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Brazil Studies Raising Mine Royalties To 4% -Minister

--Minister Lobao says Brazilian government is studying raising royalty payments on mining to 4%

--Royalties paid on sales of iron ore now stand at 2%

--Analysts say a doubling of royalties in Brazil already is widely expected by the market

(Updates with market expectations in paragraphs seven through nine, adds details on Vale's court battle with the national mine department in the last two paragraphs.)

SAO PAULO -(Dow Jones)- The Brazilian government is studying raising royalty payments on mining to 4% as part of a new set of regulations for the mining sector, Mines and Energy Minister Edison Lobao said Monday.

In addition, the government proposes to fix mining concessions at 10-year renewable periods, the minister said on the sidelines of an event in Sao Paulo.

Currently, royalties paid on sales of iron ore, Brazil's biggest mining product, stand at 2%. This is a lower rate than producers pay in other major iron-ore-producing countries, including Australia.

"We're studying the possibility of increasing the royalties, but it's not decided yet," Lobao said.

President Dilma Rousseff should send proposals for a new Brazilian mining code to congress for consideration within 30 days, Lobao said.

A doubling of royalties in Brazil already is widely expected by the market, according to analysts at Barclays Capital and BTG Pactual. Local newspaper Folha de Sao Paulo reported in late July that the government also is studying a new mining exploration tax, or special participation tax, on large iron ore projects.

"Although we believe this royalty increase (of 2% to 4% on iron ore) is in-line with expectations, and already priced in shares, we see the potential special participation tax as negative, if confirmed," Barclays Capital said in a research note.

Brazilian mining giant Vale SA (VALE, VALE5.BR), the world's biggest producer and exporter of iron ore, said it had no comment on the minister's declarations Monday, adding that it had received no confirmation of the information.

Vale, along with various other Brazilian mining companies, has been involved in court action against Brazil's state-controlled national mining department DNPM over the levels of royalties charged for some time. Vale's ex-president Roger Agnelli said earlier this year, before quitting under government pressure, that the mining sector in general disagrees with the DNPM's interpretation of how the royalties should be charged and that the DNPM has made errors of calculation.

Lobao said in March that Vale could owe as much as 5 billion reais ($3.12 billion) in unpaid royalties, according to the current DNPM calculations.

Copyright © 2011 Dow Jones Newswires

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