Brazilian iron ore output as well as investment in the country's mining sector should fall by around 30 percent in 2009 but gold production will rise, the head of the government's mining department said on Monday.

The more speculative exploration is disappearing, Miguel Nery, head of the National Department for Mining Production, or DNPM, told Reuters in an interview.

Investments in the sector, including the opening of new mines and prospecting for mineral resources, should fall by between 30 percent and 40 percent this year after the global economic downturn slowed consumption and dried up credit, Nery said.

Requests for prospecting licenses had fallen 37 percent from last October to February when compared with the same period a year earlier, he added.

Out of 28,000 requests for prospecting licenses for all of 2008, 18,000 had been granted. Another 1,800 licenses were handed back to the DNPM by the companies who had obtained them, many of whom lacked credit to finance their search for minerals and did not want to pay the per-hectare fee to hold onto them.

Some companies have thousands of properties in the vast Amazon region.

It becomes too expensive, so many hand them back, said Nery.

In an attempt to ease the credit crunch, the government was preparing a legal measure that would allow mining companies to raise bank loans more easily using their mineral deposits as collateral, Nery said.

Currently, banks are hesitant to lend to miners because they must engage in endless legal battles to cash in on mines put up as collateral when a company goes bankrupt.

But avid appetite for safe-haven gold in volatile global markets would push gold production up by 10 percent this year, he said. Last year Brazil produced approximately 54 tonnes of gold, up from 49.6 tonnes the year before.

Gold and other precious metals have become a safe-haven investment during the global financial crisis and its price has risen sharply in recent months.

Brazil is one of the world's mining giants, ranking first for iron ore exports and one of the top producers of bauxite, which is used to make aluminum.

While investments into prospecting were diminishing, those in projects with proven reserves and solid returns remained strong, Nery said.

They are not cutting investments in more mature projects, he said.

A legislative proposal in Congress will provide the government with more tools to combat speculation and monopolies but also to attract more investment to the mining sector by cutting red tape, Nery said. It would create a new industry regulator.

But in response to complaints by mining companies over high levies, Nery said the government was not studying a reduction of taxes or royalties.

We are not discussing a change of the (tax) rates, Nery said.

(Writing by Peter Murphy; Editing by Christian Wiessner)

© Thomson Reuters 2008. All rights reserved.