Industry Trend Analysis - Mining Regulatory Update To Boost Long-Term Prospects - SEPT 2017

BMI View: Brazil's increased mining royalties and new mining agency will raise costs for miners in the near-term, while overall clearer and more consistent regulations will boost investor sentiment and facilitate project development . We expect competitive operation costs, a strong project pipeline and the flexible tax rate on iron ore to support the positive long-term picture.

In July, Brazilian President Michel Temer announced changes to the country's mining regulatory framework, as part of the Brazilian Industry Revitalisation Programme to increase legal certainty, reduce regulatory hurdles and incentivise mining investment. The reform, to be fully implemented November 1 pending Congressional approval, raises mineral royalties to boost government funds and aims to improve investor sentiment by unifying regulation and cutting red tape. While the new tax rates will raise costs for miners, we expect the long-awaited reform's focus on modernising and clarifying the regulatory framework to outweigh modest increases to costs and thus maintain a positive outlook for key sectors including iron ore, bauxite and gold. Notably, a decrease in the tax minerals used in civil construction, such as copper, could prompt an acceleration in project development in these sectors and poses upside risks to some mineral production forecasts. Changes include:

  • Iron ore royalties to reflect prices (previously flat 2% royalty on net revenue): 2% if prices are below USD60/tonne, 2.5% if prices are between USD60-70/tonne, 3% if prices are between USD70-80/tonne, 3.5% if prices are USD80-100/tonne and 4% if prices are above USD100/tonne

  • Improving Transparency, Streamlining Regulations To Boost Brazil's Outlook
    Americas - Mining Regulation Score
    Scores out of 100, higher score = more attractive market. Source: BMI Mining Risk/Reward Index

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