New Legislation Modernizing Brazilian Mining Legal Framework
Provisional Decree 790, which was aimed to change the Brazilian Mining Code, was not brought to a vote in due time and its validity expired in November 2017. On the other hand, Provisional Decrees 789, which provided for changes in mining royalty rates, known as CFEM (Financial Compensation for Mining Exploitation), and 791, which created the National Mining Agency (Agência Nacional de Mineração, AMN) and extinguished the National Department of Mineral Production (DNPM) were both converted into Law 13,575 in December 2017.
In June, Temer issued federal decrees 9,406 and 9,407 in order to modernize the Brazilian Mining Code and introduce changes to the CFEM regime to overcome the expiration of Provisional Decree 790. Together with Law 13,575, such decrees completed the set of legal rules of the Program for Revitalization of the Brazilian Mining Sector, which was created by the federal government to foster the country’s mining sector.
The main principles of the mining code’s old version have been maintained. For example, Decree 9,406 kept the main structure relating to mining activity, i.e., the division into two main stages: mining exploration authorization and mining exploitation concession. “There are other types of mining titles, but these two are the main ones to which foreign investors should pay more attention,” said Affonso A. Barros da Cunha, a Brazilian attorney that specializes in mining and exploration.
Obtaining exploration authorizations remains relatively easy and the electronic auctions for areas whose mining titles have expired or been canceled will remain as an obstacle to speculative requests for mining titles, Barros da Cunha said.
Among other innovations, the Mining Code amended by Federal Decree 9,406, provides for the use of internationally recognized technical standards in the measurement of the mineral resources. It also allows mining titles to be offered as collateral to raise funds in the market.
“Even though these issues are yet to be regulated by specific resolutions by the ANM, they constitute a sign that two traditional bottlenecks for Brazilian mining projects to get financing, i.e., data reliability and inadequacy of mining titles to work as guaranty, are about to be sorted out,” Barros da Cunha said.
Under the new rules, exploration can continue after submission of the Final Exploration Report. If the exploration works have been officially finalized, mining companies can still improve the data collected and include them in the project’s Economic Mining Plan, which can increase the chances of attracting investors, Barros da Cunha said.
For penalties, the fine rates that were increased by the expired Provisional Decree 790 (from US$530 to US$ 7.9 million), were kept at lower figures, from US$86 to US$870, by Federal Decree 9,406. CFEM, in turn, had its calculation basis increased, but the overall raise in the rates was still within expected limits. Decree 9,407 established that in municipalities where there are mining activities, and those affected by the mining activity will receive a portion of the CFEM paid by the companies.
“This shows a greater concern by the government about the environmental impact of the sector, which is not necessarily restricted to the areas where the actual exploitation is carried out,” Barros da Cunha said. The inclusion of tailings and spoils utilization and mine closure in the definition of mining activity, as well as the obligation to restore degraded areas indicate that future regulations issued by ANM will probably be stricter than the ones currently enforced, Barros da Cunha added.
The ANM will be not be established until there is a Presidential Decree. In the meantime, the DNPM remains as the federal public body to govern the sector, under the Ministry of Mines and Energy’s supervision. Overall, the changes introduced by the new legislation are welcomed, Barros da Cunha said. “The new legislation fosters the stability that the sector needs and it secured some improvements long-awaited by players, investors and society,” he added.