Keywords: mining, Brazil, Mining Code, M&A,
In this 2012 Year in Review, we summarize some of the mining industry's most noteworthy developments, with a particular focus on the legal environment, the current economic climate, the major M&A transactions and the potential opportunities and challenges for 2013.
As has occurred in many other countries during the last decade, there has been debate in Brazil about the current mining legal framework, which dates from 1967. President Rousseff's administration is currently working on a new Mining Code, a draft of which is expected to be sent to the National Congress during the first half of 2013.
Following the model applied in the oil and gas industry, it is expected that the New Mining Code will boost competition among mining companies with the introduction of a bidding process for the acquisition of certain mineral rights. Additionally, the new law should incentivize the exploration and/or production of currently unexploited mines by fixing a term during which a company may hold mineral rights and by implementing stricter rules regarding the performance of the exploitation plan.
It is also expected that the new legal framework will increase the State control over the sector by transforming the National Department of Mineral Production (DNPM) into a regulatory agency and by raising certain taxes. However, it is likely that the government will be careful not to overburden a sector that has been contributing so generously to Brazil's commercial surplus.
During 2012, some legislative bills relating to the industry have been submitted to the National Congress: e.g., one bill sets forth special provisions in connection with the encumbrance of mineral rights and another provides for a bidding process for the concession of production licenses of strategic and high-profit minerals. Two other bills set forth certain rules for the concession of mining licenses in ecological reserves and the increase in the mining royalties.
However, despite the intentions of certain members of Congress, it is unlikely that any of these new law bills submitted last year will be passed, since the new Mining Code should cover all of those same subjects.
At the end of 2012, the DNPM suspended the granting of new mining licenses. The only exception is in respect of aggregates, which are basic raw materials for civil construction. According to Mines and Energy Minister Edison Lobão, this...