URUGUAY – MINING OVERVIEW COMMENTARY
Uruguay, officially the Eastern (or Oriental) Republic of Uruguay, sits on the south eastern edge of the South American continent; the country separates the eastern edges of Brazil (to the north) from Argentina (to the south). Originally colonised by the Portuguese, it was the subject of political “quartering” by the Portuguese, Spanish, Argentinians and Brazilians. Whatever the pressures, Uruguay survived in tact with a strong democracy and a very high rating in terms of governance and quality of living. Transparency International rates the country an outstanding 21 out of 175 countries in its Corruption Perceptions Index, 2014.
Despite the fact that Uruguay’s domestic economy is strong, it is heavily influenced by the relative strength of the economies of its neighbouring countries, Brazil and Argentina. While the mining sector only contributes 1% to the gross domestic product of Uruguay its mining potential has only recently been recognized. Uruguay’s mineral endowment includes clays, semiprecious gemstones, gold, iron and steel, sand and gravel, and stone. Aside from one relatively small gold mine held by Orosur Mining (TSX and AIM-listed), there is virtually no metallic mineral production in the country.
The Fraser Institute ranks the country 56th out of the 109 jurisdictions covered in its 2015 Policy Perception Index.
PRINCIPAL LEGISLATION AND REGULATOR
Mining in Uruguay is governed by the Mining Code (Act No. 15,242, as amended by Law No. 18,813) (Code) and the Large Scale Mining Law (Law No. 19,126) (LSML). The Mining Code is supplemented with its Regulatory Decree (No. 110/1982). Environmental matters are governed by the Environmental Law (Law No. 16466) and its Regulatory Decree (No. 349/005), which provide for the requirement for an environmental impact assessment of mining projects. The LSML regulates virtually any mine of scale to the foreign investor (e.g., mines involving an investment in excess of US$100,000,000 approximately). Pursuant to the Mining Code, all minerals within the subsoil are the property of the state (Art. 4, Code). The mining authorities consist of the Executive, which is responsible for granting exploration and mining concessions; the Ministry of Industry, Energy and Mining (Ministerio de Industria, Energía y Minería (MIEM)); and the National Directorate of Mining and Geology (Dirección Nacional de Minería y Geología).
GRANTS AND MINERAL TITLE
Any person or entity, public or private, national or foreign, may obtain permits, licences and concessions to conduct mineral exploration and mining activities. The right to prospect, explore and mine are obtained through a prospecting licence, exploration permit and mining concession, respectively (Art. 11, Code). Minerals are awarded by reference to their “Category”, of which there are four: (I) oil, natural gas, coal, lignite, peat, bituminous rocks, oil sands, and other minerals that generate energy; (II) minerals that are recorded within the government Mining Reserve or the Vacancies Registry; (III) metallic and non-metallic minerals not included above; and (IV) non-metallic, construction materials and aggregates used for building or industrial purposes.
With respect to Category II (known deposits), the Executive Power will award known mineral deposits pursuant to an auction process. With respect to Category III (metallic and non-metallic) minerals, one may obtain a prospecting licence, exploration permit and mining concession, which have the following characteristics:
- Prospecting Licence: these are granted for a period of 3 up to 36 months, but must be renewed every 12 months. In order to get an extension, 25% of the original area must be relinquished. Once the prospecting term has expired, an activity report must be submitted.
- Exploration Permit: the applicant with a prospecting licence takes precedence in the application for an exploration permit; however, the applicant nevertheless must demonstrate its technical and financial capacity and submit its proposed investment plan. The exploration permit has a duration of 1 to 3 years, which can be extended three times for periods of one (1) year each (Art. 94, Code). The titleholder is obliged to submit an activity report every 3 months and a final report at the end of the exploration activities.
- Mining Concession: The applicant for a mining concession must produce, among other things, a reserves report, a technical report, a mine closure plan, evidence of technical and financial capacity, and the form of security or bond for environmental damage (Art. 100, Code). The maximum duration is 30 years, renewable for successive periods of 15 years while reserves remain (Art. 103, Code).
Notwithstanding the foregoing, pursuant to the LSML virtually all aspects of the mining rights and obligations are subject to negotiation. Large-scale mining projects are those that meet at least one of the following criteria: (a) they occupy more than 400 hectares of surface area; (b) they involve an investment in excess of 830 million Indexed Units (approximately US$100 million); or (c) they involve annual sales of 830 million Indexed Units (approximately US$100 million). As well, the Executive may designate a project as a large-scale mining project if it involves: (a) the use of dangerous chemicals or substances; (b) annual electricity consumption in excess of 500 gigawatts of power; or (c) the production of acid drainage. Upon application for a mining concession, the holder has 360 days to reach agreement with the state as to the terms and conditions to develop and operate the mine; if agreement is not reached, then property may be lost.
A large-scale mining contract must specify the duration of the concession, the construction period, the expected rates of production, and address other relevant matters (LSML, Arts. 25, 26 and 27). The mining contract may also address:
- Tax incentives, including tax stabilisation guarantees for a period of ten years and any tax holiday;
- Commitments by government to undertake the construction of supportive infrastructure;
- The right to pledge the project in favour of creditors, transfer the mining concession and effect changes of control; and
- Dispute resolution mechanisms;
(LSML, Arts. 30 and 32). The causes for terminating a large-scale contract render the right inherently unstable; it may be terminated for, among other things: the non-payment of taxes; transfers (of mining titles or shares in holding companies) without approval of government; loss of financial integrity to carry out mining activities; any failure to build or operate the project as specified in the contract; and discontinuity of production for a period of more than six months (LSML, Art. 32).
All property the subject of a permit or concession carries the right to access the surface for prospecting, exploration, temporary or permanent occupation, drilling, movement of vehicles, establishment of facilities, power, water and other mining and exploration activities (Art. 31, Code). The owner of surface rights has the obligation not to block mining activities and to permit reasonable exercise of mining rights (Art. 30, Code); the owner has the right, however, to be indemnified for any damages arising from mining use (Art. 28(a), Code). Surface rights such as easements and expropriation may be granted by the Executive Power (Art. 32, Code), subject to prior compensation to the landowner (Art.28(b), Code). The price for property expropriated shall be based on nearby property without consideration of mineral value (see also Title III, Chpt. I and Title V, Chpt. I of Reg.).
Decree 349/005 states that mining activities with an environmental impact need a Prior Environmental Authorisation to be developed; the law is simple and easy to understand; its drafting suggests that projects with impacts that result in mitigated damage within acceptable standards of pollution are permissible. The law appears to relieve most exploration activities from EIA processing. There is also a relatively modern and sophisticated law on mine closure and security for closure obligations in respect of "large-scale mines" which embraces most mines that would justify or attract foreign direct investment (Large Scale Mining Law).
See Uruguay – Environmental Overview Commentary.