AN OVERVIEW OF RECENT CHANGES IN MINING LAWS AND SOME ECONOMIC IMPLICATIONS

ASIESPresented to the HonourableDiane Ablonczy, PC, MPMinister of State

Mining definitions in Guatemalan lawCurrent law:

Extraction of rocks, minerals or both in order to make them available for industrial, commercial, and other uses.(Art. 6).

New law :

Extraction of rocks, minerals or both, in order to make them available for industrial, commercial, and other uses carried out in rational and technical way, using the economic benefits in a sustainable and distributive manner, for extended periods of time and aiming to revert environmental damages caused in the process.

Guatemalan Constitution:

Declares public utility and necessity, the technical and rational exploitation of hydrocarbons, minerals and other nonrenewable natural resources. (Art. 125)

President Prez Molinas recent proposal to ammend the Constitution made changes to this article. Under this proposal, Artculo 125 gives the State the right to acquire up to 40% of any company that exploits natural resources. (New proposal does not include this ammendment). Mining in the Guatemalan Constitution

PROPOSED AMMENDMENTS TO MINING LAW

Mining law reformsA new set of reforms to mining law (Decreto 48-97) is to be presented to Congress in the near future. These reforms include:Social aspectsInstitutional strengtheningA State mining companyEnvironmental considerationsTechnical aspectsFinancial aspectsFinal considerations

Mining law reformsSocial aspectsInformation and communication with municipal development councils (Consejos de Desarrollo Municipal): Before the issuing of an exploration or exploitation license, MEM and MARNA are required to make a presentation to the municipal development council of all municipalities in which the project is located. Informing local governments at a municipio and departamento level is a new addition. This is consistent with the requirements of ILO Convention 169.Training programsSocial responsibilityHealth studies

Mining law reformsFinancial aspectsNew tax rates similar, and yet competitive, with those of other Latin American countries.No tax exemptions for mining activities. In the past some mining companies have been able to benefit from Ley de Maquila y Fomento de las Exportaciones Decreto 29-89, receiving an income tax exemption. This will not be possible any more as this practice goes against the interest of the State.

Mining law reforms:Financial apectsThe 1997 reforms reduce mining royalties from 7% to 1%. New reforms call for a higher mining royalty rates with different percentages for different minerals.

Proposed mining royalties are as follows :Construction materials 1%Ornamental rocks for 2%Non- metals 3%Base metals 3%Precious metals 5%Precious stones3%Semi-precious stones 5%Rare earths 10% Other 3%An earlier proposal by ASIES suggested:Base Metals 2%Precious Metals and stones 3%All others 1%

Mining law reformsInsititutional StrengtheningCreation of the Guatemalan Mining Fund. This institution will ensure that 55% of mining royalties are channeled to the strengthening of local governments.Mining royalties will be payed on a monthly instead of yearly basis.Surface cannon: will be Q.1,000 per unit and will be received by MEM yearly. Units are defined differently for each kind of license and may range from 3 units per km2 to 12 units per km2.

Mining law reformsInsititutional StrengtheningCreation of the Guatemalan Mining Fund. This institution will ensure that 55% of mining royalties are channeled to the strengthening of local governments.Mining royalties will be distributed as follows:35% Local governments20% Other local governments in the same departamento40% Central government3% Ministerio de Energa y Minas (MEM)2% Ministerio de Ambiente y Recursos Naturales (MARN)Mining royalties will be payed on a monthly instead of yearly basis.

Royalties are not well understoodAnd people do not see any improvement as a resultHow much do you agree with the phraseAs a result of mining, there has been more work by the local government.Base: 720 weighed cases (Top 2 boxes / bottom 2 boxes)How much do you agree with the phraseAs a result of mining, there has been more road construction.

Royalties are not well understoodMost people do not even know the meaning of the wordCould you please tell me what the word Regala means?Base: 720 weighed cases (Top 2 boxes / bottom 2 boxes)(After explaining what it is). Do you know the percentage that is payed to the local and central government.

Mining law reformsEnvironmental considerationsMining companies will be required to pay for all damages caused to individuals. Mining companies will be required to buy insurance and as well as compliance bonds to ensure that any environmental or property damage is payed in full. Fines will become incremental. Penalties for first offences might be low, but will increase with the second and each subsequent offence.

MINING IN THE GUATEMALAN ECONOMY

Mining as a percentage of GDPFrom 2001 to 2010 mining has contributed an average of Q.3,309.0 million and about 1.3% of GDP.Fuente: elaboracin propia con informacin del BANGUAT.

Mining as a percentage of total exportsMining as a percentage of total exports has grown steadily since 2002. During 2011mining reached an all-time high of 13.8%.Fuente: elaboracin propia con informacin del BANGUAT.

There are three kinds of licenses: prospecting, exploration, and exploitation. The highest percentage of licenses is for non-metallic minerals.Fuente: elaboracin propia con informacin del Ministerio de Energa y Minas.

Mining contribution to State financesIn GTQ

Ao200620072008200920102011Royalties (Central government)5,095,393 10,284,812 10,938,081 14,608,363 20,736,483 35,795,372 Royaties (local governments)4,668,151 8,323,570 10,946,768 14,545,625 20,736,483 35,795,372 Surface cannon (exploitation)1,409,029 2,190,504 1,286,865 1,326,725 1,206,350 1,323,053 Surface cannon (Exploration)1,913,951 1,652,577 2,063,118 1,101,075 1,021,862 572,666 Surface cannon (prospecting)185,040 7,111 60,000 0 598,320 0 Signature bonus63,700 62,400 598,000 9,100 6,500 7,800 Extensions10,407 265,218 90,172 484,492 249,635 0 Interests109,434 279,780 366,469 55,349 261,399 85,051 Fines90,387 131,683 280,689 125,971 223,116 118,819 Total13,545,492 23,197,655 26,630,162 32,256,700 45,040,148 73,698,133

Royalties from mining and oil extractionFuente: elaboracin propia con informacin de la SAT.1/ Cifras al 31 de agosto 2012

Taxes payed by activities related to mining 2011 Thousands of GTQ.-

Actividad EconmicaISRISOIVA DomsticoIVA ImportacionesDAITimbresOtrosTotalEXTRACCIN Y AGLOMERACIN DE CARBN DE PIEDRA29.864.68.37.31.21.30.9113.4EXTRACCIN Y AGLOMERACIN DE LIGNITO-------0.0EXTRACCIN Y AGLOMERACIN DE TURBA--1.5----1.5EXTRACCIN DE MINERALES DE HIERRO0.3-0.5--1.04.46.3EXTRACCIN DE MINERALES METALFEROS NO FERROSOS, EXCEPTO LOS MINERALES DE URANIO Y TORIO452,566.810.357,406.320,780.23,612.883,644.1721.7618,742.2EXPLOTACIN DE OTRAS MINAS Y CANTERAS - - 0.04 - - - - 0.04EXTRACCIN DE PIEDRA, ARENA Y ARCILLA800.4814.61,640.91,082.8188.18.4115.44,650.6EXTRACCIN DE MINERALES PARA LA FABRICACIN DE ABONOS Y PRODUCTOS QUMICOS7,775.9201.8682.325,435.26,845.80.0351.240,992.3EXTRACCIN DE SAL745.95.6203.51,425.1109.52.022.22,513.8EXPLOTACIN DE OTRAS MINAS Y CANTERAS, NO CLASIFICADAS EN OTRA PARTE16,281.63,545.810,776.015,323.24,085.717.689.450,119.4TOTAL POR IMPUESTO478,200.74,642.770,719.464,053.814,843.183,674.51,005.3717,139.4

Taxes payed byExplotacin de minas y canteras as a total of Government revenue.Fuente: elaboracin propia con informacin de la SAT..

Tax exemptions on importsIN thousands of GTQ.-Fuente: Elaboracin en base a informacin de la SAT.

ActivityTax payersIVA Importaciones 2010DAI 2010IVA Importaciones 2011DAI 2011Extraccin de minerales metalferos no ferroso, excepto los minerales de uranio y torio24,755.1755.5299.010.8Explotacin de otras minas y canteras, no clasificadas en otra parte110,331.72,150.07,986.7865.8Total315,086.82,905.68,285.7876.6

Jobs in the mining sectorWorkers registered in Instituto Guatemalteco de Seguridad Social (IGSS) for mining activities during 2000 2012.On the average, this is 0.30% of the workforce. Fuente: elaboracin propia con informacin del BANGUAT.

AN OVERVIEW OF RECENT CHANGES IN MINING LAWS AND SOME ECONOMIC IMPLICATIONS

ASIESA presentation for the HonourableDiane Ablonczy, PC, MPMinister of State

*El sector minero gener en 2011 ms de Q.45 millones para el Estado, sin incluir IRS, segn la Unidad de Fiscalizacin del MEM. El ISR es reportado y pagado directamente a la SAT. Cada empresa se acoge al rgimen que le conviene (5% sobre ventas brutas o 31% sobre utilidades netas)**