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UPDATE 2-Vale, CSN fight against mining tax heats up
June 5, 2012 / 8:47 PM / 5 years ago

UPDATE 2-Vale, CSN fight against mining tax heats up

* Brazil states seek new revenue from mining companies

* Court reverses Vale injunction; CSN’s still stands

* Case underlines growing regulatory noise in Brazil (Adds Vale response, Vale CSN share prices)

By Jeb Blount and Sabrina Lorenzi

RIO DE JANEIRO, June 5 (Reuters) - A battle launched by Vale SA, the world’s largest iron-ore producer, Brazilian steelmaker CSN and other mining and metals companies against new Brazilian taxes on minerals heated up on T ues day after a judge overturned a court injunction against paying the levies.

The overturned Vale injunction was against a mining tax in Brazil’s state of Minas Gerais, a press officer with the state’s revenue department told Reuters.

Arcelor-Mittal, the world’s largest steelmaker, and MMX Mineração e Metálicos are among the companies that have filed or plan to file suits similar to Vale and CSN‘s.

CSN, Brazil’s No. 2 iron-ore producer after Vale, won an injunction against the tax that remains in force, said Frederico Menezes Breyner, a lawyer with Sacha Calmão Misabel Derzi Consultores, CSN’s law firm in Belo Horizonte, Brazil. Belo Horizonte is the Minas Gerais state capital.

“We believe this tax is unconstitutional,” Breyner said. “We and the other companies are fighting the tax for the same reasons.”

Vale officials declined to comment on the status of their legal proceedings, according to the company’s Rio de Janeiro press office.

Vale preferred shares, the company’s most-traded class of stock, fell 0.19 percent in Sao Paulo to 35.95 reais. CSN fell 1.65 percent to 12.55 reais, its lowest close in more than nine months. The Sao Paulo Bovespa index of the most-traded stocks on the Sao Paulo exchange fell 1.75 percent.

New taxes on mining in Brazil’s Minas Gerais, Pará and Amapá states are expected to raise more than 1.2 billion reais ($592 million) a year.

Minas Gerais is responsible for about 20 percent of the world’s sea-borne iron-ore exports of about 1 billion tonnes a year. Pará accounts for about 10 percent. Iron ore is the main ingredient in steel.

If upheld, Vale, the world’s No. 2 mining company, would likely pay the vast bulk of the new charges. At 6 reais a tonne, the Pará charge would raise about 600 million reais a year on Vale’s 100 million tonnes of iron-ore output in the state. The Minas Gerais charge of 2.18 reais a tonne would raise more than 400 million reais on more than 190 million tonnes of Vale’s Minas Gerais output.

On Monday, Brazil’s National Industry Confederation asked Brazil’s Supreme Court to declare the new taxes unconstitutional.

In addition to the constitutionality of the taxes, Brazil’s mining and steel industry says they are exorbitantly high, harming the Brazilian economy, and that states are improperly using their police powers under the constitution to get around rules on how and when new levies can be charged, Breyner said.

Only Brazil’s federal government, which owns all mineral resources in the country and leases them under concession, has the power to regulate and tax mineral extraction, CNI and the companies say.

For their part, the states are seeking to earn more from resources whose prices have soared in recent years because of demand from China. They also want to encourage the development of local economies and use resource extraction to finance the development of manufacturing and other industries.

Iron ore .IO62-CNI=SI rose 0.2 percent to $135.00 a tonne in the Chinese spot market on Tuesday. While it has fallen about 10 percent since mid-April, iron ore has more than doubled in price since late 2008.

The CSN and Vale injunctions are being debated in the Justice Tribunal of Minas Gerais, the state civil and criminal court for Brazil’s second most-populous state.

$1 = 2.0264 Brazilian reais Reporting by Jeb Blount and Sabrina Lorenzi; writing by Jeb Blount; editing by Andre Grenon and Marguerita Choy

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