According to the Brazilian Constitution, all mineral resources in Brazil belong to the Union. The Brazilian Constitution also stipulates that mining companies should be set up and managed within Brazilian territory and under Brazilian laws.

Mining activities are subject to the limitations imposed by the Brazilian Constitution and the Mining Code (Código de Mineração, Law number 227, of February 28, 1967), as well as to other applicable laws, rules and regulations, especially those issued by DNPM.

Amongst the demands imposed on mining companies under Brazilian laws are those (i) related to the manner whereby mineral deposits are explored; (ii) the health and safety of workers; (iii) the protection and recuperation of the environment; (iv) the prevention of pollution; and (v) the protection of the health and safety of the local communities where the mines are located. The Mining Code further sets out obligations in relation to notification and submittal of reports.

In Brazil, mining companies are only allowed to research and perform carving of mineral resources in accordance with the appropriate research authorizations or carving concessions from DNPM and MME respectively, or otherwise in virtue of a manifested mine duly registered with DNPM.

DNPM grants  research authorizations for an initial period of not less than one year or more than three, at its discretion, taking into consideration specific characteristics of the area and the intended research. Such authorizations are valid for a specific term which is extendable according to DNPM criteria and subject to proof on the part of the requesting party that such an extension is necessary for the appropriate conclusion of research activities, or that it was not possible to access the area of research. Research activities at the location must be started within 60 days of the official publication of the issuance of research certification. On the conclusion of research activities at the location, the concession holder must submit a contextualized report on the research carried out to the DNPM; containing quantifiable geological and technical data on the deposit and proof of the technical and economical viability of the carving, carried out under  the responsibility of a duly-qualified technician . Should the geological exploration unveil the existence of a technically and economically viable mineral deposit, the concession holder has, from the date of the approval of such a report by the DNPM, a one year deadline (extendable by the DNPM) to request a carving concession, or to transfer its right of request to another interested company. Once a carving concession is awarded, the concession holder must start the carving works at the location within six months, except in the case of forces beyond its control, at the DNPM’s discretion.

Carving is understood, for the purposes of concession, as the set of interdependent operations involved in  the industrial exploitation of a deposit. These range from the extraction of the useful mineral substances the deposit may contain up to the refining of these substances. “Mine” is understood as the deposit undergoing carving even if this activity is paralyzed.

The carving of mineral resources is performed under the Union’s concession, via a unilateral authorization from MME following a concession request made to the Minister of Mines and Energy by the holder of the research authorization or his successor. This  request should contain,  amongst other factors, the following elements: (I) designation of the mineral substances to be carved; (ii) denomination and detailed description of the field intended for carving and also the name and residence of the property’s owners or of those in possession of it; (iii) easements the mine is to be conceded (iv) the economic exploitation plan for the deposit; and (v) proof of availability of funds or of the financial arrangements needed for the execution of the economic exploitation plan and the operation of the mine.

This authorization won’t be granted if the carving is considered to be detrimental to the public good, or to be in conflict, in the Government’s opinion, with interests that prevail over the benefits of the industrial exploitation. In the latter case, the researcher is entitled to receive an indemnity from the Government for the costs associated with  research carried out  if the report is approved. The concession is formalized via the issuance of a carving ordinance, authorizing the concession holder to perform the mineral exploitation of the deposits until they are exhausted, in accordance with the carving plan approved by the DNPM. A carving which is not in accordance with the plan approved by the DNPM subjects the concession holder to sanctions ranging from a warning to termination of the concession. A concession or transfer of either the carving concession or the research authorization is only valid after   registration with the DNPM.

The minerals extracted specified in the concession document belong to the holder of the mining rights. With the DNPM’s prior approval, the holder of a carving concession is entitled to transfer it to another qualified company. According to Article 20 of the Brazilian Constitution, and backed up by Law 8.001/1990, the Federal Government charges royaltiesfrom the concession holders, known as Financial Compensation for Exploitation of Mineral Resources (Compensação Financeira para Exploração de Recursos Minerais, CFEM) over the sale of the mineral extracted by them, net from income tax, insurance and transportation costs.

The Mining Code, along with the other applicable mining and regulation laws, imposes further financial obligations on mining companies These must, for instance, compensate land owners for the damages and losses caused by the use and occupation of their land (whether for research or carving) and share the results of the exploration/exploitation, at a rate of 50% of CFEM. Mining companies should also compensate the Federal Government for the damages caused to public land.

Additionally, in accordance with Decree number 97.632, of April 10, 1989,enterprises destined to the exploitation of mineral resources should be subject to the appropriate environmental body’s approval, presenting a Plan for Degraded Area Recovery (Plano de Recuperação de Área Degradada – PRAD), Environmental Impact Study (Estudo de Impacto Ambiental – EIA) and corresponding Environmental Impact Report (Relatório de Impacto Ambiental – RIMA). Non-compliance with the rehabilitation measures set forth in the PRAD constitutes an environmental crime under the Environmental Crimes Law (Lei de Crimes Ambientais).

In accordance with the Brazilian Accounting Norm 15 (Norma Brasileira de Contabilidade 15T 15), the Company should disclose environmental liabilities and contingencies. Environmental Liabilities can be conceptualized as any damage to the environment, and consist of the value of the investments required for rehabilitating it, as well as potential fines and indemnities. With a basis on the technical studies performed, this has constituted a reserve for removal of the assets with a counterpart upon the costs of its own assets, since the engendering factor (“fato gerador”) is triggered by their installation.