- 1.Provide an overview of the mining industry in your country. What significance does the mining industry have as a component of the national economy?
Historically, mining has not been an important component of the Uruguayan economy; however, this activity has been increasing in recent years. Several international mining companies are investing and performing feasibility studies to develop important mining projects that may change the traditional economic significance of the activity in the country.
As these kinds of projects are new for Uruguay, the authorities of all parties are working to create a new legal framework that provides an adequate regulation of the activity in accordance with modern projects and technologies.
- 2.Describe the legal and regulatory framework. What laws establish and grant authority to the mining authorities?
In Uruguay mining is governed by the Mining Code, Decree - Law No. 15,242, recently amended by law No. 18,813, and its Regulatory Decree No. 110/1982. Furthermore, environmental aspects are regulated by the Environmental Law No. 16,466 and its Regulatory Decree No. 349/05.
The National Bureau of Mining and Geology (DINAMIGE), which belongs to the Ministry of Industry, Energy and Mining (MIEM), is the main authority in charge of mining industry in Uruguay.
- 3.Describe the investment regime applicable to foreign company involvement in mining projects.
In Uruguay there is no special mining investment law. Nevertheless, national and foreign investments are promoted and protected by the Investment Act No. 16,906 and its Regulatory Decree No. 455/07.
The main purpose of this law is the promotion of investments made in the national territory by means of offering several tax incentives and rebates to existing or new enterprises investing in the country, giving the same treatment to national and foreign investors. To such effects, two classes of incentives are established: a general incentive and a specific incentive for certain investments.
The first operates automatically and in general, grants tax exemptions to the purchase of certain goods. The second class requires a prior declaration of the project as ‘promoted’ by the executive and implies a series of tax benefits, including rebates on income tax from 51 per cent to 100 per cent of the investment amount plus rebates on other taxes. To obtain such declaration certain requirements and aspects related to the activity to be pursued shall be taken into consideration (technical progression to improve competitiveness; facilitating the increase and diversification of exports; creation of productive employment, etc).
- 4.Is your country a party to international investment treaties applicable to mining projects undertaken or sponsored by foreign companies?
Uruguay is not party to international investment treaties regarding mining activity in particular. However, Uruguay has entered into several general bilateral investment treaties with different countries, including Chile, China, Germany, Italy, the Netherlands, France, Spain, Switzerland, the United Kingdom and the United States. These treaties regulate four main aspects of international investments: admission of the investment without discrimination, equal treatment, disputes resolution and expropriation, and are applicable to mining projects.
- 5.What in general terms is the mining exploration and exploitation permit or concession regime? What is the licensing regime?
The Mining Code classifies the deposits in four categories:
- Class I: which is subdivided into (i) fossil fuel including petroleum; and (ii) other minerals resources which can be used to generate energy. These minerals may only be mined by the state authority Administración Nacional de Combustibles, Alcohol y Portland (ANCAP).
- Class II: deposits deriving from the Mining Reserve (an institute that protects mining operations undertaken by state agencies and provided by the executive), the Register of Vacancies (deposits or mining areas that provide evidence of the existence of minerals that are considered vacant in accordance with section 22 and 23 of Mining Code), or those deposits included in this class by the law based on industrial or market needs or other reasons of general interest. This class of deposits is subject to close state intervention as regards the policies that will govern the mining operations, such as choosing the person who will carry out the mining operation or agreeing with this person’s mining methods.
- Class III: metallic and non-metallic resources not included in other categories. Anybody is able to mine minerals of this class.
- Class IV: non-metallic resources that are used as construction material without a previous industrial process. The owner of the land has a right of priority to mine these minerals, and only if the owner does not make use of this right may the state undertake the mining of the same or grant such right to a third party.
All deposits are owned by the state. For this reason, mining may only be performed by the state, state entities or by any national or foreign, public or private natural or legal person, always provided it has previously obtained the corresponding mining title. Therefore, there are no mining limitations (except for Class I deposits), any person who is granted a mining title may perform mining operations within the limits and conditions established by such title.
There are three types of mining titles: a prospecting permit, an exploration permit and a mining concession, which grant prospecting, exploration and mining (exploitation) rights, respectively.
The prospecting permit grants the holder of the same a prospecting right that authorises him to carry out a primary survey on the area for the purpose of detecting or discovering deposits, to the exclusion of any third parties. These tasks include the taking of samples but not the drilling of the area.
The exploration permit enables the holder of such permit to accomplish all the tasks carried out to provide evidence of the existence of the deposit, a survey of its characteristics, determination of volume, quality and economic assessment, to the exclusion of any third parties. The holder of this right may carry out drillings, install machines, tents, etc, in the area in question. The exploration permit does not grant the holder thereof the right to formally mine the deposit, but grants him the right to request authorisation from the DINAMIGE to carry out preparatory mining tasks, and in this case it shall be entitled to make use and dispose of the mineral substances mined in the maximum amounts established in the corresponding authorisation.
Finally, the mining concession authorises the holder to mine the corresponding mineral substances and make use and dispose of the products mined or removed from the deposit, to the exclusion of any third parties.
In order to obtain a mining title, the interested party must first accomplish certain administrative formalities the requirements of which will depend on the mining title being requested. In fact, the interested party shall submit a detailed plan of activities and machines to be used for the tasks, provide evidence that it is financially capable of undertaking the development of such plan, post a bond to cover any environmental damages arising due to the mining activities, and in case of exploration and mining concession, a prior environmental authorisation granted by the National Environmental Bureau (DINAMA).
Once the mining permit is granted, the miner has to develop the mining activity in accordance with the plan of activities submitted and regulations in force in order to maintain the permit.
- 6.What types of duties, royalties and taxes must be paid by the mining project company as a condition to obtaining or continuing a mining concession? What remedial actions are available to the granting authority when such levies are unpaid?
The holder of a mining concession has to comply with the following main duties:
- produce almost the minimum amount of mineral that was indicated in the corresponding task plan; and
- pay the production royalty: this royalty is payable on a semi-annual base and its amount is determined by the Mining Code as follows:
- production royalty for Class III and IV non-metallic mineral deposits: a percentage of the trading value of the mined product. This value shall be calculated based on the average of the product trading value in the last semester; and
- production royalty for Class III metallic mineral deposits: a percentage of the FOB amount of the exported mineral or of the amount of the mineral invoiced in the domestic market within the stated period.
In the event the unit value according to the invoicing was less in more than 10 per cent of the price average of such mineral in the international market during the same period, this last price will be considered for purposes of determining the amount regarding which the royalty will be applied.
Royalty percentage
- For Class III deposits, except those corresponding to metallic minerals: during the first five years of mining: 5 per cent. This percentage comprises 2 per cent state royalty and 3 per cent for the surface owner. For the following years: 8 per cent comprising 3 per cent state royalty and 5 per cent for the surface owner.
- For Class III deposits corresponding to metallic substances: for the entire mining period: 5 per cent comprising 3 per cent state royalty and 2 per cent for the surface owner.
- For Class IV deposits: the royalty shall amount to 10 per cent distributed in equal parts between the state and the surface owner.
All mining fees and royalties are intended as a price and not a tax. Notwithstanding the foregoing, and in the case of surcharges and interest for delay in the payment of the same, article 96 of the Tax Code on tax evasion is applicable to them. This article sets forth a fine, in the case of evasion, of up to 15 times the amount of the tax evaded or purported to be evaded.
- 7.What in general terms is the water rights regime?
The legal regime (Water Code, Law No. 14,859 and section 47 of the Constitution) classifies water into different categories, stating for each one a specific regulation regarding particular’s rights to them. In general terms, water is owned by the state and particulars are allowed to use it for domestic purposes. In order to investigate, extract and build a hydraulic building, a specific authorisation or concession has to be obtained from the national water authority, the National Water Bureau (DINAGUA), which belongs to Ministry of Housing, Land Planning and Environment (MVOTMA).
With regards to mining activity, the Mining Code sets forth that miners are able to use water for mining tasks and staff consumption. Other kinds of water use require the corresponding authorisation.
- 8.What in general terms is the surface rights regime?
Deposits are properties that are independent from the land or area where they are located, so usually the holder of the mining permit is not the owner of such land or area. When this occurs, the permit holder shall have to request the corresponding mining easement that enables access to the land and the performance of the tasks authorised by the mining title. These easements will affect the area under mining concession depending on the mining permit. The Code establishes the following mining easements:
- study easement: this easement comprises free access to the land or lands to carry out work needed for prospecting, removal of samples of mineral substances, as well as to pitch tents for housing experts, assistants and equipment, for as long as is necessary to undertake such surveys as are involved in the prospecting permit;
- temporary or permanent occupation easement: this easement allows exploration of the subsoil by means of test drilling, including the displacement and circulation of machines, facilities, vehicles, installation of dwellings, the collection of water needed for the works and personnel consumption, the installation of warehouses and storage, and any other tasks needed for the performance of mining activities;
- right of way: its purpose is to provide access to the worksites and camping grounds. The easement shall be established along the most favourable points, seeking to cause the least possible damage to the land involved; and
- duct laying easements: includes laying pipes, establishing pumping stations and all facilities necessary for operation of the ducts.
Except for the study easement that is granted by DINAMIGE simultaneously with the prospecting permit, the remaining easements are granted by MIEM following the accomplishment of the corresponding administrative formalities and having granted the owners of the affected lands an opportunity to present the case for defence.
According to the Mining Code, occupation, rights of way and duct laying easements may be granted on properties other than the properties comprised in the area determined by the mining title.
The owner of land subject to any of the mining easements is entitled to compensation for inability to use and enjoy the real estate and its improvements, in whole or in part. In case the miner and landowner do not reach an agreement on the amount of compensation, it shall be stated by MIEM. Notwithstanding this compensation, the miner is always obliged to compensate damages caused by mining activity (objective liability).
- 9.What is the availability of power for remote mining facilities? May mining facilities generate their own power?
Law No. 14,694 enables private parties to generate their own power provided that they obtain the corresponding authorisation and comply with technical regulations in force. The competent authority to grant authorisations and control power generation is MIEM. Recent laws promote the generation of renewable power by means of tax and other kinds of benefits.
- 10.What are the grounds for lawful termination of rights under a mining concession, water rights or surface rights or power rights? What remedies are available to the concessionaire if rights are wrongfully terminated?
The reasons for expiry of mining concession are the following: failure to pay the production royalty for two consecutive years; the assignment or lease of the mining right without complying with the legal provisions; the waiver or abandonment of the right; lack of production for six consecutive months or production below the minimum production programme for two consecutive years, if the corresponding previous authorisations have not been previously granted. Mining easements expire simultaneously with the corresponding mining permit.
Mine abandonment must take place formally by submitting a written note to DINAMIGE. The mine abandonment declaration will be made after the mining authority has inspected the mine and verified that the same was left in adequate safety conditions and in accordance with abandonment measures approved by the environmental authority (DINAMA). If the concession holder does not abandon the mine in accordance with the procedure mentioned above, he or she shall be liable to the payment of fines and also continue to be liable for all the charges and obligations that the concession implies and for the damages caused by such abandonment.
In all cases, the miner has to submit a final report with DINAMIGE outlining the activities performed. The submission of this report is necessary to request the retirement of the environmental guaranty. Sixty days after the expiry of the permit, the guaranty is returned to the miner only in case any claim for damages is pending.
Water concessions and authorisations expire if the concession holder does not make use of its right within the legal term, not pay the royalties, not build the buildings within the legal term, or breaches the concession’s conditions, among other reasons.
- 11.Describe the extent to which the legal and regulatory regime is conducive to the installation or provision of essential infrastructure.
Law No. 18,813, which has recently amended several sections of the Mining Code, states that the mining concession includes all kind of installations and infrastructure needed to carry out the project, including the beneficiation plant. All other infrastructure needed out of the concession area is not regulated by mining law (modifications to public roads, ports, etc), and the corresponding authorisation has to be obtained from the competent authority.
Besides, on July 2011, a ‘Public-Private Partnership’ law (No. 18,786) was passed, under which private investors may propose (or participate in a public bidding) the government development of public infrastructure (including roads, railroads, ports, airports), assuming the investor the financing of the project.
- 12.Please provide a description of the collateral security arrangements permitted in your jurisdiction, relating particularly to the mining project’s ability to grant to creditors a perfected security interest in concession rights, water rights, surface rights, related easements, permits, licences, land and bank accounts. Are there any limitations to the ability to transfer such rights to a successor owner/operator of the mine?
The Mining Code provides that the concession right is a real property right. As a consequence of this fact, the concession right could be mortgaged to secure a credit. The main issue with the mortgage of the concession right, however, is that the ‘step in’ of the creditor is not automatic, but needs (i) to be duly authorised by DINAMIGE after demonstrating to the same that the assignee meets all legal requirements to obtain the concession right (financial capacity, expertise, etc) and (ii) a foreclosure proceeding for the enforcement of the mortgage.
Therefore, mortgage of the concession title is usually combined with other collateral instruments, including the pledge of the facilities, pledge of the shares of the special purpose vehicle and the assignment of receivables. Such security agreements are governed by general principles of civil law.
- 13.Is it accepted practice for creditors financing a mining project to enter into an agreement with the mining authority in connection with the creation, perfection or acknowledgement of the collateral security interests granted to the creditors in mining projects, including to facilitate the transfer of such rights to a successor owner/operator? Is there any requirement, benefit or limitation to such agreements?
It is not a common practice. The assignment of mining rights to a third party is analysed in each case in particular and it is not regulated by private agreements with the mining authority.
- 14.What means of enforcement are available to creditors in connection with collateral security interests in mining rights?
The creditor who has a mortgage or a pledge on assets of the mining company, is entitled to initiate executory proceedings in order to sale the corresponding asset in a judicial auction. This is applicable to mortgages on mining permits too. However, as mentioned above, this security is not very effective due to the limits and controls for mining right transference set forth by the law.
- 15.What insurance must be placed with domestic insurance companies? Can insurance be placed abroad? Can claims be paid directly offshore? Are there restrictions with respect to obtaining reinsurance outside the country, and obtaining assignments or cut-through endorsements to permit claims to be made directly to owners or creditors outside the jurisdiction?
As mentioned above, the mining company has to furnish an environmental guaranty through the deposit of public securities, surety or bank guarantee, fidelity bond insurance or UR deposit in the Banco Hipotecario del Uruguay. This guaranty is like insurance for damages caused by mining activity.
- 16.Describe any requirements related to the use of domestic and foreign labour, suppliers and contractors.
Although there are no special requirements related to this matter on mining activity, the promotion of national employment could be relevant to obtain tax benefits under the Investment Law.
- 17.Can any liabilities extend beyond the mining project company to its owners, mortgagees, or creditors?
Mortgagees and creditors are not liable for mining company’s liabilities. The owners of the mining company are not, in principle, personally liable for company liabilities if the company is a corporation or a limited liability company.
Notwithstanding the above, is important to take into consideration that company representatives could be jointly liable for tax debts in case of negligence, and members of a limited liability company are jointly liable for unpaid salaries.
- 18.Describe any other relevant legal considerations related to financing of mining projects in your jurisdiction.
- 19.In recent times, several governments have mandated concession renegotiation, or revisited royalty and taxation regimes in light of increased commodity values. Has there been any such activity in your jurisdiction?
As mentioned above, a recently passed law revised the manner in which the royalty and the amount thereof is calculated. While prior to this law the royalty was a percentage of the value of the gross product mined, before it undergoes any process that improves or transforms its components, pursuant to the new regime, the royalty for non-metallic minerals is a percentage of the trading value of the mined product and for metallic minerals is a percentage of the FOB amount of the exported mineral or of the amount of the mineral invoiced in the domestic market within the stated period.
- 20.Please provide electronic links to any of the principal statutory and regulatory compilations referred to in your answers to the foregoing questions, including items such as Mining Law, foreign investment regime applicable to mining and environmental law and regulation.
- Mining Law: www.miem.gub.uy/gxpsites/hgxpp001?5,8,83,O,S,0,MNU;E;21;1;22;1;MNU; and http://archivo.presidencia.gub.uy/sci/leyes/2011/09/miem_442.pdf;
- Environmental Law: www.miem.gub.uy/gxpsites/hgxpp001?5,8,84,O,S,0,MNU;E;21;1;22;2;MNU;
- Investment Law: www.miem.gub.uy/gxpsites/hgxpp001?5,8,85,O,S,0,MNU;E;21;1;22;3;MNU; and
- Water Code: www.anp.com.uy/institucional/sistemasGestion/ambiental/InventarioLegalAmbiental/Recurso_Agua/leyes/Ley14859.pdf.
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