Mining in Brazil: Golden (and other) opportunities

The mining business in Brazil is getting more interesting by the hour. Analysts from the Bank of America Merrill Lynch believe that, at least for the next five years, the country will be one of the preferred destinations for investments in the business. Indeed, Brazil is experiencing a rush in the sector similar to the Gold rush in the seventies.

So, for all future investors out there, we decided to compile a brief introduction to the regulation of the mining sector in Brazil.

Firstly, as we explained before, in accordance with the Brazilian Constitution, all mineral resources (including water) belong to the Brazilian State and cannot be sold or transferred (Art. 22). Private mining companies can only conduct mineral exploration by means of concessions granted by the State. In simpler terms, the DNPM issues a permit conferring the entity the right to mine in a delimited area and, in return, the State receives royalties which amount to between 0.2 to 3% of the entity’s net income from the mining activities.

The mining business is regulated by the Mineral Code (Decree-Law n. 227/1967) and supplementary by a government entity, the National Department of Mineral Production (DNPM). Any mining activity conducted without the proper DNPM’s permit is considered illegal and constitutes a crime punished by fine and up to one year of imprisonment (Art. 55 of Environmental Crimes Statute n. 9.605/1998).

Each concession lasts for at least ten years, but is useless if don’t have the necessary permits. Here is a brief explanation of all permit regimes and to what kind of mining activity they apply. Remember that the permits are linked to the substances you set out to explore, so if you find a new mineral you have to communicate this occurrence to DNPM. This is important because some minerals cannot be mined by private companies without government contracts, such as Uranium and other nuclear minerals (See here for an overview of state monopolies).