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TORONTO (miningweekly.com) – Changes in concessions laws will mark a sea change for mining in Brazil, Alexandre Calmon told delegates at Norton Rose Fulbright’s Latin America roundtable this week, during the Prospectors and Developers Association of Canada’s yearly international convention.
Calmon, a partner in the infrastructure and natural resources group of Veirano Advogados, specialises in regulation and mergers and acquisition in the Brazilian natural resources industry.
The new framework will be introduced through the Bill of Law No.5807/2013 that was presented to the Brazilian Congress in June 2013, and is still being debated, with the mining industry having already presented a series of amendments for consideration.
A central issue relates to changes to concessions rights, which includes a proposed bidding structure and the introduction of a concession contract.
“Currently it is first-come, first-serve across the whole country. If you want to get a mining licence you go to the Brazilian Mining Agency and file for it. If the area is free, you can obtain it subject to certain requirements of the law,” Calmon said.
“This wouldn’t be the case under the initial government proposal; the government would tender bids for the area, which is likely to substantially lower the attractiveness of Brazil for exploration companies,” he warned.
Dovetailing with the bidding process is a concession contract. “The idea of a concession contract is that the rights and obligations will be set … from exploration to exploitation,” Calmon said.
“Right now, an exploitation licence is, essentially, for an undetermined period of time. Under a concession contract, the term will be established for 40 years and renewable for an additional 20-year period subject to certain conditions being met,” he explained.
Underlying both the bidding process and the concession contract is the government’s desire to stop concessions squatters, those who abuse the current system and undertake no development work, hoping instead to be approached by a willing party from whom they seek unreasonable terms in order to surrender the concession.
“Still, the government didn’t consider that, by doing this [introducing a bidding structure], they might stop the level of exploration work going on right now in Brazil,” Calmon said.
The industry has proposed an amendment whereby a hybrid system will be created. Bidding will be undertaken for known, strategic zones of mineralisation, while other prospective zones will remain on a first-come, first-serve basis, with the proviso that a concession contract will be signed in both cases.
Complicating matters further are Brazil’s land-holding laws. “There’s always been a restriction on the acquisition of land by foreigners or foreign entities, but not for Brazilian companies controlled by foreigners,” Calmon said. “Our 1988 Constitution basically ruled out any differentiation between a Brazilian-owned company and a foreign-owned Brazilian company.”
However, problems began when vast swathes of Brazilian agricultural lands were being purchased, particularly by Chinese entities. “To prevent this, the government imposed restrictions on foreign-owned Brazilian companies,” Calmon said. “But, by doing this, mining activities have been substantially affected because lots of mining companies in Brazil are foreign controlled.”
“This is an ongoing issue and there have been some challenges in local courts … So far, there has been some relative success, particularly in the state of São Paulo,” he said, adding that the government was fully aware of the impact this issue was having on mining activities.