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 proposed changes to its mining law and other related regulations are not only triggering a global uproar from environmentalists, which oppose the planned opening of more than 1 million acres of protected land to miners, but also among resources firms with interests in the country.
Both experts and mining companies fear some of the intended modifications would also result in hefty taxes, higher research costs and decrease interest from foreign investors.
Concerns over the new regulations stem from a package of three presidential decrees issued last month.
Their worries stem from a package of three presidential decrees issued last month, which together with updating the country’s legal framework for mining, hikes royalties by as much as 80%.
Taxes on mining revenue will rise by a set rate on diamonds, gold and other materials, while iron ore royalties will increase in tandem with the price of the mineral, gradually growing from 2% if the market price is less than $60 a tonne, to a maximum of 4% if the price rises above $100 a tonne. Other commodities will be affected as detailed by Mondaq:
MP No. 789/2017: modifies the calculation method regarding CFEM, the mining royalty:
The changes that will go into effect in November, if approved by Congress before then, will see some royalties fall, such as those applied to raw materials used directly in construction, which will become 1.5% lower.
The regulations also create a National Mining Agency to replace the National Department of Mineral Production, which is expected to increase transparency and reduce bureaucracy.
Together with updating the country’s legal framework for mining, changes imply hiking royalties by as much as 80%.
“The increase in mining costs is the most important outcome of these changes,” Valdir Farias, chief executive of Fioito Consultoria, a local consultancy firm specializing in mining taxes, told the Metal Bulletin. (subs. required).
The Brazilian Mining Association, which counts the country’s largest miner and world’s No. 1 iron ore producer Vale (NYSE:VALE) among its members, has also expressed its concerns.
According to the industry body, it won’t be possible to cut costs enough to offset the higher levies. “Mining companies feel pressured to pass on this new cost increase to the industrial production chain,” it said in a July statement to Reuters. “This new condition will increase the risk of loss of competitiveness in the international market for ores.”
Others, such as analyst Pedro Galdi, believe the revisions to the mining code should have little impact on companies in the sector.
“In general, miners didn’t like the measures, and the increase in royalties should be passed on to consumers. However, with the country’s inflation currently in free-fall, the effect may not be noticeably observed,” Galdi told BNAmericas.
President Michel Temer has argued that changes across many sectors of the economy are necessary to shore up government finances as Brazil emerges from its worst recession on record.
2 Comments
King Blonde
No. Environmentalists are overacting because we are not used to mine in federal lands and believe me, they are many many lands. And furthermore, the taxes will be at international standards. Be cool, nothing will change.
Carlos Burgon
Brazil – Mining royalties
To understand the before and after:
Before, royalties were applied on the net sales value, discounting the cost of production, the freight mine to the port and the port costs, so there is no double taxation on logistics services, port costs and production costs. In production, the miner already pays taxes to the government for labor, fuel, transportation equipment from the mine to the port, and port facilities and operations.
Today the miner will have to pay on the gross amount of the sale.
The only exit I see is the buyer take over the contracts with the logistics of the mine to the port and the contract with the port. The ore buyer pays direct to the contractors and discounts the CFR price.