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Brazil's CNI Set To File Court Action Against New State Mining Taxes

03/19/2012 | 05:46pm US/Eastern
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RIO DE JANEIRO (Dow Jones) -- Brazil's National Industry Confederation CNI is likely to file high court action in coming days arguing that mineral "policing" charges planned by the Brazilian states of Minas Gerais, Para and Amapa run counter to the country's constitution, a CNI spokesman said Monday.

The CNI's tax and mining committees have recommended that the confederation file a complaint with Brazil's Supreme Federal Court, or STF, that the planned new taxes, due to come into force April 1, are unconstitutional, the CNI spokesman said.

"CNI's president is going to take a decision on whether to file the case," the spokesman said.

Cost pressures on mining companies are escalating as national and local governments worldwide attempt to reap benefits from high commodities prices. Legislative assemblies in Minas Gerais and Para, Brazil's two biggest mining states, together with Amapa, which is growing in importance as a gold and iron ore producer, recently passed laws allowing the states to charge up to up to 6.90 Brazilian reais ($3.83) in tax per metric ton on mineral products including bauxite and iron ore, to help allow "policing" or checking of how mineral resources are exploited in the state.

The planned state-level charges are unconstitutional as mineral resources in the Brazilian subsoil belong to the federal state, which already charges royalties on companies' ore sales, part of which are channeled back to the states for use in social improvements, according to mining companies linked to the CNI. Mining companies operate deposits via concessions granted by federal government.

"Production of lower value minerals, such as bauxite and industrial minerals for building, will become unviable with the new state-level charges," the CNI spokesman said. It is incorrect to base a "policing" or "control" tax on the market prices for minerals, as would apparently occur with the new state-level taxes, he said.

The planned new charges would hit major mining companies including Vale SA (VALE, VALE5.BR), Companhia Siderurgica Nacional SA (CSNA3.BR, SID), MMX Mineracao e Metalicos SA (MMXM3.BR), Votorantim Group, Anglo American PLC (AAUKY), Anglo Gold Ashanti, Alcoa (AA) and BHP Billiton PLC (BHP).

Minas Gerais state tax officials told Dow Jones Newswires in early March that Brazil's constitution gives the states the right to police, monitor and check mineral reserves and exploitation in their territories.

The new tax in Minas Gerais aims to cover the cost of environmental-recovery programs in mining areas and encourage local industrial development, as the tax will not be charged on minerals that are processed into other products within the state, the state's officials said.

-By Diana Kinch, Dow Jones Newswires; 55 21 2586 6086; diana.kinch@dowjones.com

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