Mining 2018 Comparisons

Last Updated April 30, 2018

Law and Practice

Authors



Cescon, Barrieu, Flesch & Barreto Advogados is one of Brazil’s leading law firms. The lawyers stand out for their strong commitment to the representation of the firm’s clients’ interests and for their work in highly sophisticated, ground-breaking matters. The firm’s goal is to be the clients’ law firm of choice for their most complex legal matters and most strategic transactions and disputes. The firm’s mining practice area is integrated with the Infrastructure, Project Finance, M&A and Capital Markets departments. Its attorneys are frequently involved in: (i) project financing transactions in the sector, acting as adviser to mining companies and also to lenders, and (ii) regulatory and negotiation advice to mining companies, both supporting M&A and capital markets transactions. Furthermore, the team advises autonomously on regulatory matters and on contracts with joint-venture partners, suppliers or service providers. The firm’s mining team’s expertise and integration with other practice areas enable our partners and associates to acquire a broader view of the project, to identify possible structures and tailor-made solutions for our clients and deals. The team has a comprehensive knowledge of the sector's entire production chain and in-depth expertise in dealing with its main players. Rebeca Stefanini Pavlovsky, head of our Environmental department, and Débora Nogueira, associate of our Mining and M&A departments, contributed as co-authors.

As a rule, the Federal Union owns all mineral resources, including those in the subsoil. The federal constitution authorises the conveyance of rights to prospect and exploit mineral resources to private Brazilian parties upon administrative proceedings, including under the regimes of authorisation and concession, further explained in Section 1.2 Regulation of Mining Industry below. As long as the applicable legal requirements are met, the mining company acquires ownership of the product of its mining activities.

The only exception to this rule are Claimstake Mines – a class of mining rights originated under the old Republican Constitution of 1891 accession regime, which assured a landowner the ownership not only of the land but also of the existing underground or outcropped mineral deposits.

As per the 1934 constitution, the ownership of the land was separated from the mineral resources therein and the accession regime was replaced by the concession regime. Mining rights granted prior to the 1934 federal constitution kept the same terms as provided for in the previous regime, under which they were granted.

Principles of the Mining Industry

The Federal Union, by its administrative bodies, performs strategic control in the mining sector.

Although all the investments and risks are private, it is the duty of the federal government to stimulate and develop such activities and therefore the use of mineral resources.

Mining activity is considered a public utility, not only because of its historic importance, but also in light of its actual influence over the economy, responsible for generating great wealth and employing (directly and indirectly) a large portion of the Brazilian population. In this sense, the federal government shall always take the public interest into consideration while addressing economic benefits associated with mineral resources.

The protection of the public interest and the private initiative in the mineral sector is regulated, mainly, by the mining and environmental law, which provides for rules and procedures aiming for the transformation of mineral resource in wealth and its alignment with the principles of sustainable development.

Given the great risks to investments in mining operations under Brazilian law, the federal government considers investors in the mining industry privileged collaborators. For that reason, the creation of mechanisms for drawing investments, such as tax incentives and legal structures that minimise a venture's risk, is of vital importance.

As mineral deposits cannot be moved, in the case of conflict with other activities that are deemed not in the best public interest, its exploration/exploitation shall prevail, causing other enterprises to cease or (if possible) be directed elsewhere.

In addition, considering the importance and relevance of mining activity in the national production chain, several laws and regulations protect the continuity of mineral activity.

The main principles comprised by the mining regulation consist of the following:

  • the Federal Union owns the mineral resources (except for the Claimstake Mines) and controls its use through:

a) the conveyance of rights to prospect and exploit mineral resources to private Brazilian parties; and

b) the mining regulation and sanction of the companies in this sector;

  • as long as the applicable legal requirements are met, the mining company owns the product of its mining activities;
  • the ownership of the land does not comprise the mineral resources contained therein (except for the Claimstake Mines);
  • mining activities are considered a public utility and must be carried out in accordance with national interest;
  • only Brazilians are entitled to hold prospecting permits and only companies incorporated in Brazil are entitled to hold exploitation permits;
  • principles of sustainable development applied to mining activities.

Oil and Gas Industry

It is important to note that the oil industry and the mining industry are subject to different regulations. The main legal rules applicable to the oil and gas industry are comprised by Federal Law No 9,478/1997 (Petroleum Law), which establishes the principles, goals and national policies for energy matters.

The National Council for Energy Policy, created by the Petroleum Law, is in charge of proposing measures targeting:

  • the rational use of energy resources;
  • the supply of energy resources in the national territory;
  • the review of conventional and alternative energy resources;
  • guidelines for specific energy programmes, import and export; and
  • the strategy and policy for the economic and technological development of the industry, among others.

Also created by the Petroleum Law, the National Oil, Natural Gas and Biofuels Agency is a special agency, tied to the Ministry of Mines and Energy (MME), in charge of the regulation, contracting and monitoring of economic activities in the petroleum, natural gas and biofuels industries.

The Brazilian constitution sets forth that the federal government holds exclusive competence to legislate about matters relating to mineral deposits, mines, other mineral resources and metallurgy.

The legislation governing mining activities is comprised in its majority by the Mining Code, Federal Decree No 62,934/1968 (Mining Decree) and further regulation enacted by the DNPM. The main rules issued by the DNPM are consolidated in Ordinance No 155 of the DNPM, in force as of 17 May 2016 (Ordinance 155).

It is also expected that the ANM will enact new regulations complementing and/or replacing the rules so far enacted by the DNPM, including Ordinance 155.

Legal Regimes Applicable to Mining Activities

The mining activities are conduct under one of the following legal regimes:

Licensing (Licenciamento)

The licensing regime (also regulated by Law No 6,567/1978), among other possibilities, allows the exploitation of mineral substances which are immediately exerted in construction-related activities, such as the preparation of mortars, aggregates and carving stones. A distinctive trace of the licensing regime is the fact that the area subject to the licensing regime shall be limited to 50 ha and, normally, does not require prior exploration.

•       Granting authorities: a specific licence granted by the relevant municipality is a requirement for the submission of the request for a licensing registration with the Mining Agency;

•       Authorised persons: licensing activities are reserved exclusively to the owner of the surface area or its authorised persons; and

•       Term: the term for a licensing registration shall be equal to the shortest term provided for in the municipal licence or in the authorisation by the landowner and, in a case where no term was indicated, the licensing registration shall be valid for an undetermined term.

Independent Mining (Lavra Garimpeira)

The independent mining permit is applicable to small-scale mining exploration, as an exception to the concession regime, as described below. This simplified regime allows individuals to perform mining activities in areas up to 50 ha, and independent miners co-ops in areas of up to 1,000 ha.

The existence of other mining titles does not impair the granting of an independent mining permit over the same area, which may be conveyed upon the relevant administrative procedure, as long as the title-holder gives authorisation and the activity is deemed as technically and economically feasible. In addition, interested parties must obtain permission from the local authorities.

Once granted, an independent mining permit is valid for five years and may be successively renewed at the Mining Agency’s discretion.

Monopoly (Monopólio)

Applicable to nuclear material, which is directly exploited by the federal government. On 11 January 2018, the government assembled a technical group to assess the possibility of breaking the monopoly of the state and convey exploration and exploitation rights to private players. However, there is no evidence that a change in the nuclear legislation will occur in the near future.

Concession Regime

The concession regime is the standard legal regime applicable to the most important minerals exploited with industrial purpose.

In general, the exploitation of minerals in Brazil occurs more commonly under the concession regime, according to the following steps:

  • Prospecting Permit Request;
  • Granting Exploration Permit;
  • Field Research (one to three years);
  • Presentation and Approval of the Research Report;
  • Application for Exploitation Permit (within one year) or Assignment of the Right to Apply for an Exploitation Permit (within one year);
  • Granting of Exploitation Permit;
  • Mining.

The federal government, through the the Ministry of Mines and Energy (MME) (as per Laws Nos 3,782/1960 and 8,422/1992), holds administrative competence for the granting, monitoring and sanctioning relating to all mining matters (as per Provisional Measure No 782/2017).

Such competencies are still exercised through the National Department of Mineral Production (DNPM) (as per Law No 8,876/1994). However, as per Law 13,575/2017, DNPM will be replaced by the National Mining Agency (ANM), a special federal agency tied to MME with property, administrative and financial independency, as soon as a specific Presidential Decree is published, probably in the first semester of 2018 (hereinafter referred to as Mining Agency whenever replacing the functions exercised by the DNPM).

Please refer to Section 2.2 Requirements to Conduct Exploration.

Under the Concession Regime, exploration activities comprise the necessary works to measure and evaluate mineral deposits and the technical and economic feasibility of a mine. Interested parties may file a request with the Mining Agency to obtain a licence to perform exploration activities within a limited area. Such a licence is called Alvará de Pesquisa (Exploration Permit).

After the filing, the application is assessed by local officers of the Mining Agency and, if all legal requirements are met, the Exploration Permit is issued with a validity period of one to three years. This period may be extended, subject to the approval of the Mining Agency. The Mining Agency also has the power to determine the duration of said extension, within the maximum term.

In order to develop the exploration activities, the holder may also have to obtain environmental permits such as authorisation for vegetation suppression, intervention in the Atlantic Forest and others.

The entity duly authorised to explore mineral resources is entitled to “perform activities and to undertake civil works and ancillary services necessary for the performance of exploration activities in private or public land within the exploration areas, upon payment of a usage fee to the owner or occupants of such land and payment of indemnification for damages that may be caused in connection with the exploration activities.” In the case of public land, the payment of the usage fee is waived.

Where the holder does not reach an agreement with the landowners, there is a specific judicial procedure in order to access the land and define the indemnification.

Within the term of an Exploration Permit, its holder shall develop the exploration and submit a detailed report on the findings (Final Exploration Report), to the Mining Agency. Subsequently, the Mining Agency shall analyse the Final Exploration Report and decide, based on Articles 23 and 30 of the Mining Code, whether or not the exploitation is technically and economically feasible.

Upon approval of the Final Exploration Report, the holder of an Exploration Permit may, within a one-year period and extendable for one more year, apply for a mining exploitation permit named Concessão de Lavra (Exploitation Permit) or assign the mineral right to third parties.

Under the Concession Regime, mining activities comprise the necessary works to exploit the mine. In order to conduct the mining activities, it is necessary to obtain an Exploitation Permit from the Mining Agency and an operating licence from the applicable environmental authority. In addition, it is necessary obtain free access to the area.

Following the approval of the Final Exploration Report, the holder of the Exploration Permit or its assignee shall apply for an environmental licence and then apply for the granting of an Exploitation Permit.

Once the installation licence (one of the types of environmental licence) is issued, the Exploitation Permit application is assessed by local officers of the Mining Agency and, if all legal requirements are met, the Exploitation Permit is issued without term (please refer to Section 2.2 Requirements to Conduct Exploration and Section 4.3 Environmental Obligations – Licensing for further information).

Please refer to Section 2.2 Requirements to Conduct Exploration, Section 2.3 Requirements to Conduct Mining, and Section 4 Environmental for further information.

The Exploration  Permit only authorises its holder to perform exploration activities and does not grant its holder the right to undertake any other sort of activities. However, exceptionally, it is possible to exploit during the term of the Prospecting Permit, provided that a Special Mining Permit (Guia de Utilização) is granted.

The Special Mining Permit allows the mining company to exploit the mining site experimentally, subject to and to the extent of the previous authorisation by the Mining Agency. Such a permit may be granted exceptionally in specific cases, subject to the technical and economical feasibility of the mineral substances in the national and international markets and also the issuance of an environmental licence (please refer to Section 4 Environmental for further information); the extraction of minerals for analysis and industrial tests prior to the granting of an Exploitation Permit; and the commercialising of mineral substances within the demand for continuous supply of the market, as well as for funding of exploration activities.

Furthermore, the holder of an Exploration Permit:

  • may assign or transfer a Prospecting Permit, provided that the assignee meets the legal requirements to hold the permit;
  • may, at any time, waive the rights granted by a Prospecting Permit; and
  • is liable for damages caused to third parties as a result of the performance of prospecting activities.

Once the Exploitation Permit is issued, its holder has the right to:

  • exploit the mine until its complete exhaustion;
  • assign or transfer an Exploitation Permit, provided that the assignee meets the legal requirements to hold the permit;
  • waive, at any time, the rights granted by an Exploitation Permit; and
  • grant pledge interests over a title.

The holder of an Exploitation Permit shall:

  • exploit the mine according to the Economic Development Plan previously approved by the Mining Agency;
  • not interrupt the exploitation works for a period of more than three consecutive months or 120 non-consecutive days after the beginning of the operation;
  • exploit only the minerals expressly set out in an Exploitation Permit;
  • comply with the applicable environmental laws;
  • pay Financial Compensation for Mineral Exploration (CFEM), Taxa de Controle, Acompanhamento e Fiscalização das Atividades de Pesquisa, Lavra, Extração, Transporte e de Aproveitamento de Recursos Minerários (TFRM), and (if not the owner of the land surfacing the mineral reserve) the amounts referred in Section 3.5 below; and
  • present to the Mining Agency, every year until March 15th, an exploitation report describing all relevant aspects regarding the exploitation during the previous year.

Acquisition of Mining Rights

The acquisition of mining rights may occur originally or by means of assignment.

Original Acquisition

Mining rights may be acquired originally, upon an administrative procedure before the Mining Agency and according to a priority principle, under which the first applicant has assured priority to obtain exploration rights over an available area should the other applicable requirements be met (first-come, first-served principle).

Assignment

The assignment of mining titles, according to the Mining Code, is subject to the authorisation of the Mining Agency, and it is not allowed prior to the granting of an Exploration Permit.

The documents which are required to be submitted in connection with the request for the assignment vary according to the mining process status. For instance, for the partial or total assignment of an Exploitation Permit, the required documents include proof of financial capacity of the assignee, as well as public or private instruments providing for the assignment, corporate documents including proof of power of the representatives and proof of payment of the relevant fees.

It should be noted that the request for the assignment does not interrupt the legal term for the presentation of the request for an Exploitation Permit (one year as from the approval of the respective Final Exploration Report).

The transfer of mining rights over areas located in frontier zones shall be subject to prior approval from the National Defense Counsel (CDN) (please refer to Section 5.2 Restricted or Excluded Zones for further information). Failure to comply with such a requirement will cause all contracts, acts and/or transactions to be considered null and void.

Lease of Exploitation Rights

In addition and also subject to the authorisation of the Mining Agency, exploitation rights may be subject to lease arrangements under which they are assigned to third parties without the assignment of the respective mining title.

The documents which shall be submitted in connection with the request for the lease of mining rights include: the lease agreement; corporate documents (as applicable); a new plan for the exploitation of the deposit with a compliance commitment from the lessee; a declaration from the lessee with regards to the environmental recovery of the area; proof of the lessee’s financial capacity; among others.

The product of the exploration is accepted as a mean of payment for the lease, with or without preference in the acquisition in favour of the title-holder.

Please refer to Section 3.1 Rights Granted by Mining Title to Holder for further information.

Legally, a surface land has an independent existence, separated from the mines and mineral resources related thereto; it is subject to autonomous rights of property and use, distinct from the rights of property and use relating to mines and mineral resources, as provided by Article 176 of the Brazilian Federal Constitution.

Consequently, if a negotiated approach is deemed strategic, the title-holder shall enter into talks with owners and/or possessors and agree to the terms of the bargain, either acquiring ownership or possession of the land. 

Should the title-holder fail to (or occasionally choose not to) negotiate with the owner and/or the possessor, they may find themselves in a position where they are bound to perform their mining obligations without consent of the superficiary. In such cases, Brazilian law grants the title-holder the right to perform any activities, works and ancillary services necessary to explore and exploit in private or public superficiary lands, regardless of the status of their current ownership or possession, subject to court procedures and payment of certain amounts.

Moreover, contiguous areas are subject to easements in favour of the holder of an Exploration Permit and/or Exploitation Permit, as long as it is proven that they are indispensable for the performance of the exploration and/or exploitation activities. Easements of adjacent areas may enable, among others:

  • erection of workshops, installations, accessory civil works and accommodation facilities;
  • construction of access roads and telephone lines;
  • impounding and drainage of water necessary for mining activities and for involved personnel;
  • power transmission;
  • right of way for people, materials and power lines; and
  • disposal of debris and waste materials.

In the event that any dispute arises concerning land access and/or easements, the matter can be resolved in the courts.

As compensation for the land access and/or the constitution of easements, the title-holder shall pay the landowner and/or possessor an ‘usage fee’ as well as indemnification for damages arising in connection with the mining activities.

If the parties are unable to reach an agreement, such amounts shall be set by the relevant court.

The holder shall also pay the landowner (and not the possessor) a monthly compensation (casually referred to as “Royalties” in the market) equal to 50% of the amounts due as CFEM (please refer to Section 5.5 Taxes of Royalties for further information).

All aforementioned expenses are subject to negotiation. If different terms are agreed, they shall prevail over the law and/or the ruling of the relevant court.

Pursuant to the Brazilian federal constitution, mining companies shall recover the environment affected by its activities, observing technical requirements imposed by environmental agencies. In this sense, Federal Decree No 97,632/1989 provides that the Degraded Area Recovery Plan (PRAD) is part of the environmental licensing process of mining activities, and shall refer to the set of measures that will enable a new dynamic balance in degraded areas, with a soil suitable for future use and an aesthetically harmonious landscape.

Pursuant to Brazilian law, federal, state and municipal governments are entitled to pass legislation and require authorisations, licences and permits containing provisions for the control and protection of the environment, historical and cultural heritage.

In general, environmental laws and regulations are stringent. However, several bills and constitutional amendments are currently being discussed by the national congress with the purpose of accelerating licensing procedures and mitigating restrictions in certain protected areas. In spite of this tendency, events such as the bursting of the Samarco’s tailings dam in the city of Mariana (MG), in 2015, still sway the course of the political debate and may delay any desirable improvement in the regulation.

Besides the provisions of the Brazilian federal constitution, the main environmental legislation is:

  • Law No 6,938/1981, regarding the national environmental policy;
  • Law No 9.605/1998, regarding environmental crimes;
  • Decree No 6,514/2008, regarding administrative penalties;
  • Law No 9.433/1997, regarding water resources;
  • Law No 12,305/2010, regarding the solid wastes policy; and
  • Law No 12.651/2012, regarding the forest code.

The main environmental bodies are:

  • the Ministry of the Environment, which is responsible for the national environmental policy;
  • the Brazilian Institute of the Environment and of Renewable Natural Resources (IBAMA), which is responsible for the execution of the national environmental policy in the federal sphere;
  • the National Council for the Environment (CONAMA), which is a committee responsible for measures of a consultative and deliberative nature regarding the national environment system; and
  • state (and sometimes also municipal) environmental bodies.

For example, on the State of Minas Gerais (one of the most important states in the Brazilian mining industry), a technical committee specialised in mining activities - Council of Environmental Policy (COPAM) - is responsible for the analysis of administrative appeals regarding the penalties provided by State Law No 7,772/1980 and opinion on environmental licensing requirements.

Licensing

Mining activities and facilities are subject to environmental licensing procedures to the extent that they consume environmental resources, pollute, cause or have the potential to cause environmental impacts.

A preliminary licence is required during a project’s initial stage, approving its location, design and environmental feasibility; an installation licence authorises the construction works or the beginning of activities in accordance with the specifications of the project (and requires the discussion of impact assessment studies in public hearings); and an operating licence is required for the authorisation of the operation of activities, upon verification of compliance with the technical conditions established in the preliminary and installation licences, environmental control measures and conditions specified for the operation.

Following Samarco’s tailings dam incident, environmental bodies have temporarily suspended the granting of licences. Therefore, miners may face a difficult challenge to advance and develop their projects in a reasonable time.

Tailing Dams

The dam regulation in Brazil sets forth, among other subjects, the frequency for the submission; reviews and updates; qualification of technicians; minimum content and details of the special and general safety inspections, of the mining dam safety plan, of the general and special safety inspections, of the periodic dam safety review and of the emergency action plan for mining dams (PAEBM).

Legal obligations comprise the preparation of a dam safety plan, including the PAEBM, which addresses emergencies which may endanger the dam’s structure and measures to be taken in case such risks become reality, with the purpose of preventing potential threats to the life of local citizens and to undermine occasional damages; the delivery to the Mining Agency of a semi-annual report of the dam’s stability (Stability Report) between March 1st and March 31st, and September 1st and September 30th, of each year; and the filing of a hard copy of the PAEBM with the relevant municipal authorities, as well as with the state and local civil defence authorities. In addition, obligations relating to the national report regarding mining dams required by the National Environment and Renewable Natural Resources Institute (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis [IBAMA]) still stand in force.

Failure to comply with the above-mentioned legal provisions may result in regulatory fines and/or interdiction of mining activities.

It should be noted that, as a reaction to the Samarco's tailings dam incident in 2015, there has been movement to improve the national dams safety policy established by Federal Law No 12,334/2010, which determines safety rules for the planning, construction, management, operation and monitoring of dams. One of the proposed changes is to modify the environmental operation licensing process and require complete environmental studies regarding disruption scenarios, flood maps, and an emergency action plan with specific measures to alert and rescue all persons in the areas who may be affected.

Water Resources

The use of water resources for the following purposes must be preceded by authorisation:

•       deviation or impounding of water in a body of water;

•       impounding of water from an underground body of water;

•       disposal of solid waste and other liquids or gaseous residues, whether treated or not, into a body of water for dilution, transportation or final disposal;

•       utilisation of hydro-electric resources; and

•       other uses that alter the system, quantity or quality of the water existing in a body of water.

Water permits are issued by the relevant municipal, state or federal authorities and are subject to certain technical conditions, which may include water resource plans and maintenance of appropriate waterway transportation.

Environmental Compensation

Finally, environmental compensation of different natures may be applicable in connection with projects (not only mineral projects) that may strongly affect the environment.

Foreign Entities

Companies controlled by foreign entities or individuals are eligible to acquire exploration and exploitation rights, as long as they are incorporated under Brazilian law and have headquarters and management in Brazil, subject to the limitation regarding the mining on frontier zones (please refer to Section 5.2 Restricted or Excluded Zones for further information).

Although it does not prevent mining activities, it is important to highlight that Brazilian law provides for restrictions on the acquisition and lease of rural properties by foreign individuals or by legal entities which are fully owned, or directly or indirectly controlled by foreigners.

According to such regulation, foreign entities and Brazilian companies directly or indirectly controlled by foreign entities or individuals cannot purchase rural properties or lease them in Brazil, except where: i) an exceptional authorisation from the National Institute of Rural Settlement and Agrarian Reform (INCRA) is granted, in which case the property must be used for a specific purpose, such as farming, livestock, agro-industrial or settlement (colonização) projects, attached to their relevant corporate purposes; or ii) the acquisition has been agreed upon until August 2010.

In addition, until the date of conclusion of the analysis herein, there were no precedents from INCRA regarding the granting of exceptional authorisations.

(Regarding Taxes, please refer to Section 5.5 Taxes of Royalties for further information)

Permanent Preservation Areas (APP)

Permanent preservation areas (APP) - which may be covered, or not, by native vegetation and include, for example, border areas of water flows and the surroundings of water springs and reservoirs and mountains tops - are areas that, due to their importance for the preservation of water resources, geological stability, biodiversity protection, genetic flux of fauna and flora, control of erosive processes and the preservation of the human population's well-being, are subject to special protection. Mining is allowed in APP due to the fact that the exploitation of certain minerals is considered a matter of public utility; and others, a matter of social interest. However, environmental authorities usually require detailed impact assessment reports and are more rigorous in their assessment of a project.

Conservation Units (UC)

Conservation units (UC) are areas of relevant natural resources dedicated to environmental conservation which have been placed under special protection by a federated entity. UC includes ecological stations, biological reserves, national parks and relevant ecological interest areas. There are several legal discussions related to the allowance and extension of mining activities in UC areas.

Legal Reserve

A legal reserve is an area located inside a rural property or possession, dedicated to the economic sustainable use of natural resources, conservation and rehabilitation of the ecological process, biodiversity conservation and sheltering and protection of native flora and fauna. The law requires that at least 20% of a rural property or possession is maintained as legal reserve (except in the Legal Amazon and Cerrado regions, in which the legal reserve shall be of at least 80% and 35% respectively). Mining is not allowed in legal reserve areas.

National Cultural Heritage

Pursuant to the Brazilian constitution, the government and society are responsible for protecting Brazilian cultural heritage, which is defined as both artistic and technological inventions, as well as general cultural, historical and archeological areas, documents and others. Accordingly, any interference in such areas requires prior authorisation by the National Historic and Artistic Heritage Institute (IPHAN).

Area Blockage

Mining activities are construed as being a matter of national interest and public utility by the Brazilian constitution, meaning they are usually predominant over other economic activities in general.

Nonetheless, the Mining Code sets forth that mining activities may be prevented, at governmental authorities’ discretion, should they be considered harmful to public property or capable of undermining industrial utility. Such a legal provision enables interested parties to request the legal hindrance of mining activities in a certain area (Blockage), which may be granted subject to:

  • the proof, by interested parties, of the incompatibility between the intended activity with current mining activities; and
  • based on information and technical studies to be prepared and submitted by interested parties, the understanding by the mining authorities that the intended activity will bring greater benefits to the community in a way that its prevalence is justified by public utility.

Once the Blockage is granted, relevant measures such as the rejection of requests for mining activities and the revocation of existing mining titles, subject to indemnification of holders of existing mining titles, will be taken.

In addition, the Blockage shall be valid for an unlimited period of time and, although the mining authorities may exceptionally, at their discretion, grant mining titles comprising the blocked area (where both activities are construed to be temporarily compatible, aiming for the better use of the ore while possibly pursuant to the project that justified the Blockage), such titles shall be granted precariously, subject to immediate revocation with no compensation whatsoever to its holder.

Frontier Zones

As regards mining activities, any mining companies that intend to act within frontier zones (150 kilometres) must apply for prior approval from the CDN. The requirements for such approval is proof that:

  • the majority (51% at least) of its capital stock is held by Brazilian citizens;
  • at least two thirds of the workforce consist of Brazilian citizens; and
  • the majority of officers consist of Brazilian citizens and Brazilian officers have predominant power.

In this sense, all the assignments of quotas/shares and appointment of officers must be previously approved by the CDN, so it can conclude the mineral company with activities within the frontier zone will be controlled by Brazilians. Failure to comply with such a requirement shall cause all the contracts, acts and/or transactions to be considered null and void.

Thus, foreign entities or Brazilian legal entities which are fully owned or directly or indirectly controlled by foreigners shall not perform mining activities within frontier zones.

Restrictions to Foreign Legal Entities

Companies controlled by foreign entities or individuals are eligible to acquire prospecting and exploitation rights, as long as they are incorporated under Brazilian law and have headquarters and management in Brazil, subject to the limitation regarding the mining on frontier zones (see above).

Although it does not prevent mining activities, it is important to highlight that Brazilian law provides for restrictions on the acquisition and lease of rural properties by foreign individuals or by legal entities which are fully owned, or directly or indirectly controlled by foreigners.

According to such regulation, foreign entities and Brazilian companies directly or indirectly controlled by foreign entities or individuals cannot purchase rural properties or lease them in Brazil, except where: i) an exceptional authorisation from the National Institute of Rural Settlement and Agrarian Reform (INCRA) is granted, in which case the property must be used for a specific purpose, such as farming, livestock, agro-industrial or settlement (colonização) projects, attached to their relevant corporate purposes; or ii) the acquisition has been agreed upon until August 2010.

Indigenous Lands

Despite the fact that mining activities in indigenous lands are allowed upon the authorisation of the national congress and according to specific law, those activities are not carried out as per the lack of such a law. It is important to highlight that the legal criteria to determine if an individual is an Indian (self-declaration), as well as the absence of technical indicators for classifying lands as indigenous, have been at the centre of great discussion and in some cases have enabled abuses and fraud.

Quilombola Communities

Quilombola communities are recognised pursuant to its singular cultural origins and are mainly located in the states of Maranhão, Bahia, Pará, Minas Gerais and Pernambuco. Mining is allowed in the areas occupied by the quilombola communities, but environmental authorities usually require more detailed impact assessment reports and are more rigorous in their assessment of a project. Finally, mining activities in quilombola areas are subject to Convention 169 of the International Labour Organization, concerning indigenous and tribal peoples in independent countries.

Any mining title can be waived and, therefore, terminated unilaterally by its holder. The waiver of a mining title, however, does not release the holder from obligations already arisen, such as penalties, taxes and charges.

Further, new obligations can arise from the waiver itself, notwithstanding it being effective immediately upon filing with the Mining Agency. For instance, the holder of a Prospecting Permit may still be bound to submit a prospecting report, especially if the waiver is given past one third of the title’s term and if permission to access the surface land was already granted; should the waiving title-holder fail to comply with such a requirement, penalties may be imposed or any such obligation may be waived by the Mining Agency. This can can occur in connection with the waiver of a Exploitation Permit, in the event that a detailed report addressing the current status of the mine, all the works performed to that point, and perspectives for the mine’s future is not delivered by the time the waiver is filed for.

A mining title can also be terminated unilaterally by the Ministry of Mines and Energy, where prospecting or exploitation interfere with other activities in public interest, provided that the principles of full defence and adversary system are complied with (please refer to Section 5.2 Restricted or Excluded Zones for further information). Precedents against the continuity of mining activities, when in conflict with activities in the energy sector, have already been set.

Such termination with cause can only be carried out upon fair indemnity to the title-holder. For this reason, it is more common that the Ministry of Mines and Energy will act upon request of an interested private entity, who is required to assume fully the indemnity obligations in lieu of the Federal Union.

In general, the mining activity is subject to the same taxation system applicable to other industries, which include the following taxes:

  • Corporate Income Tax (IRPJ): the IRPJ is payable on annual company profits at a rate of 15%, plus a 10% surtax on profits which exceed BRL240,000 per year. Both the IRPJ and the social contribution on net profits (CSLL) may be calculated in accordance with either the “actual profit method” (Lucro Real or accrual method) or the “deemed profit method” (Lucro Presumido). By the actual profit method the taxable income will correspond to a company’s net profit before corporate taxes, adjusted by specific add-backs and exclusions as established in the tax legislation. The legislation on the deemed profit method simply assumes that a certain percentage of the gross revenues of a company duly reflect its profits for that period, and it therefore applies such a percentage in order to determine the taxable income for corporate income tax purposes. Companies which have obtained in the previous year total revenues exceeding BRL78 million (comprising gross revenues, capital gains and financial revenues, among others) do not qualify for the deemed profit method.
  • Social contribution on net profits (CSLL): CSLL is a type of IRPJ surtax, since both basically have the same basis for calculation. The CSLL is levied on a company’s net profits at a rate of 9%.
  • ICMS: the ICMS is a state value-added tax levied in all stages of a product’s chain. Within the limits set forth in the relevant federal legislation, ICMS rates vary according to the state, the product commercialised and its destination: internal transactions (within the same state) are usually taxed at a rate of 19%, 18% or 17%, depending on the internal legislation of the state. The rate applicable to interstate transactions, which involve the transfer of goods from one state to another, is often of 7% or 12%. Export transactions are ICMS exempt.
  • PIS/COFINS: PIS and COFINS are social contributions levied over a companies’ monthly gross revenues. As a general rule, the rates of the PIS and COFINS vary depending on which regime a company is subject to:

a)       under the non-cumulative regime, operating revenues are subject to an aggregated PIS and COFINS rate of 9.25% (taxpayers are allowed to offset PIS/COFINS credits granted on certain acquisitions of inputs and goods), while financial revenues are subject to a 4.65% combined rate; or

b)       under the cumulative regime, PIS and COFINS applies at a 3.65% rate over operating revenues (without the possibility to discount any credits) and financial revenues are not subject to tax;

  • IOF: a federal tax on foreign exchange, credit operation, securities, gold and insurance transactions at variable rates depending on the type of transaction; and
  • rural federal tax or urban estate tax.

It is important to highlight that:

  • the import of goods and services is subject to an assortment of taxes and duties. Therefore, each import must be preceded by an analysis of potential alternatives to optimise the applicable tax burden (ie, eligibility to special customs regime, possibility to dispute in the courts the assessment of certain taxes, among others); no ICMS or PIS/COFINS are applicable to the export of primary products, but credits arising from previous transactions are maintained.

Specific Taxes and Charges

During the term of an Exploration Permit, the holder is subject to the following cost and expenses:

  • Annual tax per hectare (TAH): the mineral right-holder shall pay to the Mining Agency the TAH until the end of exploration works. TAH is calculated as follow:

a)       BRL3.21 per hectare, during the original term of an Exploration Permit; and

b)       BRL4.86 per hectare, during an amendment term, if any. In the event of default, the Mining Agency may apply penalties. If the penalties are not duly paid, the Mining Agency may cancel the Exploration Permit;

  • Other costs and expenses: the holder shall bear the costs of the Mining Agency's inspections in the exploration area.

During the validity of an Exploitation Permit, the holder is subject to the following expenses, among others taxes and fees:

CFEM

The holder shall pay CFEM, a compensation for the exploitation of the mineral resources owned by the federal government, levied on the gross revenue. The CFEM rates are:

  • 1% for rocks, sand, gravel, clay and other mineral substances when immediately extracted in construction-related activities; ornamental rocks, mineral and thermal waters;
  • 1.5% for gold;
  • 2% for diamond and other mineral substances;
  • 3% for bauxite, manganese, niobium, and rock salt;
  • 3.5% for iron ore*.

* The Mining Agency is authorised to reduce iron ore’s rate to up to 2% for mineral deposits with feasibility compromised due to low grades, production scale, taxation or the number of employees. This reduction shall be regulated by a Presidential Decree, which was not published until the date of conclusion of the analysis herein.

According to the DNPM Act No 439, Article 2, in the event a holder fails to pay the CFEM, the holder shall not be able to apply: a) for temporary interruption of the exploitation; and b) for the Mining Agency's approval of company mergers, acquisitions or spin-offs, as well as mineral right’s leasing, assignments and transfers.

TFRM

In certain federal states, the holder may be also subject to the Controlling, Monitoring and Supervision Tax related to the Exploration, Production, Extraction, Transportation and Beneficiation of Mineral Resources (Taxa de Controle, Acompanhamento e Fiscalização das Atividades de Pesquisa, Lavra, Extração, Transporte e de Aproveitamento de Recursos Minerários [TFRM]) due on the mining activities of exploration, production, exploitation and development of mineral resources. The amounts of TFRM may vary from state to state.

Cescon, Barrieu, Flesch & Barreto Advogados

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Belo Horizonte / MG
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+55 31 2519 2200

+55 31 2519 2231

cescon.barrieu@cesconbarrieu.com.br www.cesconbarrieu.com.br
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Law and Practice

Authors



Cescon, Barrieu, Flesch & Barreto Advogados is one of Brazil’s leading law firms. The lawyers stand out for their strong commitment to the representation of the firm’s clients’ interests and for their work in highly sophisticated, ground-breaking matters. The firm’s goal is to be the clients’ law firm of choice for their most complex legal matters and most strategic transactions and disputes. The firm’s mining practice area is integrated with the Infrastructure, Project Finance, M&A and Capital Markets departments. Its attorneys are frequently involved in: (i) project financing transactions in the sector, acting as adviser to mining companies and also to lenders, and (ii) regulatory and negotiation advice to mining companies, both supporting M&A and capital markets transactions. Furthermore, the team advises autonomously on regulatory matters and on contracts with joint-venture partners, suppliers or service providers. The firm’s mining team’s expertise and integration with other practice areas enable our partners and associates to acquire a broader view of the project, to identify possible structures and tailor-made solutions for our clients and deals. The team has a comprehensive knowledge of the sector's entire production chain and in-depth expertise in dealing with its main players. Rebeca Stefanini Pavlovsky, head of our Environmental department, and Débora Nogueira, associate of our Mining and M&A departments, contributed as co-authors.

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