Dow Jones reported that Brazilian iron ore miner Vale SA will continue to question the charging of excessive mining royalty taxes by the country's national mining department DNPM, which it is challenging in court.
Vale said in a statement that various Brazilian mining companies disagree with the calculations used to arrive at the royalties payments charged by the DNPM. Differences in interpretation of the existing legislation on royalties have on more than one occasion been the subject of debate and legal action.
A DNPM official said that the government had filed court action against Vale in a move to recoup mining royalties that were paid by the company at rates lower than specified by the government.
Royalties paid on iron ore produced in Brazil currently stand at about 2% of the product's sales value. This is considered low by international standards, which average around 5%. The government is currently preparing new legislation that may involve a hike in Brazilian mining royalties levels.
Vale's share values on Sao Paulo's Bovespa stock exchange have continued to fall since Wednesday when the news of the government action against the company was confirmed.
According to SLW Corretora, the news weighed heavily on the stock while BTG Pactual described the news as negative for the company. The dispute may speed up the government's preparations to amend the country's mining code and the royalties payments system.
Vale said in the statement that "Vale has always abided by the law and complied with its monetary obligations, but it can't let controversial charges slip past without questioning. That is a management duty."
Vale said that after legal questioning on one specific occasion, the DNPM itself recognized that it had overcharged by BRL 273 million. However, it was still waiting for that money to be refunded.
Royalties in Brazil are used mainly to compensate local communities in areas mined. The dispute over royalties payment could reignite tensions between Vale's CEO Mr Roger Agnelli and the government of President Mr Dilma Rousseff, following reports of discussions within the government that Mr Agnelli could be replaced by somebody with closer ties to Rousseff when his current executive mandate ends in late May 2011.
(Sourced from www.dowjones.com)
