In a new chapter of the regulatory modernization of the mining sector in Brazil, the government published yesterday (June 14), Decree No. 9,406/2018 and Decree No. 9,407/2018, through which, respectively, (i) new regulation for the Mining Code, repealing Decree No. 62,934/1968, have been created, and (ii) the transfer of the CFEM (Financial Compensation for the Exploration of Mineral Resources) to municipalities affected by the mining activity has been approved.
After seeking to modernize the legal structure of the sector through three provisional presidential decrees in the second half of 2017, the government did not succeed in approving the provisional presidential decree that intended to update the Mining Code. The government was only able to create the National Mining Agency (ANM) and increase the taxation of the sector, thereby fomenting insecurity on the part of the players in the mining industry.
Decree No. 9,407/2018 regulates the transfer of the CFEM to the municipalities (i) severely harmed by Law No. 13,540/2017; and (ii) affected by the mining activity, defined as those which (a) are cut by pipelines or railroads carrying mineral substances; (b) which have port operations involving such substances; or (c) where sterile piles, tailings dam, or processing facilities are located. It is normative legislation of lesser interest to private players in the mining industry and whose enactment was already provided for in the aforementioned law.
On the other hand, Decree No. 9,406/2018 seeks to give certain security, dynamism, and modernity to one of the most significant sectors of the Brazilian economy.
The regulation until then in force dates back to 1968. Several governments tried to update it without success, which resulted in questionable increase of regulations by means of ordinances by the former DNPM or through binding opinions from other authorities.
Now the new regulation contains innovative provisions that seek to satisfy some of the sector’s main requests. It also introduces elements that may bring Brazilian regulations closer to international practices.
In this sense, it is possible to highlight as the main innovations (i) the hardening of environmental rules by means of the express obligation for mining companies to properly close exhausted mines and recover areas degraded by the mining operation; (ii) the change in the mineral prospection deadline counting and its extension in cases of difficulties in accessing the prospected areas or obtaining environmental licensing; (iii) the possibility to grant mining concessions as collateral for financing purposes; (iv) incentives for economic use of tailings and mining waste; and (v) systematization of the electronic auction for the provision of areas that have suffered extinction of previously valid mining rights.
Paragraph 2 of article 5 of Decree No. 9,406/2018 establishes that the entity that carries out the mining activity is responsible for environmental recovery of the degraded areas. In response to strong demand by environmentalists, the provision clarifies an important aspect of the regulation of the activity, but it must still be aligned with scattered and regionalized environmental legislation, which will demand clarity and objectivity in order to achieve its purpose.
The decree also demonstrates the new agency’s determination to attract into its sphere the oversight and regulation of a primarily environmental topic, since article 5, paragraph 3, lists elements that may encompass the closure of a mine, such as the recovery of the degraded area, the demobilization of facilities, the future use of the area, and the monitoring and follow-up on waste disposal and sterile systems. The mine closure plans must necessarily accompany the mine's Economic Utilization Plan (the so-called “PAE”) and, therefore, be submitted for ANM’s review and approval.
In this respect, item XVIII of article 34 of the decree obliges the titleholder to "properly execute and complete, after the exhaustion of mining operations but before the extinction of the mining concession, the mine closure plan." In case the ANM interprets this rule in the sense that the obligation of the titleholder to execute the closing plan is triggered only upon the conclusion of the exploitation operations, the agency may refrain from imposing measures prior to such conclusion, such as the creation of a reserve fund to finance the mine closure activities. Such an interpretation, however, could remove Brazil from the global vanguard in the relationship between mining activities and environmental protection, according to which the concept of mine closure is applied at all stages of the process, from the planning of the opening to the closing of the operations.
Also in this context, article 34 of the decree mandates the observation of the National Policy of Dam Safety as a primary obligation by mining companies. This demonstrates the willingness of the legislator to integrate, in a practical manner, environmental and regulatory aspects, something predominantly observed in an infralegal context.
The topic is recalled in paragraphs 2 and 3 of article 51, which guarantee that termination of mining concession titles upon the request for resignation by the titleholder will be subject to homologation by ANM, conditioned to the completion of the execution of the mine closure plan previously approved by ANM.
Extensions of exploration authorizations have also changed. The decree provides, as a rule, a single extension, exception made for cases in which access to the explored area is obstructed or because of a lack of consent or license from the environmental agency.
In addition to admitting the possibility that the exploration authorization may be extended more than a single time, the decree clarified that only cases of proven difficulty in accessing the area or problems in obtaining the environmental license may be acceptable by ANM as justification for repeated extensions of such authorization, an explanation long claimed by players of the mining sector and that adds institutional assurance to the procedure.
Not least important, the decree establishes in its article 9, paragraph 7, that mineral field exploration works may continue even after the end of the exploration authorization period and the presentation of the final report. The objective is to convert additional measured resources into reserves, to be considered in the Economic Utilization Plan later on.
Paragraph 9 of the same article makes it clear that new data obtained in the additional exploration period after submission of the report cannot be used for the purpose of supplementing or rectifying the final exploration report. This clarification aims to prevent titleholders from using permission as a means to improperly extend their exploration term.
Article 27 of the decree expressly allows for the development and presentation of a consolidated exploration plan and a final report in the case of exploration authorizations in contiguous areas for the same mineral substance. The change allows for integration of larger projects from the initial stage of exploration, thus increasing the efficiency of the procedures both from an operational and bureaucratic point of view.
The mining concession application phase also had its procedures detailed in the text of the new decree. Articles 30 and 31 stipulate that mining companies must apply for the mining concession along with the information listed in article 38 of the Mining Code, which includes the Economic Utilization Plan, indication of easements, proof of availability of funds, among others. Afterwards, the applicant will have 60 days to demonstrate the application for environmental licensing to the responsible agency and to comply with further requests that may be made by ANM. Such compliance may be extended only once, for a period no longer than the first period.
Paragraph 4 of article 31 further clarifies that the applicant must demonstrate to ANM, every six months from the date of the application for environmental licensing, that the procedure is progressing and that the owner has taken all necessary measures to obtain it; otherwise, the mining concession application may be rejected.
Another relevant innovation of Decree No. 9,406/18 is the express provision for the possibility of establishing liens on mining concessions in order to secure financing, which is present in articles 43 and 44 of the regulatory instrument. Although in practice the creation of liens on mining concessions is not innovative in the industry’s financing structures (it is already permitted by article 55 of the Mining Code), it is still too early to know whether the new wording will allow for more modern tools when it comes to collaterals and financing, since the rule shall be further regulated by ANM. However, in a context of recovering global prices of important mineral substances, the development of more efficient and robust structures to mitigate industry risks and attract investors is welcome.
Other provisions of Decree No. 9,406/2018 seek to promote the safety and efficiency of mineral production. Two examples are in paragraphs 1 to 3 of article 10, which, respectively, include the economic reuse of tailings, landfill, and wastes in the concept of mining, and expressly encourage ventures to economically exploit these wastes, including by providing for the possibility of entering into an addendum to the concession by means of a simplified procedure. It is also envisaged that the subject matter should be covered by future regulations by ANM.
Finally, one of the most expected innovations, inserted in article 45 of the new decree, is the electronic auction of available areas arising from any form of extinction of mining rights, which may be the most significant of the modernized regulations. With this initiative, the government seeks to streamline access to the many areas available in Brazil, while defining clear rules to access them and combating mining speculation, one of the greatest elements of insecurity in the current model.
The electronic auction of available areas was already provided for in Presidential Decree No. 790/2017, which aimed to reform the current Mining Code, but was not voted on by Congress and had its effectiveness repealed. The expectation of various players working in the sector is that this tool, if well applied, can quickly release a large number of areas for mining activity, in addition to speeding up future access to areas, once their existing mining rights have expired.
Taken as one of the jewels of the previous proposal, the tool had already been lauded in events held by the government. It remains to be seen if in practice it will be effective in combating mining speculation caused by players used to submitting applications relating to areas for mineral exploration with the sole purpose of guaranteeing their right of priority and then selling it to the mining companies that will, in fact, exercise this activity.
Decree No. 9,406/18 shall enter into force on the date of the installation of ANM, which has not yet been established, exception made for provisions relating to the repeal of Decrees No. 98,812/1990 and 3,358/2000. These will be effective as of December 10, 2018, 180 days after the publication of the decree, which occurred on June 13.
Although some amendments brought in by Decree No. 9,406/2018 are in accordance with the content of the provisional presidential decrees converted into law at the end of 2017, and particularly the creation of ANM, it is necessary to reflect on the validity of introducing some of the most relevant points of the new regulation through this instrument.