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Legal Update

Brazilian Government Suspends New Exploration and Mining Licenses

13 September 2012
Tauil & Chequer Legal Update

The Brazilian Government has suspended the issuance of new exploration and mining licenses by the National Department of Mineral Production - DNPM until the new Mining Code comes into force, according to a statement by the Mines and Energy Minister, Edison Lobão, as published by newspaper Valor Econômico on 31 August 2012. The only exception is in respect of aggregates, basic raw materials for civil construction.

The measure seeks both to end speculation in relation to mining rights and set reserves aside for the authorization and exploration regime that will be implemented under the new Mining Code. According to the Government, because at present there is no exploration or mining program or deadline, current laws allow licenses to have solely speculation purposes, without the appropriate utilization of the potential reserves.

The draft of the new Mining Code has been under review and discussion within the Head Office of the Chief of Staff since 2010 and is expected to be sent to Congress by December this year. One of the key objectives of the new regulation is to set rules for auctioning mining rights, in the same manner as in the oil industry, and boost competition among mining companies. In addition, a license period of 30 years renewable for further 20 years and new rules concerning payments of royalties should be established.

Mining companies criticize the position taken by the Brazilian Government and threaten to go to court. They state that the suspension of exploration and mining licenses will have a negative effect on the Brazilian economy and exports. In certain specific cases, however, temporary measures and solutions may be available to mitigate the consequences supported by mining companies.

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Observations in this update about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.

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