Brazilian mining regulations create new risks

“The lack of a broader revision of the mining regulations could affect investor sentiment in the coming months, posing a risk to the development of the project,” says a new study by BMI Research in Brazil.

Looking at the longer term, however, recent and proposed changes to the legal framework could boost the outlook for the mining industry, especially over the five-year period, analysts say.

The BMI report refers to some of the events that have taken place over the past couple of weeks. First, the Brazilian Congress approved an increase in iron ore royalties to 3.5% from 2.0% and gold to 2.0% from 1.5%. These royalties will be calculated on the basis of gross income instead of net sales, as is currently the case, which, in particular, will increase the number of fees.

On the other hand, this week the Senate passed legislation to create a new mining regulator to speed up the permitting process, while maintaining a new tax on mining projects proposed to fund the agency's activities.

The third development was that the Upper House did not approve an interim decree issued by President Michel Temrer in July, which changed some sections of the current mining code, in particular those related to environmental monitoring and the use of firearms at mine sites. ...

Without a Senate vote, Temmer's interim decree expired and the original rules remain in place. Business analysts, accepting higher iron ore royalties without a more efficient mining regulation designed to offset costs, poses downside risks in the country's key mineral sector. Clearer and simpler mining code could offset some of the higher costs caused by tax increases