Passed in October after a year of discussion, the new mining law allows for large-scale mining projects – most critically, Zamin Ferrous’ proposed US$3 billion open pit mine, Uruguay’s largest ever private investment. Since the project was announced in 2007, it has attracted widespread criticism and even public protests, with many angry at perceived environmental threats and because a foreign company is profiting from Uruguay’s natural resources.
The new law, which provides greater regulation on environmental and financing matters, builds on Uruguay’s nascent experience with large-scale projects, particularly pulp mills. The former mining code in the country was created for small-scale mining projects, and as such could not properly regulate Zamin’s proposal, the country’s lawmakers felt.
The introduction of such matters to the negotiations means lawyers will see more mining-related work in the near future, albeit concentrated on a small number of projects, says FERRERE partner Gonzalo Secco . “These issues were not necessarily on the agenda for mining projects previously, ” he says.
Environmental work looms large in this agenda, notes Secco. The new law requires periodic checks throughout the project rather than a one-off environmental permit at the beginning, vastly increasing reporting requirements. “Obviously all that involves the work of the lawyers, not only in terms of guaranteeing that the work is being done in accordance with the law, but also regarding communication with the authorities,” he says. Similarly, there is likely to be an increase in administrative litigation, and in sanctions imposed. “There we may have important involvement in defending companies not only when sanctions are imposed but also helping them deal with ways to avoid sanctions.”
The law also introduces a new tax regime, which is more specific about which companies are eligible for tax breaks. “It’s completely different from the one we have in force today,” notes Secco. At the moment, Uruguay has a broad program of tax incentives in place which apply to industrial and commercial projects, and any company can apply for tax reductions or exemptions which are provided for in regulations. “That is also an important area in which lawyers are going to get involved, they’ll have to study and define what tax structure is best for the project, and all the follow-up to actually take advantage of the reductions or exemptions offered by the law,” he says.
Labor is another area which could see a real boost from an increase in projects, notes FERRERE associate Bruno Gaiero . “We will need to get staff from other countries more familiar with mining, so it will involve labor and immigration issues which are not very common here in Uruguay,” he says.
Lawyers will also find work in assisting with the financing for the new wave of large-scale projects deals. Although Uruguay’s mining industry is considered high risk, concessionaires for the exploitation rights will be able to obtain funding from foreign banks backed by off-take agreements signed with players in other countries interested in purchasing iron ore. Provisions for using these kinds of agreements as guarantees are already addressed in the new law.
FERRERE’s Secco cites banks, pension funds, venture capitalists, export-import banks and multilateral agencies among the possible international sources for financing. “Local banks have a very limited capacity to finance projects of this size,” he says. “The legislation facilitates international banks financing the deals.” He says that it is more likely to attract banks which are used to investing in high risk projects, as Uruguay’s mining potential remains uncertain, meaning that venture funds and other lenders with high risk portfolios are likely to be important players. “Then, once discoveries are made, more money will come from international banks,” he says.
In terms of the firms best positioned to win the work, lawyers with experience in other natural resources projects, such as the on-going oil exploration, and energy teams are likely to do well. As there are no top-level energy boutique firms in the country, larger full service firms stand to gain.
Observers have commented that Uruguay is unlikely to ever become a major mining player, with many counsel noting that it remains to be seen just how many mega-projects the small country can attract.
Article published in Latin Lawyer on Tuesday, 15 October 2013.