2008

Global Tax Practice of the Mining Industry

Objective of the Study

Comparative analysis of the major contributions and taxes levied on the activities of the mining companies in the world:

The high tax burden in Brazil

Tax revenueTax load in relation to GNPExponencial (tax revenue)

• For purposes of estimating the total tax in the main countries engaged in the global mining market, we have established a company whose revenue model is strictly derived from its operating activities: the extraction of minerals.

Countries: 21

Types of mineral: 12

Net Profit margins simulated: 3 (20%, 30% e 40%)

Annual revenue simulated: 5 ( USD 100 mi, 500 mi, 1 bi, 2 bi e 10bi)

Sales proportions between domestic and external markets simulated: 101

• The combination of these parameters, resulted 4,848 different scenarios.

Characteristics of the study

• The slides shows the positioning of the Brazilian tax load in the ranking of the largest producers of each ore.

• For demonstration purposes, limiting the sample to the following premises:

Net profit margin of 30% of model company;

Adoption of the proportion of the production target minerals, according to the Brazilian scenario and revenue simulated:

Assumptions

Bauxite Coal Kaolim Copper Phosphate Manganese Iron Ore Nickel Gold Potassium D.

Stones Zinc

Domestic Market 76% 100% 8% 51% 100% 35% 24% 68% 23% 100% 66% 100%

Export 24% 0% 92% 49% 0% 65% 76% 32% 77% 0% 34% 0%

Revenue Simulated

USD 1 bi

USD 500 mi

USD 500 mi

USD1 bi

USD500 mi

USD500 mi

USD10 bi

USD1 bi

USD1 bi

USD100 mi

USD1 bi

USD500 mi

Fonte: IBRAM/MME/DNPM/MDIC/SECEX

Royalties

In Brazil they are made up of CFEM (de 0,2% a 3%) plus the compensation paid to the surface owner (50% of the CFEM);

Income Tax (IT)

Tax on consumption or aggregate value tax(VAT, which in Brazil correspond to PIS, Cofins and ICMS)

Tax considered

Comparative analysis of the tax load

• Brazil: 35% - 2nd in ranking• Domestic/Export: 76% / 24%• Revenue Simulated: USD 1 bi

BAUXITE – Biggest Producers

CountryProduction

2005 2006 2007

Austrália 60.000 61.400 64.000

China 18.000 20.000 32.000

Brazil 22.000 22.100 24.000

Guinea 15.000 15.200 14.000

Jamaica 14.100 14.900 14.000

Índia 12.000 13.000 13.000

Rússia 6.400 7.200 6.000

Venezuela 5.900 6.000 5.500

Kazakhstan 4.800 4.900 4.900

USA - - -

Million Ton

Comparative analysis of the tax load

• Brazil: 40% - 2nd in ranking• Domestic/Export: 100% / 0%• Revenue Simulated: USD 500 mi

MINERAL COALBiggest Producers

CountryProduction

2004 2005 2006

China 2.156 2.430 2.482

USA 1.112 1.131 990

Índia 444 473 427

Austrália 391 414 309

Rússia 309 320 233

South Africa 268 270 244

Indonésia 142 168 169

Poland 178 175 95

Kazakstan 96 95 92

Brazil 6 6 6

Million Ton

Comparative analysis of the tax load

• Brazil: 15% - 2nd in ranking• Domestic/Export: 8% / 92%• Revenue Simulated: USD 500 mi

Kaolim – Biggest Producers

CountryProduction

2005 2006 2007

USA 7.800 7.740 7.330

Germany 3.750 3.770 3.800

Koréia 2.770 3.000 2.500

Brazil 2.200 2.460 2.500

UK 2.400 2.400 2.100

México 877 900 900

Índia 750 750 750

Poland 190 191 191

Rússia 45 45 45

Mil Ton

Comparative analysis of the tax load

• Brazil: 27% - 1st in ranking• Domestic/Export: 51% / 49%• Revenue Simulated: USD 1 bi

COPPER – Biggest Producers

CountryProduction

2005 2006 2007

Chile 5.320 5.400 5.700

Peru 1.010 1.050 1.200

USA 1.140 1.220 1.190

China 755 760 920

Austrália 927 950 860

Indonésia 1.070 800 780

Rússia 700 720 730

Canada 567 600 585

Zâmbia 436 540 530

Poland 523 525 470

Kazakhstan 402 430 460

México 429 380 400

Brazil 132 148 200

Argentina 188 190 190

Mil Ton

Comparative analysis of the tax load

• Brazil: 40% - 1st in ranking• Domestic/Export: 100% / 0%• Revenue Simulated: USD 500 mi

Phosphate – Biggest Producers

CountryProduction

2005 2006 2007

China 30.400 32.000 35.000

USA 36.300 30.700 29.700

Marocco 25.200 25.300 28.000

Rússia 11.000 11.000 11.000

Tunísia 8.000 8.400 7.700

Jordânia 6.230 6.400 5.700

Brazil 6.100 5.680 6.000

Síria 3.500 3.600 3.800

Austrália 2.050 2.050 2.200

Canada 1.000 550 500

Mil Ton

PhosphateNOTE: Consider the tax benefit of PIS and COFINS for use in fertilizers and phosphate

fertilizers - Law No. 10925/2004

Comparative analysis of the tax load

• Brazil: 42% - 1st in ranking• Domestic/Export: 100% / 0%• Revenue Simulated: USD 100 mi

Potassium – Biggest Producers

CountryProduction

2005 2006 2007

Canadá 10.120 10.200 11.000

Rússia 5.500 5.300 6.300

Rússia 4.800 4.000 5.400

Germany 3.600 3.660 3.700

Israel 2.060 2.100 2.000

USA 1.200 1.200 1.200

Jordânia 1.230 1.200 1.100

China 600 700 700

UK 600 600 450

Spain 500 500 450

Brazil 405 403 410

Chile 370 350 350

Mil Ton

Comparative analysis of the tax load

• Brazil: 24% - 2nd in ranking• Domestic/Export: 35% / 65%• Revenue Simulated: USD 500 mi

MANGANESEBiggest Producers

CountryProduction

2005 2006 2007

South Africa 2.100 2.200 2.300

Austrália 1.450 1.500 2.200

Brazil 1.590 1.550 2.000

Gabão 1.290 1.550 1.550

China 1.100 1.200 1.600

Ukraine 770 770 820

Índia 640 650 650

México 180 133 130

Mil Ton

Comparative analysis of the tax load

• Brazil: 20% - 3rd in ranking• Domestic/Export: 24% / 76%• Revenue Simulated: USD 10 bi

IRON OREBiggest Producers

CountryProduction

2005 2006 2007

China 420 520 600

Brazil 278 317 350

Austrália 231 280 320

Índia 121 140 160

Rússia 97 95 110

Ukraine 66 69 76

USA 55 55 52

South Africa 39 40 40

Canada 28 30 33

Venezuela 22 22 20

Argentina 1 1 1

Million Ton

Comparative analysis of the tax load

• Brazil: 31% - 1st in ranking• Domestic/Export: 68% / 32%• Revenue Simulated: USD 1 bi

NICKEL – Biggest Producers

CountryProduction

2005 2006 2007

Rússia 315 320 322

Canada 198 230 258

Austrália 189 191 180

Indonésia 160 145 145

New Caledônia 112 112 119

Colômbia 89 90 99

Brazil 74 82 81

China 77 79 80

Cuba 72 74 77

Repúblic Dominicana 46 46 47

South Africa 42 41 42

Mil Ton

Comparative analysis of the tax load

• Brazil: 18% - 2nd in ranking• Domestic/Export: 23% / 77%• Revenue Simulated: USD 1 bi

GOLD – Biggest Producers

CountryProduction

2005 2006 2007

South Africa 295 270 270

Austrália 262 260 270

USA 256 260 240

China 225 240 250

Peru 208 210 170

Rússia 169 162 160

Indonésia 140 145 120

Canada 119 120 100

Brazil 37 41 47

Argentina 30 30 30

Ton

Comparative analysis of the tax load

• Brazil: 28% - 2nd in ranking• Domestic/Export: 66% / 34%• Revenue Simulated: USD 1 bi

Dimension StonesBiggest Producers

CountryProduction

2005

China 15.000

Itály 10.000

Índia 8.000

Spain 7.000

Brazil 6.900

Mil Ton

Comparative analysis of the tax load

• Brazil: 40% - 1st in ranking• Domestic/Export: 100% / 0%• Revenue Simulated: USD 500 mi

ZINC – Biggest Producers

CountryProduction

2005 2006 2007

China 2.450 2.500 2.800

Austrália 1.330 1.400 1.400

Peru 1.200 1.210 1.500

Canada 755 725 680

USA 748 725 740

México 470 450 480

Kazakhstan 400 450 400

Índia 446 446 440

Brazil 160 169 200

Argentina 28 28 30

Mil Ton

• Brazil, invariably, as one of the top 3 tax burdens in the world in the sector, a situation that only gets significant improvement as the vast majority of production is for export, with the exemption of taxes on added value.

• The tax burden in Brazil certainly would be substantially higher if still consider the following factors in calculating the comparative load:

Limitations to non-cummulativity established by law –Brazilian mining companies are not allowed to compensate credits paid in the purchase of goods to their permanent assets (export companies).

High labor costs – the cost of labor in Brazil is about 63% of a company’s payroll.

Less competitive fiscal benefits – in comparison to other mining countries, as regards depreciation, amortization and exhaustion.

Excess of taxes and additional obligations – (cost of fiscal bureaucracy), which generates additional costs for mining companies.

Conclusions