Brazil Mining Auction Rounds

Brazil

The Brazilian government has published a preliminary draft of the bid documents for an unprecedented auction of two large mining areas. The areas on offer include Candiota (Rio Grande do Sul) which contains over 20 hectares of coal reserves and Palmeirópolis (central Tocantins) where there is evidence of zinc, lead and copper in a polygon of 5.5 hectares. It is expected that bidding will take place between 13 and 17 December 2018.

The bidding process will be organised by the Geological Service of Brazil (CPRM), a state owned company, which is linked to the Ministry of Mines and Energy. This will be the first time that this particular model has been used, whereby the government, through the CPRM, auctions the rights to mining areas.

Contract specifics:

Candiota

The Candiota area is divided into four lots: Estância da Glória, Arroio Pitangueira, Seival and Arroio dos Vimes. The contract has a term of 25 years, which may be renewed successively until the reserves are exhausted. The total signature bonus is fixed at R$ 3.13 million and the minimum rate for payment of royalties is 4%. However, because Candiota is less than 100 kilometres from the Uruguayan border, the winning bidder must have at least 51% national capital as the participation of majority foreign-owned entities is not permitted.

Palmeirópolis

The Palmeirópolis area is a single lot and the contract has a duration of 10 years, which may also be renewed until the reserves are fully exploited. The signature bonus is R$ 300,000 and the minimum rate for payment of royalties is 2%.

Once the contracts are signed, the winning bidders will have 18 months to carry out their own research of the mineral deposits. If extraction potential is identified and the company decides to investigate further, it may continue to evaluate the areas for a further 18 months, upon payment of an ‘opportunity premium’. They are then given a further 18 months to complete the evaluation, following which they can decide to return the area, or to proceed with exploitation. Mineral rights are only transferred at the end of this evaluation period, when a final report is submitted to the National Mining Agency along with a plan for the processing of the minerals.

Area

Lots

Opportunity premiums (phase 1)

Opportunity premiums (phase 2)

Signature Bonus

Minimum Royalty

Carvão de Candiota (RS)

Estância da Glória

R$ 1,641,000

R$ 1,641,000

R$ 984,000

4%

Arroio Pitangueira

R$ 1,137,500

R$ 1,137,500

R$ 682,000

4%

Seival

R$ 1,397,000

R$ 1,397,000

R$ 838,000

4%

Arroio dos Vimes

R$ 1,045,000

R$ 1,045,000

R$ 627,000

4%

Polimetalico de Palmeirópolis (TO)

Palmeirópolis

R$ 500,000

R$ 1,000,000

R$ 300,000

2%

TOTAL

 

R$ 5,720,500

R$ 6,220,500

R$ 3,431,000

 

Comment:

Geologists expect that the Palmeirópolis reserve will attract the most interest from investors as a number of companies operate with this group of metals in Brazil. The production of coal in Rio Grande do Sul will help to meet the demand of thermal plants installed in the region. However, it is thought that there will generally be less competition in the Candiota area.