Vale SA, the world’s biggest iron- ore producer, would suffer if Brazil boosts mining royalties, which could put it at a disadvantage to Australian producers, Credit Suisse analysts said.

Mining Minister Edison Lobao told lawmakers yesterday Brazil is seeking
to increase mining royalties in a proposed government bill. If Brazil
boosts iron-ore royalties from 2 percent to the 5.6 percent of
Australia, Vale’s net income would fall by 6 percent, Sao Paulo-based
analysts Ivan Fadel, Bruno Savaria and Luiz Moreira said in a note to
clients today.

Brazilian iron-ore producers pay total taxes that are 19.7 percent,
above the 15.4 percent for Australian producers, the analysts said,
citing Brazilian Mining Institute data. The tax rate could be used to
argue in favor of Vale and other Brazilian miners to maintain the
royalty rate, according to Credit Suisse.

On Aug. 24 Lobao told reporters in Sao Paulo that Brazil needs to
modernize its 40 year-old mining code “to stop speculation” with trade
in mining rights that don’t result in productive mine operations.

“Changes in mining law and royalties need to be voted on by Congress
and could face resistance,” the Credit Suisse analysts said. “This is
not something easy to implement and would require some time.”

Vale gained 24 centavos, or 0.8 percent, to 32.44 reais at 12:48 p.m.
in Sao Paulo. The stock has risen 36 percent so far this year, less
than 48 percent for Brazil’s benchmark Bovespa index.

Source: Bloomberg

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