Bloomberg News

Brazil Said to Require Local Content on New Mining Contracts

February 14, 2012

(Updates with closing share prices in ninth paragraph.)

Feb. 6 (Bloomberg) -- Brazil, the world’s second largest iron-ore exporter, is seeking to apply local supplier requirements to new mining contracts, according to a government official who participated in drafting the industry’s new rules.

The measures will require companies exploring and producing minerals to spend a percentage of their investments with local businesses, according to the official, who declined to be named because they’re not authorized to discuss the issue publicly. President Dilma Rousseff must still decide on the percentage to be required, the official said, adding that companies not complying with the rule may have contracts revoked.

Brazil is seeking to develop local industries that can supply the goods and services needed to extract and transport oil and minerals as output rises. Oil producers already have to buy as much as 70 percent of goods and services locally, reducing the suppliers oil producer Petroleo Brasileiro SA can tap as the country seeks to more than double output by 2020.

“This may have a significant impact if approved,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos in Rio de Janeiro, said today in a telephone interview from the city, referring to the difficulties that companies such as Vale SA may have in sourcing local goods.

Mining Delays

Mining companies operating in Brazil are facing delays and cost increases amid labor shortages and tougher environmental licensing processes. Rio de Janeiro-based Vale, the world’s largest iron-ore producer, said Nov. 28 that its $8.04 billion Carajas Serra Sul mine expansion, its biggest project ever, will be delayed for two years to the second half of 2016. The company delayed the start of at least five other projects last year.

The government is modeling the mining rules on the requirements imposed on the oil industry for the so-called pre- salt exploration, the official said. Petrobras, as the state- controlled company is called, is tapping offshore oil deposits located deep beneath a layer of salt under the seabed.

The new mining code is ready and the government is waiting for the appropriate political moment to send the project to Congress for its discussion, the official said. Last minute changes to the drafted code are still possible, he said.

Brazil’s Ministry of Mines and Energy declined to comment, according to an e-mailed statement distributed by its press office today.

Vale gained 0.2 percent to 43.92 reais in Sao Paulo today, its highest level since Sept. 20. MMX Mineracao & Metalicos SA, another Brazilian iron-ore producer, rose 1 percent to 8.72 reais.

Australia is the world’s largest iron-ore exporter.

--Editors: Dale Crofts, Robin Saponar

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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