This content is from: Local Insights

Brazil: New mining legislation

On June 12 2018, the Brazilian federal government enacted long-anticipated changes to the country's mining legislation in an effort to foster investment in the sector.

The former mining legislation and regulatory framework – comprising an act dated 1968, with infrequent and occasional minor amendments throughout the subsequent period – have failed to keep pace with progress and innovation in the sector over the past 50 years. The primary objective of the new regulation is to implement legislation which more closely resembles the reality of today's market.

Among the innovations is the listing of core competencies of the national mining agency, which includes a substantially broader regulatory role than that previously attributed to National Department of Mineral Production. This wider role includes the exercising of its capacity to monitor mining activities and to apply penalties relating thereto in a more objective manner, eliminating controversy around the matter. The national mining agency has been created as an independent agency with the expectation that it will act in a more organised, efficient and market-friendly manner. As investments in the mining sector typically require long periods of time to yield positive returns but also demand large amounts of capital in the short term, the political independence and stability of the legal environment introduced by this new regulation should be a very positive influence on attracting investors to the sector.

The new regulation provides that exploitation permits (concessões de lavra) can be used as collateral in the financing framework, which may give access to new forms of funding, such as reserve-based lending transactions. Market players expect this ruling to be an incentive for extending similar collateral attributes to other mining titles in the near future.

Two other important changes are the standardisation of the legal concepts of 'resources' and 'reserves' to international standards. This includes the possibility for exploration permit holders to continue exploration activities even after delivery of the final exploration report, provided that those activities aim to convert the resources into reserves.

The new regulation has also introduced a new system to access areas by means of electronic bidding procedures. The effectiveness of this system can be observed, for example, in the availability process of areas corresponding to expired exploration permits, regardless of the presentation of the final exploration report. This replacement of the previous system, which consisted of the presentation of technical proposals, eliminates any subjective discretion taking place when evaluating technical proposals. This enables smaller companies to compete more fairly and on an equal footing in their applications, based on objective criteria.

Some regulatory novelties, however, have been perceived as testy by the market. One example is the extension of the exploration permit on a one-time basis only (except if the mining company or miner can provide evidence that the relevant area being explored cannot be freely accessed; or, authorisation or environmental licences are pending based solely on factors beyond the control of the company). Another is the establishment of certain limitations on the possibilities for exploration under exceptional circumstances before the granting of the applicable authorisation (guia de utilização).

Overall, the innovations introduced by the new regulation represent one more step in the right direction. It is clear that Brazil is effectively preparing the path towards more aggressive growth and is now on its way to implementing even bolder measures that, if aligned with the important reforms made so far, will surely foster the development of the mining industry and deliver even more actionable solutions to address the sector's most critical problems and expectations.

Luiz Philippe

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