Cecilia Vidigal Monteiro de BarrosCecilia Vidigal Monteiro de Barrosceciliavidigal@xbb.com.brceciliavidigal@xbb.com.brDirect tel.: 005511-3069-4335Direct tel.: 005511-3069-4335

MINING IN BRAZILMINING IN BRAZILMINING IN BRAZILMINING IN BRAZIL

Mining in Brazil

ADVANTAGES – MINING IN BRAZIL

● favorable ecology

● political stability

● improving economic situation

● well developed mining culture

● availability of highly qualified personnel, especially in the South and Southeast regions

● no resource nationalism suppression of former preferential access to Brazilians of 1988 Constitution by 1995 amendment

DISADVANTAGES – MINING IN BRAZIL

● Long time to obtain environmental licenses

Lack of personnel and structure at agencies:

DNPM (Departamento Nacional de Produção Mineral) and IBAMA (Instituto Brasileiro de Meio Ambiente e Recursos Renováveis) well equipped in their main offices in Brasília

Lack of qualified personnel and structure in each State

Mining in Brazil

Lack of personnel and structure at State authorities:

delay in grating of licenses by State authorities (research/“previous license”/“ installation license”/“operation license”)

applications increasing

agencies losing personnel to private companies due to low wages

Mining in Brazil

DISADVANTAGES – MINING IN BRAZIL

environmental regulation x 1967 Mining Code

● Conflicting legislation

conflicting Requirements from Federal, State and Municipal authorities

conflicting Public Attorney's Office opinions with requirements from environmental authorities;

● Lack of high qualified technicians

qualified technicians on the South and Southeast regions

only large companies have high-qualified personnel

in sufficient number

DISADVANTAGES – MINING IN BRAZIL

Mining in Brazil

● Lack of Governmental policy and regulation

lack of regulation on indian territory – bill of law under discussion → indians request 3% on net income plus indemnification for damages

mining in the border → restrictions to foreign investments

mining in caves

no policy by Brazilian Federal Government since the decade of 80 to stimulate local production of non-ferrous metals

DISADVANTAGES – MINING IN BRAZIL

Mining in Brazil

● Potential barriers due to social and environmental responsibility

Equator Principles standards guiding bank’s investments in developing countries

over 80% of global finance investment capacity covered by the Principles

World Bank (IFC) investments subject to Equator Principles

competitive advantage for companies investing in social responsibility

barrier for companies from less stringent countries

DISADVANTAGES – MINING IN BRAZIL

Mining in Brazil

● Lack of geological data

small number of areas available to exploration with quality geological data

areas with quality geological data are usually controlled by a few large companies data on extensive areas of the country are scarce

● Tax issues

“Environmental Compensation” – current legislation (Law No. 9.985/2000) sets out a minimum of 0,5% of the total investment cost, but sets out no cap

Law does not prevent Federal, State and Municipal Government from fixing a cap; the State of Bahia sets out a cap of 0,5% and the State of Minas Gerais 1,1%

DISADVANTAGES – MINING IN BRAZIL

Mining in Brazil

● “Brazil Risk” in general

Tax bureaucracy

Difficult access to financing at adequate interest rates

Transport-related costs (mainly highways)

Port-related costs

Customs bureaucracy

DISADVANTAGES – MINING IN BRAZIL

Mining in Brazil

BIODIESELBIODIESELBIODIESELBIODIESEL

Biodiesel

● Biodiesel is the biofuel deriving from renewable biomass or

animal fat used in transportation, power generators or generators for

cogeneration of power and heat, engines etc

BIODIESEL IN BRAZIL

● Wide range of oilseeds:

castorbeans

soybeans

palm oil

sunflower

babassu palm

cotton

Biodiesel

BIODIESEL IN BRAZIL

● Rationale behind the PNPB:

growing demand for fuels from renewable sources

captive market

expansion of internal and external markets

Brazilian potential to meet part of demand

foreign exchange

● National Program for Biodiesel Production and Use (PNPB)

December 6, 2004

addition of value to agricultural activities – competitive advantage to Brazil

uninterrupted growth of demand for agroenergy, as opposed to most agrobusiness products

sustainable development of Brazil’s poorest regions

social inclusion – engagement of small farmers of Brazil’s poorest regions in the biodiesel value chain

reduction of regional inequalities

Biodiesel

BIODIESEL IN BRAZIL

● continuation - rationale behind the PNPB:

Biodiesel

TAX MODEL

● cap on Federal taxation on biodiesel – taxes on mineral diesel

● reduction up to 31% - producers not family farmers

● reduction up to 68% – Biodiesel producers that

acquire raw material from family farmers (anywhere in Brazil)

● granting of total or partial Federal tax exemptions (CIDE, PIS/PASEP

and COFINS) to biodiesel producers that support family farmers

● reduction up to 100% in Federal taxes - purchasers from

family-based producers of:

palm oil in the North Region

castor oil in the Northeast and in the semi-arid region

Biodiesel

SOCIAL FUEL STAMP

● Social Fuel Stamp = Certificate issued by the Ministry of Agrarian

Development

● Entitlement to: certification of origin/brand name of Biodiesel

total or partial reduction of Federal taxes

participation in purchase auctions (four auctions were held – 840 million liters of biodiesel purchased)

Biodiesel

SOCIAL FUEL STAMP

● Requirements:

● purchase of minimum percentages of raw materials from family farmers

10% from North and Mid-West regions

30% from the South and Southeast regions

50% from the Northeast and de Semi-arid regions

● entering into contracts with family farmers

● provision of technical assistance to family farmers

Biodiesel

MANDATORY MIX

● from January 2008 – “B2 mix” – 2% biodiesel and 98% diesel

● from January 2013 – “B5 Mix” – 5%

● higher percentages up to B100 (pure biodiesel) – authorization

by ANP – Petroleum, Natural Gas and Biofuels National Agency

● Europe: 10% biofuel (biodiesel or ethanol) until 2010

Biodiesel

LINES OF CREDIT

● Funding for equipment/plants or planting of raw materials

at reduced rates, longer grace and amortization periods

BNDES (National Bank for Economic and Social Development)

PRONAF (National Program for the Strengthening of Family Farming)

Banco do Brazil – “BB – Biodiesel line of credit”

other official or private banks

Biodiesel

AUTHORIZATION

● Production and sale of biodiesel in Brazil require:

Authorization from ANP (National Agency for Petroleum, Natural Gas and Biofuel)

Registration with the Federal Revenue Secretariat (SRF) of the Ministry of Finance