MINING IN PARAGUAY

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 12C
MINING IN PARAGUAY
Rodolfo Vouga
Vouga & Olmedo
Asunciòn

RODOLFO VOUGA co-founded Vouga & Olmedo Abogados in 1976. For over 34 years, he has developed his specialization in the areas of Administrative Law, Banking and Finance, Investments, Mergers and Acquisitions, and Telecommunications, Mining, Oil and Gas. He participates in legal advisement of regulatory matters regarding mining and oil and gas undertakings in Paraguay. Among his clients are national and international banks and financial institutions, joint ventures, multilateral investment banks, and companies in the fields of infrastructure projects and heavy construction, telecommunications, insurance, agri-business, mining, oil and gas. He is a past president of the Paraguayan-American Chamber of Commerce, and past Vice-President of the Paraguayan-German Chamber of Commerce. His law firm was awarded with the Paraguayan Law Firm of the Year 2010 Award by Chambers and Partners.

I. Introduction

In 2010, Paraguay experienced significant economic growth which provides opportunities for mining resources to be prospected, explored, and mined (exploited).

This article intends to provide an overview of Paraguay, its mining potential and the legal framework that governs mining-related rights, obligations and activities in connection with metallic minerals. Moreover, it briefly touches on the tax system that regulates mining.

II. Paraguay: Overview

With a total surface area of 406,752 km2, a population of approx 6,600,000, and the largest economic growth of the continent in 2010, Paraguay is strategically located in the middle of South America, the region that enjoys the highest income of the continent. Investor-friendly tax reforms and a business-friendly environment have been welcoming foreign investors in recent years on a growing scale.

Paraguay is a large renewable energy producer in the region, a region that boasts growing hydrological networks that host major hydrological dams, two of which Paraguay shares with neighbouring countries Brazil and Argentina. The country's hydroelectric generation capacity exceeds 50,000 GWh per year, providing 9,000 kWh of clean energy per citizen. Paraguay is one of the largest exporters of electrical power in the world.

In terms of infrastructure, there is a developing nation-wide road network currently undergoing expansion and growth. The telecommunications network has broad nation-wide coverage and in general, costs of transportation of heavy equipment and machinery are low.

Although Paraguay's history in mining is fairly recent, more foreign companies have begun prospecting and/or are at the exploring stage in Paraguay. This is attributable to recent mineral findings and a legal mining regime that seeks to attract investors.

III. Mining potential

Paraguay boasts a variety of minerals. In the zone geologically named "Maciso Cristalino del Apa", located in the department of Concepción, there are traces of gold, copper, cobalt, platinoids and iron.

Permo Carboniferous sandstones, widespread throughout the Eastern Region, show mineralization with significant deposits of Uranium. 11 million pounds of Uranium Oxide, certified by Cue Resources on the Toronto Stock Exchange, are located in the zone of Yuty (Department of Caazapá).

Alkaline igneous rocks in the Department of Amambay show significant signs of rare soils (such as niobium, neodymium, columbite, among others), phosphates, thorium, uranium and cobalt.

It is noteworthy to mention that important deposits of titanium ore have been found in red soils (laterite), which result from the alteration of basalts, spread throughout the departments of Alto Parana, Itapúa and Canindeyú. David Lowell - the American explorer who discovered the world's largest copper deposit in Chile and huge titanium ore deposits in Paraguay, and who controls in Paraguay mineral rights to at least 185,000 hectares as president of CIC Resources Inc. - has estimated that these deposits could produce 5 million tons a year of titanium ore with an estimated US$ 500 million investment.

Moreover, there are significant deposits of Gold in Paso Yobai, located in the Department of Guaira. Unofficial data suggests that the reserves exceed 200.000 ounces, which are currently in the process of extraction.

Approximately 4,000 tons of radioactive uranium was found in a countryside property in 2009. Canadian company Cue Resources will invest 2.7 million Dollars in continuing with mining exploration of uranium in the southwestern zones of Paraguay. This same company, through its subsidiary Transandes, owns all of the exploration rights to the property granted through an agreement with the government. Exploration tasks take place at a countryside property of 230,000 hectares, near the city of Yuty.

IV. Legal regime and regulatory framework

The Constitution of Paraguay states that all mineral resources in their natural state are owned by the State with the exception of rocky, earthy or calcareous substances. The State's right of ownership of said mineral resources is inalienable and not subject to statutory limitations or embargoes. The right of prospecting and exploring these resources can be granted through permits and the right to mining them, through concessions, all for limited and determined periods of time.

The Government's relationships with natural or legal persons, local or foreign persons, and the relationships of these among themselves, in relation to the obtaining of mining rights and the execution of mining activities, are regulated by Law No. 3180/07, the "Mining Law". The Ministry of Public Works and Communications (M.O.P.C), is the technical authority that oversees and regulates the mining stages - which include the prospecting, exploration, and mining (exploitation) of minerals - as well as the complementary activities (benefits, smelting, refining, transport of minerals, marketing).

Mining Stages. Prospecting. Each prospecting permit grants the permit-holder the right to search determined areas for mineral substances. The Ministry of Public Works and Communications is authorized to grant up to two prospecting areas for each permit it issues. A permit-holder that completes the prospecting stage can select one or more exploration lots within the prospecting area. The prospecting permit lasts one year and is extendable one time only for a maximum term of six months. The maximum surface area of each prospecting permit is

[Page 12C-2]

100,000 hectares, which - according to interpretations - can be distributed in one or more prospecting permits (which together cannot exceed the surface area of 100,000 hectares per permit holder). Upon conclusion of the prospecting stage, the permit holder can select up to two minerals to focus its attention in the exploration stage.

Exploration. Each exploration permit grants the permit-holder the exclusive right to explore the area granted under the permit for a two-year term, extendable once for a maximum period of one year. The maximum surface area of each exploration permit is 50,000 hectares, which - according to interpretations - can be distributed through one or more exploration permits (which together cannot exceed the surface area of 50,000 hectares per permit holder).

Mining (Exploitation). Each mining concession is authorized by Congress upon the signing of a contract with the government which must in turn be previously authorized through a decree of the Executive Branch. No one can simultaneously be the holder of more than two mining concessions. Each mining concession grants its holder the exclusive right to mine...