Prepared by PINHEIRO, MOURÃO, RASO E ARAÚJO FILHO ADVOGADOS
Antonio Fernando Guimarães Pinheiro (*)
This is a high-level guide to some aspects of Brazilian mining law that are likely to be of interest or concern to an overseas investor. In the case of any specific mining project you may be interested we will be glad to provide detailed advice to you.
Mining activity in Brazil is essentially governed by federal laws and regulations. The Federal Union has the exclusive power to enact mining laws. As far as environmental aspects are concerned, both the Federal Union and the States (and the Federal District) have concurrent jurisdiction to enact the laws and regulations that apply to mining activities. The Municipalities can also enact supplemental laws based on their local needs.
The main legal diplomas enacted at the federal level and applicable to mining activities are:
- Decree Law 227 of 1967 that has amended and consolidated the Brazilian Mining Code (the former Decree-Law 1,985 of 1940);
- Law No. 6567 of 1978 that creates a special licensing for mining of certain minerals, such as sand, gravel and clay for civil construction, rocks and other minerals;
- Law No. 7,805 of 1989 that creates the licensing for small-scale mining;
- Law No. 12,334 of 2010 that provides the rules for the national policy for the safety of dams;
- Law No. 13,540 of 2017 that provides the rules applicable to the Financial Compensation for Exploitation of Mineral Resources;
- Law No. 13,575 of 2017 that creates the National Mining Agency (“ANM”);
- Decree No. 9,406 of 2018 that regulates Decree Law 227 of 1967 and other legal diplomas; and
- Resolution No. 4 of 2019 of the National Mining Agency on the safety of dams.
The Ministry of Mines and Energy (“Ministério de Minas e Energia – MME”) is the government body responsible for establishing the public policy covering the geological, mineral and energetic resources, and the use and exploitation of hydroelectric energy, mining, metallurgy, oil and gas, renewable fuels and hydroelectric power.
The National Mining Agency (“Agência Nacional de Mineração” or “ANM”) is the agency responsible for planning and promoting the exploitation of mineral resources, as well as the management, control and supervision of the mining activities in Brazil. ANM has replaced the former National Department of Mineral Production (“Departamento Nacional de Produção Mineral” or “DNPM”).
Authorization or Concession for mining activities
The exploration and exploitation of mineral resources may be made by means of a Federal Government authorization or concession, and such activities must be conducted by Brazilian citizens (during the exploration phase only) or a legal entity incorporated under the Brazilian laws with headquarters and management in the country (during the exploration and exploitation phases). Specific conditions apply when such activities are developed in border areas or Indian territories.
Equal treatment is ensured to foreign legal entities, irrespective of their origin and their controlling shareholders, in terms of access to exploitation and use of the Brazilian underground. Therefore, there is no distinction between national and foreign capital legal entities incorporated under the Brazilian laws, with headquarters and management in the country, except for areas located on the international border zone.
Application for mining
For the purpose of performing any kind of mining activity in Brazil, the interested party must obtain the authorization from ANM, even to conduct a survey or research of mineral resources. The two main types of authorization are:
- License for preliminary exploration: usually granted for two or three years (depending on the mineral substance). Such license may be renewed upon request, if filed with ANM up to 60 days before its expiration date. The exploration activities may be indistinctly performed by an individual or a legal entity.
- Exploitation concession: if the exploration report on a mine is approved by ANM then the concerned legal entity may apply for an exploitation concession. According to the Brazilian law only a legal entity is allowed to exploit a mine. The applicant must present, among other documents, evidence of its financial capacity to carry on the project. The holder of the exploitation concession must pay annual fees and submit annual reports to ANM.
A license issued by ANM will be required for the exploration of an area aiming at the verification of the existence of mineral resources and determination of the economic feasibility for its exploitation on an industrial scale.
If the mining title is available the application for such exploration license must be filed with ANM jointly with following documents (i) indication of the substance that will be explored; (ii) description of the area where such substance is located; and (iii) the exploration program, including budget and time-schedule.
Generally, the exploration license is granted if the area is not being explored by third parties (by means of previous exploration licenses or exploitation concessions), and if the exploration program is solid. The license is usually granted for a three-year period. An extension of this period may be requested provided that the beneficiary proves the development of the exploration works.
If the owner of the mining right is also the owner of the land where the mine is located, the exploration license, in principle, will be sufficient to allow the beginning of the exploration activities. On the contrary, the beneficiary must agree with the land owners – or the people who have the possession of the land – the payment of an indemnification for the occupation, as well as the payment of a compensation for potential damages. If the land is government property the payment of the indemnification is not necessary.
The beginning of the exploration proceedings must be informed to ANM, failing which the legal entity or individual involved will be liable to pay a fine. Furthermore, the beneficiary of the license cannot interrupt the exploration proceedings for more than three months without proper and previous justification.
It is possible for the beneficiary of the license to extract small quantities of mineral resources before the granting of the exploitation concession, by means of a request to ANM for a utilization permit (“Guia de Utilização”). The request for the utilization permit must define the technical and economic reasons that justify its granting. In addition, the permit will only be granted by ANM if the owner of the mining right presents proof of the agreement with the land owners or the people who have the possession of the land, or a Court order granting to the beneficiary of the license the access to the mining area. An environmental license will be also required for the use of the permit.
If the conclusion of the exploration report is positive, indicating technical and economic feasibility for the exploitation of the mineral resources, and if the report is approved by ANM, the interested legal entity may apply for an exploitation concession up to one year after the presentation of the final exploration report. The applicant must present, among other documents, proof of its financial capacity to carry on the project. The exploitation concession is granted for an indefinite term.
The concession may be denied by ANM if the exploitation is considered “harmful to the public property” or if “it jeopardizes interests that are higher in importance than the benefit of the industrial exploitation”.
The beneficiary of the exploitation concession must submit annually to ANM the Annual Mining Report (“Relatório Anual de Lavra” or “RAL”), which shall contain information such as the composition and administration of the legal entity, mining right and production status, environmental and labor issues, machinery and equipment, investments, water and energy consumption, sales and taxes paid.
Financial Compensation for Exploitation of Mineral Resources
During the exploitation period the owner of the mining right has to pay monthly to ANM the Financial Compensation for Exploitation of Mineral Resources (“CEFEM”), which is a federal royalty that has to be paid as a compensation for the economic use of mineral resources. The CFEM is calculated on the gross revenue of mineral sales. Currently the CEFEN applicable to iron ore exploitation is up to 3.5%. The collected royalties are distributed among the Municipalities, the States, and the Federal District.
Transfer and Assignment of mining rights
The Brazilian Mining Code allows the transfer and assignment of mining rights (i.e. the exploration license and the exploitation concession). In order to make the transfer and assignment effective the interested parties must file a petition with ANM requesting its consent to the assignment. The payment of a fee and the presentation of specific studies (i.e. research plan) and other documents will be required. ANM’s consent is rarely denied. However, the transfer and assignment shall only be valid after the publication of ANM’s consent in the official Gazette (“Diário Oficial”). The assignor will remain responsible before ANM for the mining right until the time of such publication.
Mining in specially protected areas
According to Brazilian laws any intervention in environmentally protected areas will depend on the authorization of the Brazilian Institute for the Environment and Renewable Natural Resources (“Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis” “IBAMA”) or the competent State Agencies, and will be subject to supervision. Likewise, the extraction of natural vegetation for mining exploration and exploitation must be authorized and made in compliance with specific environmental laws.
From the environmental perspective, the Brazilian Constitution provides that any individual or legal entity that explores mineral resources must restore the degraded environment according to the technical solution required by the competent authority. Moreover, depending on the activity to be performed and on the impact that it may cause to the environment, it is also necessary to have a special license and/or an authorization for the exploitation.
The environmental licensing is an administrative procedure whereby the Brazilian Government seeks to balance the economic development with the sustainable usage of natural resources, analyzing the conditions that the interested party proposes to install and operate the activity.
According to Brazilian environmental laws, legal entities and individuals that may effectively or potentially cause negative impacts to the environment are not allowed to operate without a specific license. In the absence of such license the legal entity may have its activities (temporarily or permanently) suspended by the governmental authorities and be subject to various penalties (including heavy fines). The legal entity or individual must be registered before IBAMA and the State environmental agency.
Based on the description of the activities to be developed, the licensing agency will evaluate the circumstances and the technical consequences of the project for its approval. The more important types of environmental licenses are: (i) the Preliminary License (LP); (ii) the Installation License (LI); and (iii) the Operation License (LO), each to be obtained at the beginning of the concerned stage of implementation of the project. In most cases, the environmental license is granted by the State Environmental Agency. Likewise, a special environmental license will be required for any suppression or clearing of vegetation.
All individuals or legal entities that perform activities that can potentially cause negative impacts on the environment or that make use of natural resources must pay to IBAMA the Environmental Control and Inspection Fee (“Taxa de Controle e Fiscalização Ambiental” or “TCFA”. Such fee must be paid every three months and its amount will depend on the polluting potential and number of facilities in place.
The environmental legislation related to mining activities requires basically (i) the environmental impact study (“EIA/RIMA”); (ii) the environmental license; and (iii) the plan for the recovery of degraded areas (“PRAD”). The EIA/RIMA applies to mining projects of any mineral substance; the environmental license is mandatory for the installation, expansion, and operation of any mining activity under the systems of mining concession or licensing; and the PRAD requires suitable technical solutions to rehabilitate the soil and other aspects of the environment that might be degraded by mining operations. Those studies shall be presented in the exploitation phase.
In general, an environmental license is not necessary for the exploration phase, even for the performance of drilling activities, whenever a declaration of exemption by the environmental agency or a license for suppression of the vegetation be granted, as the case may be.
Dams Safety Policy
Due to recent environmental disasters caused by the collapse of upstream raised iron ore tailings dams in the State of Minas Gerais, in addition to the rules contained in Law No. 12,334, of 2010 (that provides for the national policy for the safety of dams), Resolution No. 4 of 2019, issued by ANM, established a number of additional rules for the same purpose.
The most relevant provisions are:
- the construction of upstream raised tailings dams is forbidden in the entirety of the Brazilian national territory;
- the existing upstream raised iron ore tailings dams that are in operation may remain active until August 15, 2020, provided that the dam safety be confirmed according to a technical design to be concluded until August 15, 2019, and all other safety requirements provided in the aforesaid Resolution No. 4 be observed;
- to reduce or avoid the risk of rupture the owners of upstream raised iron ore tailings dams must: (i) complete until August 15, 2019, the technical design for the decommissioning of the dams; (ii) conclude until February 15, 2020, all downstream reinforcement works or the construction of new structures for such purpose; and (iii) complete the decommissioning of the dams until February 15, 2021.
The legislation of the State of Minas Gerais on the safety of dams was changed by Law No. 23,291 of February 2019 to reflect the new rules contained in Resolution No. 4 of the ANM. In addition, said law established additional rules to minimize the risks of accidents with dams of all kinds. Some of the main rules are:
- the granting of environment licenses for the construction, installation, enlargement or increase in the height of dams in which a community be identified as located in the self-salvage zone and capable of being affected in case of rupture of the dam is forbidden;
- the licensing of the construction, operation enlargement and increase in the height of dams must observe three distinct and successive phases, following the submission of the Environmental Impact Study and the Report of Environmental Impact, which are: (i) the Previous Licensing; (ii) the Installation License; and (iii) the Operation License.
- the issuance of concomitant, temporary or corrective licenses ad referendum of the competent authority is forbidden;
- in case of noncompliance with the requirements of the law, without prejudice to the application of administrative, civil and criminal sanctions, the CEOs, directors, administrators, Board members, technical bodies, auditors, representatives or attorneys-in-fact who have contributed to the noncompliance shall also be liable to such sanctions.
(*) Antonio Fernando Guimarães Pinheiro is one of the founding partners of Pinheiro, Mourão, Raso e Araújo Filho Advogados from Belo Horizonte, Brazil (www.pmraf.com.br). He focuses his practice on corporate law, construction, mining, energy, industrial projects, M&A transactions, project finance and government contracts, mainly public concessions and public private partnerships, as well as on arbitration. He is currently Co-Chair of the Terralex Mining Industry Sector Team and may be contacted at 55+31+3116=1500 or firstname.lastname@example.org.