two-stage process: first, bidders should formalise their interest in an area or block of areas; then, an auction is held among them (if more than one) for the highest offered value.

At the second stage of public tenders, neither the identity and number of bidders nor the bid offers are disclosed until the area is awarded. In practical terms, bidders do not know with whom they are competing (speculators, junior exploration companies, local mining companies, global major producers, to name a few) and, hence, how the market is pricing each area.

The entire process is online, through an electronic system put in place by the ANM exclusively for the purposes of the public offers.

The regulations regarding public offers were an important step forward towards the generation of new projects and investment opportunities in the mining industry. The tenders concluded thus far have been extremely successful for both the regulator and the industry, generating seven times more applications than under the previous procedure, in equivalent timeframes.

Exploration and mining companies have welcomed the opportunity of securing title to explore or mine areas of interest that had been unavailable for years. Companies established in Brazil are lobbying with the ANM to add other areas of interest to coming tender rounds, while foreign prospective investors are reviewing the government’s portfolio of 70,000-plus areas that are ready for tender, seeking for opportunities to enter Brazil.

International Collaboration Initiative

ANM entered into an international collaboration initiative with the OECD in 2020 aimed at identifying regulatory barriers and inefficiencies that affected the dynamics of the mining sector in Brazil, and proposing improvements to the regulatory framework for the mining sector. A final report on the collaboration effort was delivered by the OECD in early 2022, with the following main recommendations:

• improvement of regulatory consistency between the federal and state rules on the environmental impact of tailings dams;
• risk-based approach to small-scale and artisanal miners;
• employee participation and exchange of knowledge across ANM’s departments;
• data-based regulatory decisions;
• financial independence of ANM;
• promotion of stakeholder participation in ANM’s activities; and
• administrative simplification.

Federal Programmes

The new government, inaugurated in January 2023, has criticised measures taken by the previous administration aiming to promote greater institutional articulation between mining companies, environmental authorities and other stakeholders involved in the licensing of strategic mineral projects (“Pro-Minerals”). Although several measures taken by the previous government were revoked early in Lula’s tenure, including a 2022 programme aimed at developing artisanal mining, Pro-Minerals is still in force.

Although the new administration claims it will value small-scale and artisanal miners, the guidelines adopted by the previous government to promote these activities will likely be revised. The transition team responsible for examining measures for the mining sector has also advised that the new government should revoke programmes such as Pro-Minerals.

The actions of the federal government in the coming years will be focused on the promotion of clean energy, with the creation of a department within the structure of the Ministry of Mines and Energy to oversee these matters and foster initiatives that help put Brazil in the centre of the energy transition globally.

The current government decided to maintain and execute the National Fertiliser Plan designed by the previous administration. This is a positive approach considering fertilisers are strategic to Brazil, a significant food producer.

Brazil is a federative republic divided administratively into 26 states and the Federal District. Brazil’s legal system is based on civil law tradition.

The Federal Constitution currently in force, enacted on 5 October 1988, has general provisions involving the economic activity in the country and addresses a few industrial sectors, including mining. The Constitution basically provides that:

• mining legislation can only be enacted at the federal level;
• property over minerals differs from the property of the land where minerals are located;
• minerals on the ground are a property of the federal government;
• exploration can be carried out by Brazilian individuals or legal entities incorporated in Brazil under the authorisation of the federal government;
• mining can be carried out by legal entities incorporated in Brazil under the concession of the federal government;
• exploration and mining are considered activities of national interest;
• the mining concession holder has ownership of the extracted minerals;
• landowners, local, state and federal governments are entitled to a royalty;
• mining is subject to environmental licensing; and
• holders of mining concessions are obligated to restore the areas degraded by mining activities.

The most relevant legal text on mining in Brazil is the Mining Code (Decree-law No 227/1967), which is supplemented by the regulations of the Mining Code (Decree No 9406/2018). The Mining Code and its regulations define and classify deposits and mines; set requirements and conditions for obtaining authorisations, concessions, licences and permits; and provide for the rights and duties of holders of exploration licences and mining concessions.

There are additional pieces of legislation and regulatory provisions governing specific matters related to the mining sector, such as the ANM, mining royalties and tailings dams.

The Federal Constitution provides that the federal government owns the deposits and mineral resources (soil and subsoil), even where the land is regarded as private property. Any person who is intending to explore and/or extract minerals (mining) in Brazil must apply to the ANM for the corresponding authorisation or concession, even if the applicant owns the land where the exploration or mining will take place.

It is common to have mining companies performing exploration and sometimes on mining land belonging to third parties. Brazilian legislation does not require the company to acquire the property of those lands. If the titleholder is not the owner of the land related to its operations, it shall enter into land access/use agreements (or mining servitudes) with the respective landowner/occupier, in order to have access to, and use, the areas that are required for its operations.

The landowner/occupier is entitled to be paid a rent for the occupation of the area and a compensation for damages. If any minerals are extracted from private lands that are not owned by the titleholder, the landowner is entitled to a royalty equal to 50% of the statutory royalty (CFEM).

In the event that it is not possible to reach an agreement with the landowner/occupier, the Mining Code provides for a specific judicial court to allow access to the area, guaranteeing payment of compensation to the property owner/occupier.

As a grantor-regulator, the federal government oversees the exercise of exploration and mining activities under a system of concessions, licences, permits and authorisations in which it has the authority to grant mining titles to private companies.

Mineral exploration and/or mining activities can only be conducted by Brazilian nationals or companies incorporated under Brazilian laws, with registered offices and management in the country. There is no requirement for mandatory joint venture or any sort of state participation.

The Federal Constitution provides that exploration and mining can be performed based on an authorisation or concession granted by the federal government. In that aspect, the mineral right has a constitutional basis, although the terms for granting and using an exploration licence or a mining concession will be provided by the law (ie, the Mining Code).

Mineral rights are not considered a property right, but rather a right granted by the state based on administrative law.

Mineral rights are unilateral administrative acts, granted by the federal government. The ANM is the federal agency entitled to manage, regulate and supervise mining activities in Brazil, along with the Ministry of Mines and Energy (MME). By definition, exploration rights are granted by the ANM and, in most of the cases, mining concessions are granted by the MME (but concessions for the exploitation of minerals employed in the construction industry without industrialisation are issued by the ANM).

States do not have the authority to grant mineral rights.

In general, there are two main types of mineral rights in Brazil: exploration licences and mining concessions. Exploration licences are granted on a first-come, first-served basis (also known as “priority”), which determines that, as long as the claimed area is not covered by any other mineral rights in force and all legal requirements have been met, the first individual to apply for a specific area will have the right to obtain the corresponding mineral right. Exploration licences are granted for a period of up to four years, with renewal allowed for an equal period at the discretion of the ANM.

If the exploration works are deemed successful with the identification of a resource, the titleholder shall submit to the ANM an exploration report. Upon the analysis and approval of the exploration report by the ANM, the titleholder shall have the exclusive right to apply for the mining concession within a one-year term counted as from the publication of the ANM approval.

The application for the mining concession shall include detailed geological and geophysical information of the related area, as well as a mine development plan and a closure plan. The mining concession shall also be granted once, in addition to the ANM reviewing and approving all technical materials, the titleholder presents the corresponding environmental installation licence of the project.

In short, Brazilian legislation provides enough certainty that the holder of the exploration rights, upon being successful in exploration, will have exclusive rights to apply for the corresponding mining concession. The ability to mine is provided for in legislation, but there are other circumstances that may affect the exercise of such rights. An application for a mining concession can be denied if it is deemed harmful to the public good or if it adversely affects other interests that, in the view of the federal government, should prevail over mining. In addition, if the environmental licence for the installation of the facilities is not obtained, the mining concession will not be granted.

The Federal Constitution establishes the people’s right to an ecologically balanced environment. It recognises the environment as essential for a healthy quality of life, and imposes on the government and society the duty to defend and preserve the environment for present and future generations.

As a general rule, the state environmental authority is in charge of licensing a mining project, as opposed to the federal environmental authority. The federal environmental authority will be in charge on an exceptional basis whenever mining activities will be undertaken in, or cause an impact on, areas deemed as federal, such as national environmental conservation units or indigenous lands, as well as in cases where mining activities will be executed in two or more states.

Environmental Licensing

Environmental licensing is required for projects and activities that use environmental resources and/or are potentially polluting, such as mining. In general, there are three licensing phases:

• first, the preliminary licence, which approves the project location and design;
• second, the installation licence, which authorises the installation of the facilities and premises; and
• third, the operation licence, which allows actual operation and mining activities.

Such licences may provide for specific conditions to be met by the company on a case-by-case basis, considering the particularities of the project and of the affected environment.

Environmental Authorities

Environmental authorities are usually well equipped and efficient in Brazil, but in some cases there is criticism that they hold too much discretion. Many of those authorities are constantly supervised by the Public Prosecutor’s Office to ensure that proper protection of the environment is addressed. In addition, the tailings dam failure events in Mariana (2015) and Brumadinho (2019) have led the ANM and environmental authorities to focus on stricter rules for companies, mainly regarding environmental protection and safety in mining operations. In addition to that, in December 2023, a deactivated rock salt mine collapsed in Maceió and new regulation and continuous investigations with respect to technical and safety measures are expected for the upcoming years.

In order to remove vegetation, companies must observe restrictions in connection with legal reserves and permanent preservation areas. Legislation provides for the mandatory constitution of the legal reserve, which consists in the setting aside of the area of a rural property for native forest. The legal reserve usually corresponds to 20% of the area of each rural property, but in the Amazon, such area can be increased to 35% of the property in areas of cerrado (vegetation similar to savannah) or 80% of the property in areas of forest.

Permanent preservation areas (APPs) are defined as such by applicable legislation and may be covered by native vegetation, such as:

• areas along rivers or watercourses;
• areas around lagoons, lakes, reservoirs or springs;
• areas on the top of hills, mounts, mountains or mountain ranges;
• areas along slopes or part of them, with declivities greater than 45 degrees;
• areas in coastal forests as dune setters or mangrove stabilisers;
• areas along chapadas; and
• areas located at heights greater than 1,800 metres.

Mining activities may only be performed in APPs upon the acknowledgement that the operation would meet the public interest, and upon the fulfilment of the conditions imposed by regulations.

Moreover, when exploration and mining works are performed within environmental conservation units of sustainable use (environmental protection areas created by law or decree where economic activities may be coupled with conservation activities), Brazilian environmental legislation determines that special requirements may apply on a case-by-case basis. The conservation units usually have a buffer zone around them in which economic activities can be restricted.

In the context of the environmental licensing process, public hearings to discuss the environmental impact assessment and its report may be held, so that communities can obtain further details of a project and voice their concerns. Although the industry generally acknowledges that mining companies should keep communities informed prior to, during and after the mining works regarding the developments that may affect them, there is no such requirement in Brazilian legislation. Usually, this information is provided by means of public hearings.

Although Brazil is a party to Convention No 169 of the International Labour Organization (the Indigenous and Tribal Peoples Convention), the Convention has not yet been transferred into regulation in Brazil. Even so, mining companies that undertake activities in lands of indigenous or tribal peoples do carry out consultation.

Likewise, the Public Prosecutor’s Office holds the view that compliance with Convention No 169 is mandatory regardless of the lack of regulations. In some cases, lawsuits have been filed to seek a court decision to force the mining company to perform proper consultation.

In those cases where the consultation has been carried out, it was performed by the investor and not by the Brazilian government.

The Brazilian Constitution establishes that indigenous peoples hold the original right and have the exclusive use of the lands they have traditionally occupied. Exploration and mining activities inside indigenous areas are permitted by the Federal Constitution upon approval by the National Congress. However, due to the lack of specific regulation for this matter, the National Congress has yet to authorise any exploration or mining activities within indigenous areas.

In addition, the Quilombola peoples (descendants of former slaves who organised themselves in communities) are another example of a traditional community legally protected in Brazil. The Quilombolas are entitled to obtain title to the land that they occupy. Mining activities are permitted in Quilombola areas, but require specific review prior to the granting of mineral rights. Furthermore, in order to carry out their operations within those areas, mining companies must negotiate with the Quilombola representatives so that they can enter into agreements on the payment of compensation for the use of such land.

Brazilian laws do not provide for the requirement of the company entering into community development agreements. Nonetheless, companies usually enter into communities with local authorities to support some social initiatives, as part of their corporate social responsibility.

The ESG issue has gained an undeniable importance in the Brazilian corporate sector in recent years. There has been an increasingly clear and urgent call from society and the market for companies to adapt to ESG principles.

However, no major ESG guidelines or regulations have been introduced in Brazil specifically for the mineral sector. From a legislative and regulatory perspective, the tendency perceived since the recent major tailings dam accidents, which took place in 2015 and 2019, is an increase in inspection activities, and an enactment of laws and regulations that provide for stricter rules and more severe penalties in the case of ESG-related defaults.

Corporate governance (the “G” pillar) has become the main element for mining companies to bring their activities in line with several aspects related to the environment and society, implementing the “E” and “S” pillars.

Companies’ increasing concern with image and reputation, associated with a greater corporate awareness of the systemic and financial consequences of non-compliance with the best practices in ESG, has carried a considerable weight in the development and implementation of social, environmental and corporate policies.

Generally, good examples are set when the mining companies believe in aggregating the local communities as part of the project itself. This can be by creating jobs, developing local infrastructure with compliance and, in short, engaging communities to a certain extent in the project or operations.

However, companies that do not involve local communities in their projects from the outset usually face conflicts and popular rejection, which may result in the decrease of political will and support for the project, creating larger difficulties for its development.

In addition, the recent tailings dam failure events in Mariana and Brumadinho, and the mine collapse in Maceió, also created a more complex scenario for mining companies to develop a relationship with communities and to hold their social licence.

So far, there is no specific legislation or regulation referring to climate change matters in Brazil applicable specifically to mining activities. The issues related to climate change are indirectly addressed by means of the regular environmental protection laws in force in the jurisdiction.

No climate change legislation has been passed in Brazil. Since inauguration in early 2023, the new government has been fostering discussions regarding climate change in general, and not only with regard to mining. The federal government has pushed a set of bills in Congress aimed at addressing climate change concerns, ahead of Brazil’s participation in the 2023 UN Climate Change Conference. The bills regulate the carbon market, green hydrogen, offshore wind power and biofuels, but none of them specifically addresses mining. So far, only the carbon market regulations have moved forward in Congress.

One of the main principles of the Mineral Law in Brazil is the provision for environmentally sustainable mining. As a result, holders of mining concessions are obligated to restore the areas degraded by mining activities.

In practical terms, some companies have incorporated sustainable development initiatives not only in preparation for mine closure, but also as part of the operations. Some of those initiatives have the purpose of meeting one or more tasks of the sustainable development goals. It has also been reported that a few initiatives may involve partnerships with local authorities. However, there are no public policies by the federal government to encourage or foster such initiatives.

There are no specific initiatives focused on energy-transition minerals. A relevant development for lithium production, however, was introduced in 2022, when the federal government lifted restrictions on the exports of lithium. As lithium is considered a mineral of interest to the nuclear industry, exports until 2022 were subject to a certain quota, which was a major obstacle to the development of lithium projects in Brazil.

The Minister of Mines and Energy created a specific department responsible for Energy Transition. The main scope of the department is to propose the guidelines of the energy transition for the country, promote development of policies for reduction of carbon emissions, promote research on environmental sustainability and reduction of environmental impacts, among other related topics.

Mining activities are taxed in the same way as businesses in general. The Brazilian tax system contains a variety of taxes at the federal, state and municipal levels.

In December 2023, the Brazilian National Congress successfully passed a comprehensive Tax Reform on Consumption, as detailed below, to take effect in 2026. The approved changes will co-exist with the existing tax legislation outlined in items 4.1 Mining and Exploration Duties, Royalties and Taxes to 4.3 Transfer Tax and Capital Gains on the Sale of Mining Projects until the conclusion of the transition period in 2033. This tax reform does not alter any relevant rule in terms of income taxation in Brazil.

Corporate Income Tax

Brazilian corporate income tax (IRPJ) is levied at the federal level at the rate of 15% on taxable profits. A 10% surcharge is levied on the actual profits, presumed profits or profits determined by the tax authorities in excess of BRL240,000 per year. Taxable profits are ascertained by deducting the operating costs and expenses from the gross income originating from the company’s core activity and incidental businesses. Some of these costs and expenses are not deductible because of their nature or the amount involved. There are also provisions for tax exemption once a company’s taxable profit has been ascertained.

Brazilian legal entities are allowed to carry forward losses indefinitely, which is important for companies that undertake exploration, development and, later, mining activities. These losses can only offset 30% of taxable profits, which can result in deferral of the utilisation of the losses in the event that the legal entity sustains material losses and profits that are not substantial.

As a general rule, the income, capital gains and other earnings paid, credited, delivered, employed or remitted by a Brazilian source to a foreign-based individual or legal entity are subject to withholding tax at a general rate of 15%. The tax rates on capital gains of Brazilian individuals or non-residents (both individuals and companies) may vary from 15% to 22.5% depending on the amount of the capital gains. Rates may reach 25% for income paid to a person residing in a jurisdiction deemed to be a tax haven or privileged tax regime for Brazilian tax purposes.

Social Contribution

The social contribution on net profits (CSL) is calculated on the net profits before the allowance for income tax, adjusted by the additions, exclusions and offsets prescribed by tax law. The CSL rate is 9% and the figures paid are not deductible from the income tax base (actual profits). Other federal contributions – PIS (Programme of Social Integration) and COFINS (Contribution for the Financing of Social Security) – are levied at the combined rate of 9.25% and are assessed over the gross billings of the company.

Tax on Transactions

The tax on financial transactions (IOF) is a tax on foreign exchange, securities, credit, gold and insurance transactions. The IOF/Exchange is currently imposed on a variety of foreign-exchange transactions. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%.

Tax on Sales

The tax on sales of goods and services (ICMS) is a value-added tax levied by the state on the circulation of goods (thus covering the entire chain of trades from the manufacturer to the end consumer) and on the provision of intrastate and interstate transportation and communications services. Normally, the transaction value serves as the ICMS tax base. It is a non-cumulative tax and, as such, generates a tax credit to be offset by the product or service recipient against the tax payable on future transactions. Each Brazilian state is free to establish its own ICMS rates (generally between 17% and 18%).

Tax on Services

The tax on services (ISS) is assessed on the services provided by a company or independent contractor or professional, in accordance with a list of services attached to a federal supplementary law. ISS is levied by the local municipality at a rate of between 2% and 5% on the service value.

Mining Royalties

The mining statutory royalty is known as the Financial Compensation for the Exploitation of Mineral Resources (CFEM) and the proceeds of this royalty are shared between the local (75%), state (15%) and federal (10%) governments. The royalty rate varies from 1% to 3.5%, depending on the substance. The royalty is calculated based on the revenue arising from the sales of the ore, with the deduction of marketing taxes. In the event that the mining concession holder actually consumes the substance in its production chain, then the royalty will be calculated based on the market price of the substance or, if such a price cannot be determined, a reference value determined by the ANM.

Consumption Tax Reform

Overview

On 20 December 2023, the Brazilian National Congress approved the Tax Reform on Consumption (ie, Constitutional Amendment No 132 (EC 132/23)).

This tax reform brings to the Brazilian tax system a consumption tax system based on a dual Value Added Tax (VAT) structure, which aligns Brazil with international taxation standards, particularly those adopted by member countries of the Organization for Economic Co-operation and Development (OECD).

The reform created the Contribution on Goods and Services (CBS), to be collected by the federal government, and the Tax on Goods and Services (IBS), to be jointly collected by states and municipalities; and an Excise Tax (IS) to be collected by the federal government on certain goods and services that are harmful to health or the environment; all of them replacing the current consumption taxes (ie, IPI, PIS, COFINS, ICMS, and ISS).

The CBS and IBS are characterised by three key features: (i) broad tax base, encompassing transactions involving tangible and intangible goods (and any rights linked to them) or transactions involving services; (ii) a non-cumulative structure, allowing taxpayers to calculate credits on virtually all expenses; and (iii) a limited number of tax rate bands.

Regarding item (iii), while each federative entity will be empowered to set its specific tax rate through legislation, this rate will be uniform for all transactions involving tangible or intangible goods, including rights, or services. However, certain goods and services may be eligible for lower or zero tax rates under IBS and CBS. Moreover, the Senate will hold the authority to establish reference rates for IBS and CBS at the federal, state, and municipal levels.

Transition period

The transition period will last eight years. During this period, CBS and IBS will be gradually implemented, while current consumption taxes and correspondent tax incentives will be gradually reduced, until the new system is fully implemented in 2033.

Starting in 2026, the CBS and IBS will be implemented with a trial rate of 0.9% for CBS and 0.1% for IBS. In 2027, the PIS/Cofins will be extinguished, and the CBS rate will be raised to a reference rate (to be determined later by the Ministry of Finance). Simultaneously, the IPI rate will be reduced to zero in 2027, with an exception for items manufactured in the Manaus Free Trade Zone.

From 2029 to 2032, a gradual phase-out of ICMS and ISS is anticipated, with rates decreasing to 90% in 2029, 80% in 2030, 70% in 2031, and 60% in 2032. In 2033, the new system will be fully implemented, leading to the complete extinction of old taxes and legislation. Moreover, from 2029 to 2078, there will be a gradual 50-year shift from origin-based (production location) to destination-based (consumption location) tax collection.

Mining and exploration

Specifically concerning the mining sector, the Tax Reform could potentially result in an increase of the tax burden on companies, as the approved proposal allows a 1% excise tax to levy on activities that are deemed harmful to the health of the environment, which may include exploration and mining activities. However, the effectiveness of such excise tax is not immediate and will depend on further regulation by the federal government, which is expected to determine which specific activities should be subject to such tax.

There are no tax stabilisation agreements in Brazil.

Tax exemptions, breaks and incentives are granted or cancelled via agreements (convênios) entered into between the relevant Brazilian governmental authorities. More commonly, they are granted at the state level and with reference to the ICMS taxes. However, states that usually grant ICMS tax breaks and incentives to attract investment, but without the consent of other states, may generate a so-called tax war.

In addition, there are tax breaks available in connection with IRPJ assessed in projects located in the Amazon or the north-eastern regions of the country. These tax breaks may represent a deduction of 75% in IRPJ tax.

As a general rule, if the seller of a mining project has a capital gain arising from the transaction, the seller shall pay capital gains tax.

In the case of corporate structures outside Brazil, Brazilian tax rules provide that if a non-Brazilian entity has any capital gain arising from the disposal of a Brazilian asset, then such gain could be subject to withholding tax at a sliding scale rate between 15% and 22.5%, as described in 4.1 Mining and Exploration Duties, Royalties and Taxes. (If the seller is based in a tax-haven jurisdiction, the applicable rate will actually be 25%.)

Attracting investments for mining is crucial for the development of the Brazilian economy, since the mining sector contributes to the creation of direct and indirect jobs, the expansion of infrastructure and the increase of the Brazilian trade balance.

Since Brazil does not have any bilateral investment treaties in place, the federal government relies on general policies and legislation applicable to businesses in general (eg, exemption of export tax in the exportation of non-manufactured goods, and exemption of ICMS tax on exported goods before the full transition to the new rules of the tax reform).

Foreign capital in Brazil is governed by Law No 4131/1962 (the “Foreign Capital Law”). As a general rule, foreign capital can enter Brazil freely, without constraints over the total amount to be invested and without the need of prior approval by the government.

The registration of foreign capital with the Central Bank of Brazil is required when bringing funds into Brazil, remitting profits abroad, repatriating capital, and reinvesting proceeds. Investment is registered in the foreign currency in which it is made, or in Brazilian currency if the funds originate from a non-resident account properly kept in Brazil or from assets located in the country.

The main restriction with regard to foreign investment in the Brazilian mining sector is related to foreign ownership of mining companies that have rights in certain areas. The current interpretation of the federal government is that legislation does not allow mining companies that have 51% equity interest held directly or indirectly by non-Brazilians to hold mineral rights and perform exploration and/or mining activities within the country’s border area (ie, the 150 km strip of land parallel to the country’s dry borders).

Brazil has not ratified any bilateral or multilateral investment treaties. Brazilian authorities, at some point, considered that those treaties might lead to international disputes and could limit the government’s ability to change policies and regulations. In this context, Brazil chose to rely exclusively on domestic legislation to protect investment and private property in general (both Brazilian and foreign).

The main financing options for mining development in Brazil are the banking system, the São Paulo stock exchange (although very few mining companies are listed on that exchange), the international capital markets and the international financing markets. The Canadian, United States, British and Australian markets are important sources of investment (both equity and debt).

Internally, the São Paulo stock exchange has not been widely used as a source of financing by mining companies. Despite a few companies that are listed on the São Paulo stock exchange – such as Vale, CSN, Gerdau and Ferbasa – most capital market transactions involving mining assets are structured in other markets, by way of parent companies.

In 2020, Aura Minerals was successfully listed on the São Paulo stock exchange, which evidences that the economic conditions are favourable for mining companies other than majors that float their shares in the Brazilian market.

According to the Mining Code, the titleholders of mineral rights in all stages (including exploration licences and rights to apply for a mining concession) are allowed to create a security interest over such mineral rights.

In addition, as royalties and streaming transactions cannot be registered against title to the mineral rights, companies have to put in place creative alternatives to ensure that creditors have protections. Even so, the lack of proper regulatory provision for those transactions may add some uncertainty to financing parties and that may be reflected in less favourable financial conditions for the mining company.

A regulation for registration of security over mineral rights has been in effect since 2 March 2022, and deals with registration proceedings, creditor protection mechanisms and foreclosure. As the regulation refers to mining concessions only, changes to such regulation are expected for the upcoming years to conform it with the provisions of the Mining Code.

The revenue of the Brazilian mining sector in 2023 did not match the record numbers of 2021 for several reasons. Despite that, the mining sector continues to be a key player in the Brazilian economy, responsible for creating jobs and paying taxes. Fluctuations are expected, as this is a sector under the influence of several internal and external factors.