Published on Notícias de Mineração Brasil – http://www.noticiasdemineracao.com

Tuesday, May 28, 2013

In this article, lawyer Alexandre Sion discusses the challenging debate about what the new mining code might become and how it increasingly diverges from the reality faced by miners in Brazil.

The so-called New Regulatory Framework for Mining has been discussed for so long, by so many people, that it seems everyone has an opinion about it. The tragicomic part is that no one knows it. And for an obvious and simple reason: it doesn’t exist!

Let me correct myself. Not everyone is unaware of the project of the New Regulatory Framework for Mining. Our President Dilma Rousseff and our Chief of Staff Minister, Gleisi Helena Hoffmann, certainly know it. I doubt if our Minister of Mines and Energy, Edison Lobão, truly knows it. Along with a few advisors, they form the circle of people who know what lies ahead.

Despite the general ignorance, numerous articles have been written on the subject, and events have been organized to debate it. This is perhaps justified by the widespread concern the topic has generated in the mining sector, aggravated with each new interview by the Minister of Mines and Energy.

And it is not without reason! Every week, new information is disseminated in the media, not only to say that the New Framework is close to being sent to Congress (the topic has become a soap opera – we’ll see if it doesn’t turn out to be a Mexican one: long and with a sad ending), but also to reveal that the new rules – astonishingly! – will not respect acquired rights!

There were even statements that not even Mining Applications would be guaranteed! To reach this stage in the mineral licensing process, a miner needs to go through numerous stages.

These stages, very briefly, start, when the area is free, with the Research Application, after which the miner receives the Research Permit. They make substantial investments in research, present to the DNPM – National Department of Mineral Production – the Partial (if requesting an extension of the initially granted period) and Final Research Reports; get their approval; study the deposit and present the Economic Exploitation Plan which, in essence, aims to demonstrate the technical and economic feasibility of mining. After a satisfactory assessment, they finally submit the Mining Application. Phew!

To reach this point, the miner has invested a large sum of resources over several years. When the area can finally be mined, in the national interest, and as a way to recover the investments made throughout this process, is it reasonable to consider that the miner doesn’t have the right to mine it and will only be compensated for the investments?! Obviously not! No one invests for 6, 7, 8 years (often much more) simply to be compensated.

Not understanding this simple market logic is the sure way to deter investments. Well, after public outcry, they returned to the media to say that Brazil has a history of respecting acquired rights, great.

The other day, I met with a miner who told me that the strategy of denying rights to holders of Mining Applications, only to later recognize them, was a way to avoid discussion regarding Research Permits and Applications… If they considered not recognizing the Mining Applications, what can be said about the Research Permits? And the Research Applications?

It is no wonder that miners investing to explore unknown areas of Brazil are suspending their investments. Insecurity frightens, deters, inhibits, stifles.

Regardless of the government’s intentions regarding the New Regulatory Framework for Mining, what we have seen recently regarding the Ports MP has raised a warning light in the government.

Fearing the need to negotiate exhaustively and as expensively as it did to approve the Ports MP, the government is already signaling that it is evaluating a change in strategy.

Part of this change began to take shape on May 15, when the Minister of Mines and Energy published three Mining Permits out of the hundreds that have been “stalled” for years awaiting the New Framework. Why these three and only these three were chosen, I have no answer, but the way they were published clearly signals a change in government strategy.

Since the New Regulatory Framework began to be discussed, the DNPM, first covertly and then explicitly, started suspending all new Research Permits, as well as Mining Permits, arguing that it would await the new legislation.

These three Mining Permits came with the novelty of a Commitment Term, apparently innocent, but which brought concerning points for the miner.

First, it determined that the mining concession should respect the existing legislation (obvious), but also the subsequent regulations. Well, as some colleagues recently said, it is like giving a “blank check.” What will come? What will the miner have to comply with? Will the mining project remain economically viable?

Another novelty that draws attention in the Mining Permits concerns the establishment of a six-month period to start mining operations, under penalty of characterizing “formal abandonment of the deposit” which implies the forfeiture of the mineral title.

It is commendable to prevent miners from keeping deposits unutilized, as the country “benefits” from the generation of jobs, income, and taxes from their effective exploitation, but one cannot agree with how this concern was manifested.

The declaration of formal abandonment of the deposit is an exceptional measure and, as such, should only be taken in specific cases, after following the order of sanctions provided in the Mining Code: (i) warning; (ii) fine, and (iii) forfeiture of the title, without prejudice to prior thorough evaluation and with absolute respect for the right to defense and contradictory procedures. Simply establishing a six-month period disregards the nuances that shape the mining activity.

Obviously, such provisions lack legal support and can be easily challenged in court. Legislative change is not made through Ministerial Ordinance!

Alexandre Sion is a lawyer, founding partner of Sion Advogados, president of the Infrastructure Law Commission of the OAB/MG, and Coordinator of the Legal Working Group of the Mineral Industry Union of the State of MG.