Liliam Yoshikawa and Pedro Jardim

After a long expectation period of almost five years, the Bill of Law No. 5,807/2013 which was submitted to the analysis of the National Congress with constitutional urgency (urgência constitucional) (Bill of Law No. 5,807/2013) was made available to the public on June 20, 2013, providing, among others, new rules applicable to mining activities, and the creation of  the Conselho Nacional de Política Mineral - CNPM and of the Agência Nacional de Mineração - ANM. Due to the constitutional urgency, the voting of Bill of Law No. 5,807/2013 shall not exceed 100 (one hundred) days (being 45 (forty-five) days in each of the National Congress houses, plus 10 (ten) days in case any amendment is proposed to it).

Among the main characteristics of the current content of the Bill of Law No. 5,807/2013, which is still subject to adjustments by the National Congress, the following shall be highlighted:

- Creation of the National Council of Mineral Policy (Conselho Nacional de Política Mineral - CNPM) and of the National Mining Agency (Agência Nacional de Mineração - ANM).

- Three regimes: miningconcession agreement  (preceded by public bids or public call (chamada pública)); mining authorization  and small-scale mining permit (lavra garimpeira) (pursuant to the terms of Law No.7,805/1989). The current mining licensing g shall be replaced by the mining authorization .

- As a general rule, all areas will be subject to public bidding. Certain areas considered as strategic by the Federal Government will be necessarily subject to such bidding procedure, while areas not considered as strategic will be subject to a public call as soon as any mining company formalizes its interest in the area, provided that in case there are more than one mining company interested in an area, a public bid shall define who shall be granted with the concession over the area.

Relevant points about the Concessions

- Law No. 12,462/2011, which establishes the Differentiated Public Procurement Regime (Regime Diferenciado de Contratações), shall apply to the public bidding.

- Criteria for electing the winner bidder which shall enter into the concession agreements: (i) signing bonus, (ii) discovery bonus, (iii) participation of the Federal Governmentin the exploitation results, and (iv) minimum exploration program. These can be either combined with each other and/or with others not already expressly provided in Bill of Law No. 5,807/2013.

- The applicable bidding rules (edital) may set up restrictions, limits or conditions for certain companies in the bid, in order to ensure the competition in the mining activities. Furthermore, minimum local content requirements shall be observed by the concessionaire.

- The concession agreement shall cover all stages of the project (exploration, implementation, exploitation and mining closure). Once exploration stage is completed, the commerciality of the reserve shall be declared. The Economic Exploitation Plan and its revisions shall be governed by the concession agreement.

- Concession agreements term: 40 years, renewable for additional 20 years. Such renewal shall depend, among others, on the compliance with contractual obligations. Additionally, the granting authority may include new obligations and conditions to the agreement.

- Concession agreement′s termination hypotheses: those usually provided in concession agreements applicable to other sectors, exception made for certain differences inherent to the mining industry (such as depletion of the deposit).

- It is worth mentioning the possibility of revocation of the existing mining concessions in favor of the national interest in order to submit the area to a public bid. In this case, the titleholder shall be compensated in an amount equivalent to the investment effectively made and not depreciated or amortized.

- Assignment of the concession agreement: may be authorized by the granting authority, provided that technical, economic and legal requirements set out by the ANM are complied with. Even in cases of spin-off, merger or transfer of control, prior consent of the granting authority shall be required. If not observed, the penalty of forfeiture may apply.

- Step-in rights by financiers shall be allowed.

- Conciliation, mediation and arbitration can be set forth as dispute resolution mechanism.

- Collaterals may be required from the concessionaire as a condition precedent to the execution of the concession agreement or to guarantee environmental recovery and minimum investments for each stage.

Relevant points about Authorizations

The following minerals shall be subject to the mining  authorization: (i) ores for immediate use in civil construction; (ii) clays for the manufacturing of bricks, tiles and alike; (iii) ornamental rocks; (iv) mineral water, and (v) ores used as soil correctors in agriculture. Other minerals can be  subject to the mining authorization  by the Federal Government.

- Formalized by the signature of an accession term to be defined by further regulation, observing a 10-year term,  successively renewable.

Other relevant provisions

- CFEM (royalties): applied over the gross mineral production revenues, including those resulting from the reuse of waste or tailings, less taxes levied on the mineral sale. The maximum tax rate shall be of 4%.

- Creation of the Inspection Tax (Taxa de Fiscalização): payable annually by the mining companies, for the inspection of mining activities. It shall be based on the economic capacity of the mining company. Values initially proposed vary from R$ 5,000.00 (five thousand reais) for microenterprises (microempresas) to R$ 80,000.00 (eighty thousand reais) for large companies (those which annual gross operating revenues exceed R$ 90,000.000.00 (ninety million reais)).

- Creation of a new annual payment obligation corresponding to the occupation or retention of the area, due to the Federal Government by the mining company in an amount to be fixed based on square kilometers.

- Participation of the surface rights in the mining results: the Bill of Law No. 5,807/2013 suggests a change from the current 50% to 20% of the amount due in respect of CFEM.

- Administrative sanctions for noncompliance with laws, regulations or contracts related to mining activities: among others, including a fine which may vary for each breach from R$ 10,000.00 (ten thousand reais) to R$ 100,000,000.00 (one hundred million reais) or the equivalent of 50% of the amount due as CFEM, whichever is higher.

- Land access: in case the negotiations between mining company and landowner are not successful, the granting authority shall declare the public interest over the area for expropriation or institution administrative easement required for the mining activities.

Transitional provisions

- Exploration phase requirements: Titleholders of pending exploration requirements will have up to 90 days from the publication of the new law to express their interest in maintaining the requirements and promoting the necessary adjustments. In case this term is not observed, the requirement may be denied. Those ratifications of interests will be considered as requirements for public call procedures.

- Exploration Authorizations: Explorations not yet started shall be initiated within 60 days from the publication of the new law; otherwise, those may be revoked. In case the final exploration report has been approved by the DNPM or the mining concession requirement has already been submitted to the DNPM, the exploitation will be granted by means of a concession agreement under the terms of the new law. Exploration Authorizations granted before the publication of the new law may be extended up to one year, provided that the required exploration works have been duly performed.

- Mining concessions and manifested mines (minas manifestadas): Currently applicable terms shall survive. However, in case there is any assignment of the mining title or spin-off, merger, amalgamation, capital reduction or transfer of control, direct or indirect, of the titleholder, a concession agreement shall be entered into with respect to the area.

- Mining rights which works have not been commenced within the legal term shall be subject to forfeiture, except if: (i) based on temporary suspension of mining activities accepted by the competent authority, (ii) the suspension of activities has been technically justified and accepted by the ANM, and (iii) the occurrence of force majeure events. Nevertheless, mining activities shall be resumed within one year, under penalty of forfeiture.

- Utilization Forms (Guias de Utilização) issued by the DNPM until the date of publication of the new law shall be revoked within one hundred and eighty days as of the publication of the new law.

Issues not addressed by PL No. 5,807/2013

- Among the topics which are relevant to the mining activities and have not been addressed by PL No. 5,807/2013, we highlight the mining activities on areas of indigenous lands and environmental constraints and the mining of radioactive materials.

Although the statement of justification of the Bill of Law No. 5,807/2013 has highlighted as a central measure the creation of the National Mineral Policy - NMA and of the National Agency of Mining - ANM, on a first analysis we highlight two other major changes: the first refers to the form of obtaining mining titles and the second refers to the Financial Compensation for Exploitation of Mineral Resources - CFEM (mining royalties).

In the current mining framework, the regime applicable to the larger projects is the Authorization-Concession, which basically consists of two stages: an exploration stage and a mining/exploitation stage. Any person or entity now has the right to apply for the right to explore minerals in an area which is not subject to another mining title, entitled Exploration Permit. This Exploration Permit ensures exclusivity rights to apply for the Mining Concession, which on its turn will guarantee the right to mine the mineral identified in the exploration works. In sum, it is a ?first come, first serve? rule.

In the scheme proposed by Bill of Law No. 5,807/2013, a great part of what it is currently subject to the Authorization-Concession shall be subject to public bid. As a general rule, every time a mining company requires a new mining title, the public call may take place and, depending on the number of  mining companies interested in such area, it may or may not result in a public bid. In other words, the ?first come, first serve? rule will be over, and all domestic and foreign companies shall dispute de area in equal conditions.

This is perhaps the greatest evidence of how the current regulatory framework is out-to-date. This model, from 1967, was intended to encourage the mining industry to explore throughout national territory and resulted in a relevant portion of the territory being subject to Exploration Permits. The new model is undoubtedly more subject to the will of the State, as, according to Bill of Law No. 5,807/2013, the Federal Government is the one which may elect the strategic areas to be subject to a different regime. Additionally, new charges have been created and the penalties are stricter. The penalty of forfeiture shall be applied to situations which are less restrictive than those which currently may trigger it.

Regarding CFEM, as expected, the Bill of Law No. 5,807/2013 suggests a significant increase in the share of mineral production to be transferred to the government. Although there was no change in the distribution shares to states and municipalities, there was a suggested change in the CFEM calculation basis, since there is no provision for deduction of insurance and freight (as currently applicable). Pursuant to the statement of justification of the Bill of Law No. 5,807/2013, the new rule aims at moving from a model which targets the cost structure towards a model which targets the commercialization activity.

Although the maximum tax rate has been increased from 3% to 4% and the Federal Government has announced its intention to use it for minerals considered important to the economy, such as iron ore, it is worth to mention that Bill of Law No. 5,807/2013 has not determined the rates effectively applicable to each segment or ore, which should grant political flexibility to the Federal Government and trigger certain concern to the mining companies until the this matter is defined.