Credit Suisse analysts said that Vale SA would suffer if Brazil boosts mining royalties, which could put it at a disadvantage to Australian producers.

Mr Edison Lobao mining minister of Brazil said that it is seeking to increase mining royalties in a proposed government bill.

Sao Paulo based analysts Mr Ivan Fadel, Mr Bruno Savaria and Mr Luiz Moreira said in a note to clients that if Brazil boosts iron ore royalties from 2% to the 5.6% of Australia, Vale's net income would fall by 6%.

The analysts, citing Brazilian Mining Institute data, said that Brazilian iron ore producers pay total taxes that are 19.7%, above the 15.4% for Australian producers.

According to Credit Suisse, the tax rate could be used to argue in favor of Vale and other Brazilian miners to maintain the royalty rate.

On August 24th 2009, Mr 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. He added that "Changes in mining law and royalties need to be voted on by Congress and could face resistance. This is not something easy to implement and would require some time."

(Sourced from www.bloomberg.net)