Brazil’s new mining code rules rolled out

By Pinheiro Neto Advogados

Brazil’s President Michel Temer signed Tuesday a decree instituting the new Mining Code Rules. This adds up to the set of Federal Government initiatives targeted at overhauling and updating the Brazilian regulatory framework for the mineral industry, and supervenes the current rules that have been in place for nearly 50 years by now.

The erstwhile Mining Code Rules (instituted by Decree No. 62,934 of July 2, 1968) were outdated, the more so because the Mining Code itself has undergone several changes over the last 50 years – while the rules themselves remained unchanged. The 1996 overhaul even expressly stated that the mining code rules should be updated, but this has never come into being. This led to dysfunctional rules whose practical applicability and reliability waned as doubts arouse on account of their purported incompatibility with the Mining Code or the presence of obsolete concepts.

The new Rules have thus come at the right time. In fact, some of the matters regulated by them were even addressed at Provisional Measure No. 790 of 2017, which remained effective for some 120 days but eventually lost its effect as the National Congress did not vote it into law or reject it. Those matters that needed not be addressed by law were then incorporated into the new Rules.

The new rules are a clear effort to improve the current legislation as seamlessly as possible, but in close attention to the international industry dynamics and to a number of other sensitive issues.

The new Rules detail and update several provisions and mechanisms already envisaged in the Mining Code. For a start, the Rules address the scope of authority of the recently-created National Mining Agency (ANM), such being instrumental to establish the duties of ANM (currently under implementation) within the realm of the current Mining Code. Besides, the Rules set out several concepts germane to the mining industry, which contributes greatly to legal certainty and stability (considering the high technical aspects involved in this sector). More specifically, the Rules embrace several internationally established concepts, such as mineral resources and reserves. The Rules also deal with current industry issues, such as (re)use of tailings and industrial waste.

As for the exploration license and mining concession regimes, the Rules detail the rights and obligations of the holders of mineral rights, as well as the procedures expected from the Public Administration. More specifically, it is worth citing the possibility of carrying out exploration works even after submitting the final exploration report and before the mining stage. Besides, relevant issues (such as closure of a mine and compliance with the National Dams Safety Policy) were incorporated into the Rules.

Another notable aspect refers to the area bidding system, i.e. the adoption of competitive procedures by which the areas linked to mineral rights that expired or forfeited for some reason may be offered to interested parties. Within this context, it is expressly permitted, for those areas only, an electronic auction (which may be preceded by public offers) in lieu of the system of technical proposals effective until then – which was a fertile ground for subjective decision-making. The Rules also plugged the regulatory gap that resulted in the infamous ‘queue’ for rights previously attached to exploration licenses whose effective term expired with no final exploration report timely presented.

Further, the Rules contain a list of administrative infractions and corresponding penalties. Far from showing a punitive bias, the Rules in fact seek to frame out the inspection and sanctioning role and authority of ANM, leaving less room for uncertainties and subjectivity as to the levels of authority and identification of offenses, while also strengthening the role of the State as ultimate manager of the Brazilian mineral resources.

The new rules will not come into force forthwith. Some of their provisions will only come into effect when the ANM is eventually set up, whereas a few other provisions will take effect 180 days after publication. This ensures a transition period during which both the Public Administration and the production industry may adjust to the new regulatory scenario.

The new Rules are a clear effort to improve the current legislation as seamlessly as possible, but in close attention to the international industry dynamics and to a number of other sensitive issues (such as environmental recovery and security). Along these same lines, it is also worth noting that the regulatory text was opened for public consultation (however briefly) and discussed at a hearing carried out at the Brazilian Ministry of Mines and Energy in March 2018, all of which reinforces the participative approach and the industry dialogue. In brief, this initiative contributes to bridging several gaps that posed risks to companies and to the Public Administration alike, besides consolidating well-established industry practices and realities.

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