Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
Brazil’s president Dilma Rousseff unveiled Tuesday the reforms to be introduced to the country’s 46-year-old mining law, including a polemic proposal to potentially double royalties to 4%.
In a televised statement announcing the bill, Rousseff said her government wanted resources companies to have contractual stability and security and for concession renewals to be contingent on them meeting investment and environmental goals, reports Epoca Negocios (in Portuguese).
As anticipated by MINING.com, the new concessions “will run for 40 years, extendable for another 20,” and the concession holders must comply with “clear legal obligations, with an emphasis on protecting the environment,” she said.
Vale’s CEO, Murilo Ferreira, told Valor Economico (subs required) the bill represented a significant increase in royalties at a time when countries overseas were lowering such duties on iron ore and nickel. However the head of the world’s largest iron ore exporter and Brazil’s biggest miner supports the proposed reform, as he believes it “simplifies and modernizes the sector.”
Brazil has been drawing up the bills to regulate the mining sector for over four years. Among the changes set by the new code, royalty payments —known locally as the CFEM tax— will be charged on companies’ gross sales, rather than on net sales as is currently the case.
What it does not include is a windfall profits tax, which is exactly what drove Canada’s Kinross Gold (TSX:K, NYSE:KGC) to abandon its Fruta del Norte project in Ecuador last week.
The South American nation is one of the world’s largest producers of iron ore, bauxite, gold, nickel, manganese and other minerals.
Image of Brazil’s president Dilma Rousseff announcing the reforms. Screenshot from GloboTV News.
Comments
tim watt
So what the government is doing is essentially reducing the amount of ore that can be produced economically, not a particularly enlightened approach.