There are at least 55 mineral substances exploitable in Brazil. Considering the diversity and extension of Brazilian territory, its mineral resources are abundant with a relevant impact in the global participation. According to the DNPM (Brazilian Department of Mineral Production), in 2006 Brazil had the largest deposit of tantalite and niobium, and held relevant participation in the world reserves of graphite and manganese (second-largest), vermiculite and aluminum (third-largest), magnesite (fourth-largest) and iron (fifth-largest). Also, Brazil continued to be one of the world’s largest gemstone producers and exporters.

Since 2001, the mineral production in Brazil has increased by about 8.1 per cent per year. The growth of the mineral sector has contributed to the countryside’s development and the population fluctuation in Brazil. The mineral business has a great impact in the allocation of capital in the country, in particular the market of commodities. The data for 2007 is as follows:

IRON ORE

• World production: 1.9 billion tonnes;
• Brazilian production: 18.8 per cent of the world production;
• exportation: 269.4 million tonnes (US$10,557.9 million);
• Brazil’s main import partners: China (33 per cent), Japan (13 per cent), Germany (10 per cent), France (5 per cent), South Korea (5 per cent);
• Internal consumption: increased 9.2 per cent;
• Eight firms accounted for 94 per cent of iron production;
• Brazil’s main reserves: Minas Gerais (63.1 per cent), Pará (18 per cent), Mato Grosso (17.2 per cent).

ALUMINUM

• World production: Bauxite - 34 billion tonnes and alumina - 38 million tonnes;
• Brazilian production: Bauxite - 10.6 per cent of the world production and alumina - 63.3 million tonnes;
• Exportation: 58.8 million tonnes (US$240 million tonnes);
• Brazil’s main import partners: USA (39 per cent), Canada (30 per cent), Ireland (19 per cent), Ukraine;
• Internal consumption: increased 10.2 per cent;
• Main concession: state of Pará (95 per cent);
• Main companies: MRN - Mineração Rio do Norte; CBA - Companhia Brasileira de Alumínio; ALCOA.

MAGNESITE

• World reserves: 3.8 billion tonnes;
• Brazilian production: 8.9 per cent of the world’s production;
• Brazil’s main import partners: Paraguay (46 per cent), Poland (18 per cent), Argentina (10 per cent), Germany (7 per cent), Chile (6 per cent);
• Semi-manufactured magnesite: Brazil’s main import partners are USA (79 per cent), Holland (16 per cent), Uruguay (3 per cent), Argentina (1 per cent);
• Main concessions: states of Bahia (94 per cent) and Ceará (6 per cent);
• Main companies: Magnesita SA (79 per cent), Ibar Nordeste SA (8 per cent), Indústrias Químicas Xilolite SA (7 per cent), Refretários do Nordeste SA (6 per cent).

MANGANESE

• World reserves: 5.6 billion tonnes;
• Brazilian production: 10 per cent of the world production/1.8 million tonnes (reduction of 40.5 per cent, in relation to 2006);
• Main economic group holding the concessions: VALE (90 per cent of Brazilian production);
• Brazil’s main import partners: France (37 per cent), China (25 per cent), Norway (8 per cent), Cyprus (6 per cent), Ukraine (3 per cent).

NIOBIUM

• Brazilian production: 98 per cent of the world production;
• Brazilian reserves: 96.6 per cent of the global reserves, located in Minas Gerais (90 per cent) and Goiás (10 per cent);
• Main concessionaires: Companhia Brasileira de Metalurgia e Mineração, Anglo American Brasil (Group Anglo American PLC);
• Brazil’s main import partners: European Union (31 per cent), NAFTA (22.5 per cent), China (21.7 per cent), Japan (11.1 per cent), East Asian Tigers (7.9 per cent) India (2.5 per cent).

GRAPHITE

• World production: 1 million tonnes;
• Brazilian production: 7.5 per cent of the world production;
• Brazilian reserves: 34.8 per cent of the world reserves, located in Minas Gerais, Ceará and Bahia;
• Exportation: 18,087 tonnes (US$58.383 million);
• Brazil’s main import partners: Argentina (26 per cent), Lithuania (18 per cent), USA (12 per cent), Venezuela (10 per cent), Belgium (7 per cent);
• Internal consumption: decreased by 1.3 per cent
• Main concessionaire: Nacional de Graphite Ltda.

COPPER

• World production in 2006: 14.98 million tonnes;
• Brazilian production: 1 per cent of the world production;
• Brazilian reserves: 14.21 million tonnes, located in Pará (83 per cent), Goiás (6.3 per cent), Bahia (4.4 per cent) and Ceará (2.8 per cent);
• Exportation in 2007: 364,040 tonnes (US$519,97 million);
• Brazil’s main import partners: India (21 per cent), Germany (20 per cent), Bulgaria (18 per cent), South Korea (15 per cent), China (11 per cent);
• Semi-manufactured goods: 78.935 tonnes (US$464 million). Most important: cooper cathodes (56,000 tonnes), with revenues of US$379 million, mostly sent to USA (39 per cent of the total value), Netherlands (18 per cent), Germany (14 per cent), China (13 per cent);
• Internal consumption in 2007: decreased 1.3 per cent;
• Main concessionaires: VALE and Serabi Mineração Ltda (state of Pará); Mineração Caraíba (state of Bahia); Mineração Maracá and Companhia Níquel Tocantins (2,008 tonnes) (state of Goiás); Mineração Santa Blandina (state of São Paulo).

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According to the Brazilian Federal Constitution, the mineral resources, including the ones found underground, are considered to be the sole property of the Federation, and therefore can only be explored through an authorisation, concession, licence or permit granted by the federal government.

The ownership of mineral deposits, mines and other mineral resources is considered differently from the ownership of the soil, for the purposes of exploitation and use, and concessionaires are granted the ownership of the output of the mining-extraction activity.

The research and the mining-extraction of mineral resources only may be carried out by means of an authorisation or concession by the federal government, by Brazilian citizens or companies incorporated under the Brazilian laws and having their headquarters in Brazil.

The management of the mineral resources control and inspection of the mining activity are exercised by the federal government through the DNPM (Brazilian Department of Mineral Production), a federal agency linked to the Ministry of Mines and Energy.

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Equal treatment is ensured to companies, irrespective of the origin and of the control of the corporate equity, with respect to the access to exploitation and to the use of the Brazilian underground. There is no distinction between Brazilian capital and foreign capital. According to the Constitutional Amendment No. 6/95, the mining activity can be generally performed by any company incorporated according to Brazilian laws and having its head office and administration in Brazil.

However, there are special provisions whenever the mining activity is performed on sites located along the border lines (internal area extending 150km parallel to the terrestrial division line of the national territory) and inside an Indian protection area.

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Brazil is party to bilateral and multilateral international investment treaties generally applicable to mining projects. As regards the Bilateral Investment Treaties (BITs), although Brazil has signed several BITs with different countries, the great majority of them is not in effect because they have not been enacted by the Legislative branch. Regarding multilateral treaties, Brazil is part of:

• the Agreement on Trade-Related Investment Measures (TRIMs) and of the General Agreement on Trade in Services (GATS), both of which deal with investment-related issues;
• the treaty that creates the Multilateral Investment Guarantee Agency (MIGA), an organisation that provides guarantees against political risks; and
• the Agreement Establishing the Inter-American Investment Corporation (IIC), that provide funding to private companies, mainly small and medium-sized enterprises.

Brazil is not a signatory of the Washington Convention that established the International Centre for Settlement of Investment Disputes (ICSID).

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Exploitation of mining in Brazil is as follows:

AUTHORISATIONS FOR RESEARCH

Given for a definite term, which term is defined in the authorisation, usually up to three years and it is renewable upon request and subject to the requirements established in the Mining Code and Administrative Rule No. 23/97.

Requests for authorisations for research are filed with the DNPM. The applicable law sets forth the conditions to be fulfilled by the applicant in order to obtain such authorisation (applicant’s qualification, payments of required fees, name of the mineral substance, description of the area for the research, descriptive report of the current situation of the area, research plan with all information related to the anticipated budget and schedule for the research). The DNPM must be advised of any changes in the research plan, in the works or in the original schedule.

The authorisation for research can be granted to Brazilian individuals or to companies incorporated under Brazilian laws, with headquarters and management in Brazil. The corporate documents of the company shall be registered with DNPM.

Upon completion of exploration, a final report must be filed stating geological findings and an assessment of the economic feasibility of the area. The DNPM has the right to inspect the area to confirm the report before accepting it. New permits will not be issued if a report is not filed.

CONCESSION OF MINING-EXTRACTION

Granted for an indefinite term, the concessions may only be obtained by companies under Brazilian laws, with headquarters and management in the country, and having as a corporate object the exploitation and the use of mineral resources. The corporate documents of the company shall be registered with DNPM. Individuals are not entitled to hold a concession of mining-extraction.

The company may apply for the mining concession for the intended área one year after the approval by DNPM of the report above-mentioned.

The request for the concession will be submitted to DNPM with all required documents (economic feasibility of the area plan; preliminary environmental licence; economic qualification for the development of the concession, mining plan, among others).

DNPM shall suggest to MME (Brazilian Ministry of Mines and Energy) the granting, or not, of the concession to the company. If granted, the company shall present to the DNPM the installation licence (LI) issued by the relevant environmental authority.

A concession of mining-extraction gives to the mining company the right to extract and process the minerals contained in the deposit, in accordance with the plan approved by the DNPM and also to commercialise the mine’s production. The concessionaire will have the ownership of the mine’s production and will be entitled to exploit the mine deposit until it is exhausted, generally with no fixed term. The holder of a concession is also entitled to transfer, assign or lease partially or totally the concession, subject to the DNPM’s and MME’s prior approval.

REGIME OF SMALL SCALE OF MINING-EXTRACTION

Regulates the immediate use of mineral deposits susceptible to small-scale mining-extraction. The permit is granted for five years and is renewable upon request and subject to the authorisation of DNPM. Provided the area of interest is not already covered by a pre-existing application or exploration permit and all requirements set forth in the Administrative Rule No. 178/04 are met, the DNPM would normally grant the permit on an application-based priority.

THE LICENCE REGIME

For the use of specific mineral substances of immediate use in civil construction is subject to a specific licensing procedure. A prior authorisation for research is not required. It regulates the immediate mining-extraction of specific mineral substances pursuant to the register with DNPM of a licence granted by the local governments and environmental agencies.

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Each phase of the mining activity requires the payment of fees as described below:

AUTHORISATION FOR RESEARCH

The holder of such authorisation shall pay the Annual Fee Tax per Hectare (TAH). The amount of TAH is equivalent to the amount of one fiscal reference unit (UFIR) per hectare of the area covered by the exploration permit, which increases to 1.5 UFIR when the licence term is extended. TAH is paid only during the term of the authorisation. The payment of TAH is required until the concession of mining is granted.

CONCESSION OF MINING-EXTRACTION

CFEM - Financial Compensation for Exploitation Mineral Resources is owed to the state, federal district, municipalities and the federal government. As mineral resources are property of the federal government, the CFEM is the counter-loan for the economic use of such resources by the concessionaires. The rate varies according to the mineral resource and shall be no more than 3 per cent of the net revenue from the sale of the mineral product (total of sales minus the costs related to the taxation, transportation and insurance expenses). In the specific case of gold extracted from small scale mining areas (garimpo) and when it is sold to financial institutions, the gold will be considered a financial asset. Therefore, besides the CFEM, the transaction will be also subject to the payment of a 1 per cent tax over financial operations (IOF).

ENVIRONMENTAL MINING TAX.

The concessionaires of mining will pay the Tax for Environmental Control (TCFA) to IBAMA - Brazilian Institute for Environment and Renewable Natural Resources.

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Water resources are property of the federal government and the states and are regulated by the Federal Constitution and federal laws (especially the Decree no. 24,643 of 10 July 1934, the Water Code).

The Civil Code regulates conflicts arising out of the passage of water between owners of neighbouring private lands.

The use of water, in some circumstances, based on the public law, shall comply with public interest, public need or social interest, for example:

• the commercial exploitation of the mineral water and the drinking water are subject to regulation by public law due to its importance to public health. The concession of rights to economically exploit the water follows the same administrative proceedings set forth in the Mining Code for the authorisation and concession of mining rights; therefore, the exploitation of mineral and drinking water is subject to the same terms and extensions and to the same obligations and conditions of the mining regime;
• water easements are allowed for the performance of public works and services such as the mining projects. They are not limited in terms of duration, being effective as long as the concessionaire pays to the owner of the land the corresponding indemnification and the income for the occupation of the land;
• certain uses of the water that modify the use, quantity or quality of the water (eg, hydroelectric dams, sewages, the extraction of subsurface water as input for the industrial production) are subject to concession, permission or authorisation regimes. Note that there is no licence requirement if the water is to be used to meet the needs of small and rural core populations and if the volume is considered insignificant.

In Brazil, mining projects address the use of limited or shared water resources by using methods of reparation or the recomposition of the water resources (physical, chemical, biological or physicochemical treatment of the water).

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The surface of land covered by the DNPM mining concessions is often owned by private third parties. In order to use the land, the concessionaire and the surface owner of a property shall enter into a lease agreement for the development of mining activities. The terms and conditions of such agreement can be freely negotiated between the parties, including the amount of the lease for occupation of the area. However, the applicable law establishes an indemnification due to the surface owner in view of the mining-extraction in the amount of 50 per cent of CFEM to be paid by the mining concessionaire when the mineral production starts.

If a mining company is unable to negotiate a voluntary agreement with the landowner for the use of surface, sufficient land can be condemned to enable the company to access the mineral deposit, subject to payment of compensation to the landowner and always subject to all otherwise applicable land use and environmental regulations.

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There are two kinds of consumers of energy in Brazil: the captive consumers, those whose consumption is inferior to 3MW, and the free consumers, those which demand electric charge equal or higher than 3MW, served at any voltage level. Depending of the type of consumer, the access to energy shall be subject to different rules:

• the captive consumers shall acquire the energy from the local concessionaire and, in case there are no transmission lines near the mining project, the cost of the expansion of the lines shall be supported by both the distribution concessionaire and the consumer, according to the provisions of Resolution ANEEL 250/2007;
• free consumers are not obliged to acquire energy from the local concessionaire and have full access to the distribution grid, if available, by paying a tariff for the distribution system. In case there are no transmission lines near the mining project, free consumers served in a voltage level equal or higher than 230kV can build its own installation to access the grid.

Furthermore, the owner of the mining project may obtain an authorisation from the National Electric Energy Agency (ANEEL) to be a self-producer in order to produce electric energy destined to its own exclusive use, or to be an independent producer of electric energy in order to produce and sell electric energy on its own risk. The process of obtaining the authorisation may be complex, depending on the amount of power the mining company intends to produce and the energy source (water, coal, gas, etc) available in the surroundings of the mining facility.

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MINING CONCESSION

The termination of the rights under a mining concession granted by authorisation for research and concession of mining activity may occur in the event of violation of the following obligations:

• formal abandonment of the mine, considered the situation in which the concessionaire expressly states the abandonment or the unequivocal acts or facts that evidence the intention of abandoning or suspending, in definite, the mining activities;
• violation of the deadlines for commencement or recommencement of the research or mining activity, such as the term of 90 days to request the possession of the mine after the granting of the mining title;
• deliberate practice of mining research works in disagreement with the title of authorisation;
• practice of ambitious development, considered the mining activity practiced without observance of the pre-established plan or in such a way that makes it impossible the subsequent economic exploitation of the mine;
• practice of development of a non-titled substance; and
• repeatedly violation of requirements of the inspection.

The termination of the mining right is not discretionary and depends on an administrative proceedings that shall observe the due process of law, in which the titleholder is given the opportunity to present defence. If the MME decides for the termination of the mining rights, the concessionaire may present a request for reconsideration of the order or, if the term to file the request for reconsideration is expired, the concessionaire may present a spontaneous appeal to the president of the republic, in both of which the concessionaire shall have the right to present new arguments of defence, including documentary evidence.

WATER RIGHTS

The economic exploitation of the mineral water and the drinking water follows the same rules applicable to exploration and exploitation of mines and, therefore, the situations of termination of rights and the administrative proceedings are the same as those mentioned above.

SURFACE RIGHTS

The main characteristic of the surface rights (administrative easements) is the perpetuity, which means that as long as there is public interest in the maintenance, for example, of the mining right of extraction, the easements will be in force. Therefore, the easements related to mining projects may terminate if:

• the object of the title is lost (eg, the mine no longer has mineral resources to be extracted);
• the object of the title is modified in such a way that makes it incompatible with its destination (eg, the mineral water source is contaminated);
• the land is incorporated into the public dominium (in which case, no easement must be created).

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The concession of mining rights grants the concessionaire the right to have the easements instituted to have infrastructure work installed, such as transport roads, lines of communication and transmission of electric energy.

Law No. 11,488 of 15 June 2007 created the Special Regime of Incentives to Infrastructure Development (REIDI), an incentive to infrastructure projects that suspends the payment of certain contributions to PIS/PASEP (Social Integration Programme) and COFINS (Contribution for the Financing of Social Security) to the acquisitions and importations of assets and services linked to approved infrastructure projects, including the construction of slurry pipelines in mining projects.

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The BNDES - Brazilian Bank of Economic and Social Development is the main public financial institution that provides long-term financing lines for industrial and infrastructure projects, in particular those related to mining, agriculture, trade and services, to micro, small and medium-sized companies. Except investments on mining activities related to rudimentary mining-extraction or informal mining-extraction, BNDES is competent to finance the mining activities through its lines of financial supports and programmes such as, among others:

• FINEM - finance projects of investment with values over 10 million reais (corresponding to US$6.2 million);
• BNDES Automatic - finance projects of investment with values up to 10 million reais (corresponding to US$6.2 million);
• FINAME - finance the production and acquisition of machines and equipments made in Brazil, or the importation of new machinery, without equivalents in Brazil;
• EXIM - Support for exports (pre-shipment and post-shipment) of services rendered by Brazilians or goods manufactured in Brazil.

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While the mines are properties of the federal government and subject to public interests (and could not be disposed, sold or be encumbered), once the ore is extracted it becomes a property of the concessionaire, subject to the private law regime, and can be negotiated or encumbered at the concessionaire’s own discretion.

In this sense, creditors do not need to enter into an agreement with the mining authority to encumber the ore or the result of the economic exploitation of the ore, nor have they to meet any requirement apart from those set forth in the private law for the creation of collaterals.

Furthermore, the agreements related therein are not required to have any benefit or limitation due to any mining authority’s demands.

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In Brazil, the enforcement of collateral security interests by creditors in the event of default of the debtor depends on the filing of executing proceedings in court.

If the creditor has an extrajudicial executory instrument evidencing the existence and amount of the debt which is liquid and certain, for instance, a contract executed by the parties and at least two witnesses, the creditor can directly file the execution proceeding in court. If the creditor does not have such instrument, the creditor shall file a lawsuit to obtain declaration of the existence of the debt (the judicial executory instrument) in order to enforce it against the debtor.

The execution proceeding aims to seek any collateral owned by the debtor, in order to use the proceeds thereof to guarantee the secured obligation. Any remaining amount of the proceeds shall be returned to the debtor.

In principal, the creditor may decide the options available to foreclose the collateral according to the amount of the debt, but the judge must approve the chosen option as it shall be the less burdensome for the debtor. Finally, property arrested to guarantee the debt shall be sold judicially in a public auction.

The auctions are in court. Out-of-court auctions may be requested by the creditor in the proceedings, but the judge must authorise it.

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Decree Law No. 73, of 21 November 1966, defines the insurance policies that are mandatory in Brazil, such as the insurance for assets given in guarantee of loan or funding from public financing institutions; insurance against fire and transport of assets from legal entities; and the insurance of credit to exportation. Usually, insurance may be placed abroad as long as it does not violate any Brazilian law in the following cases:

• if it is a policy against risks not covered in Brazil;
• if the insurance is object of an international treaty enacted by the National Congress;
• if it is insurance against risks outside the country may be placed abroad as well, as long as this fact is informed to the Superintendence of Private Insurance (SUSEP).

As regards the obtaining of reinsurance outside the country, the Brazilian statutes allow the execution of reinsurance operations with:

• the co-insurance company headquartered abroad with representative office in Brazil; and
• the foreign coinsurance company headquartered abroad without representative office in Brazil.

It is necessary that such co-insurance company be registered in SUSEP and meet the requirements of the law, such as:

• to be in activity for more than four years;
• to have sufficient economic and financial capacity and solvency evaluation; and
• to keep a bank account in foreign currency in the country (specifically for the foreign reinsurer with representative office in Brazil).

Note that obtaining reinsurance from a foreign company located in a tax haven is not permitted in Brazil.

The assignment of an insurance policy executed in Brazil is allowed, as long as:

• the policy does not contain any provision on prohibition of transfer of insured party;
• the loss has not occurred yet; and
• the insurance firm accepts the assignment.

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Companies established in Brazil need to comply with the Consolidated Labour Laws and the collective conventions in order to hire Brazilian individuals as employees. Specifically in the case of the mining workers, the employer must comply with some specific rules from the Ministry of Labour and Employment (MTE) related to the mining activity, such as the Regulatory Rule 22, on safety and occupational health in mining.

In order to use foreign labour, the employee must have a temporary or permanent labour visa. For the issue of visa, the employee must be qualified and the conditions of the labour contract cannot be worse than in the country of origin. The employer company must evidence that the use of foreign labour will not:

• increase the number of expatriated, in relation to the domestic employees to more than one-third of manpower; and
• make the payroll of the expatriated exceed one-third of the total payroll.

Additionally, an employee with a permanent visa cannot change residence; employer; professional activity; or practice professional activity in another area of specialisation for five years. A permanent visa may also be granted to the foreign individual that intends to stay in Brazil with the purpose of investing in productive activities in the country. In this case, it is necessary to prove the social interest of the investment and the number of jobs created in Brazil. There are no specific requirements for the hiring of suppliers and contractors - these relations are regulated by contracts in the Brazilian Civil Code.

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As a general rule, the liabilities of the companies in Brazil do not reach its partners or officers. However, in very specific cases, usually associated with irregularities, fraudulent acts or insufficiency of assets in labour, tax and environmental relations, the liabilities may extend beyond the company to its owners.

In labour relationships, although the possibility of extension of the liability to the partners of the company is not expressly stated in the labour statutes, it happens on a regular basis. In fact, the majority of the labour case law has been deciding that in the event of insolvency of the company, the partner is jointly and fully liable by labour debts due to the principle of the position of disadvantage of the employee. Part of the case law, based on provisions from the Brazilian Civil Code, understands that the liability may be extended to the partner that acts with the purpose of committing fraud in the company’s labour obligations. Additionally, the labour statutes provide for the joint liability of the main company and its ancillary companies of the same economic group.

As regards the tax obligations, the liability may be extended to the partner, officer or director with powers of management that, with the purpose of committing tax evasion, acts with excess of powers or violates the law, articles of association or by-laws. While the case law is not unanimous, some courts have been deciding that the partners may be considered directly liable for the payment of social security contribution. Partners of companies irregularly discontinued may also be considered liable for the company’s obligations before the Tax Administration.

In the environmental field, the law of environmental crimes provides for the liability of partners and directors whenever the corporate personality is considered an obstacle to the compensation to the damages caused to the quality of the environment.

As regards the liability of creditors, only in the environmental field the creditor of the mining project may be liable for the company’s liabilities, specially if the mining company does not comply with the environmental law (eg, if it does not obtain the necessary environmental licences). Some recent case law and jurists understand that the creditor indirectly contributes for the occurrence of the environmental damage with the provision of the funds and its influence on the management of environmental issues of the project.

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Recently the Secretariat of Geology, Mining and Mineral Transformation (SGM) of MME concluded legislative bills for a new regulatory framework of the Brazilian mining activity, with the purpose of updating the current provisions of the Mining Code, in effect since 1967. According to the MME, three bills shall be submitted to the Legislative branch in the first semester of 2011: one dealing with the rules of mining exploitation, one that creates a regulatory agency and a third that deals exclusively with new royalties and taxation regime.

Among the proposals are the modification of the proceedings for the granting of the mineral title (concession of exploitation areas in a similar form as the one practiced today in the areas of petroleum and adoption of contracts with variable terms, around 35 years), limitation of extensions of the term for research, change in the form of collection of mineral taxes, the creation of rules specific to large-sized mining projects and tax incentives to certain ores and its beneficiation, including to exportation.

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Yes, a legislative bill has been recently concluded by the SGM/MME on a new royalty and taxation regime for the mining projects. Please see question 18.

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• www.dnpm.gov.br
• Mining Code:
  www.dnpm-pe.gov.br/Legisla/cm_00.php
• Project of new Mining Code:
  www.mme.gov.br/sgm/menu/marco_regulatorio/marco_regulatorio_da_mineracao.html

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