Brazil Mining Reform Plan Rouses Investor Anxiety

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"The current model has got weaknesses that need to be rectified."

Brazil's plan to reform its mining code and potentially raise the royalties paid by mining companies must ensure the mineral-rich country can compete with up and coming resource providers increasingly vying for investment, miners said on Monday.

Mines and Energy Minister Edison Lobao says Brazil, the world's top iron ore exporter, needs a new approach to mining, making regulatory bodies more agile while better protecting the interests of the Latin America's largest economy.

"The regulatory framework being drafted is intended to replace an obsolete model," he said at the Exposibram mining conference taking place this week in the country's main mining state, Minas Gerais.

Highlighting areas for change, he said firms should no longer be able to speculate by sitting for years on mining concessions without developing them. He has previously said the country has "very low" royalties which should be raised.

But Brazil's mining industry, which exported almost $23 billion of minerals in 2008, disagrees. It says raising royalties could do Brazil more harm than good, making countries with lower taxes more appealing to investors.

Lobao said the reforms would aim to benefit both miners and the state. In a recent media interview, he said the government would not reform the sector to miners' detriment but try to make it "balanced".

"The current model has got weaknesses that need to be rectified," he said on Monday in a speech. "It is fundamental to stimulate aggregation of value and not accept the increase in exports of raw commodities."

He said the government also wanted to modernize the regulatory body, the DNPM, empowering it to make decisions more quickly and with greater agility, implying shorter waits for decisions on and the granting of concessions to firms.

China, which had propelled the metals boom with a seemingly-insatiable appetite for minerals, has become frustrated over having to capitulate to prices set by a limited number of producers and has invested in stimulating production of raw materials critical to its growth.

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