RIO DE JANEIRO, June 18 (Reuters) – Brazil, the world’s second-largest producer of iron ore, unveiled a long-awaited bill to reform the country’s 46-year-old mining code on Tuesday, proposing royalties of up to 4 percent, double the current rate.
Murilo Ferreira, chief executive of Vale SA, the world’s largest iron ore exporter, said the bill would hit miners hard. He estimated the government’s total take from royalties would rise to $4.2 billion reais ($1.93 billion) from $1.7 billion reais.
Even so, provisions of the bill are less onerous than the mining industry had feared when the discussion of reforms began
nearly four years ago. The top rate under the proposal is only one-third of basic royalties charged in Australia, for example.
Brazil is getting ready to enact the reforms at a time when the mining industry is experiencing a sharp slowdown. When the
bill was first proposed in 2009, the industry was in one of its most prosperous periods ever. Vale’s preferred shares, the Rio de Janeiro-based company’s most-active class of stock, rose 1.8 percent in early afternoon trading in Sao Paulo.
The legislation will test the government’s efforts to reduce tensions with investors, many of whom have criticized President Dilma Rousseff’s economic polices as erratic and her attitude toward business “heavy handed.”
Rousseff, in a televised statement announcing the bill, said the government wanted miners to have contractual stability and security and for concession renewals to be contingent on them meeting investment and environmental goals.
The bill proposes royalties of up to 4 percent calculated on the basis of the gross income, minus taxes, generated by mining projects. Under the bill the government has the right to make excptions to the royalty, charging lower rates on a case by case basis.
After the bill becomes law, the government will set the actual rates by presidential decree. Brazil’s mines and energy
ministry said. Each decree is subject to congressional review.
Currently, royalties are determined on the basis of net income. The change could place a heavier burden on mining
companies such as Vale, which could no longer deduct the cost of transportation.
Such costs are particularly significant because Vale’s competitors, including Australia’s BHP Billiton Ltd and Rio
Tinto Ltd, are closer to China, the main global market for iron ore and other metals.
In addition to iron ore, Brazil is also a major producer of copper, gold, bauxite, nickel and manganese.
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