UPDATE 1-Brazil mining bill could double royalty to 4 pct
* Rules to require rights to be developed or lost
* Introduces auction system for some rights
* Vale CEO says would have "major impact" on companies
RIO DE JANEIRO, June 18 (Reuters) - Brazil, the world's second-largest producer of iron ore, unveiled a long-awaited bill to reform the country's 46-year-old mining code on Tuesday, proposing new royalties of up to 4 percent, double the current rate.
The bill also proposes creating a new mine regulatory agency, rules requiring holders of mining rights to develop their claims or lose them, and an auction system for some mining rights with concessions of 40 years, renewable for 20.
President Dilma Rousseff said royalties would be calculated on gross income, rather than net earnings. She said the auction system would not apply to mineral water and construction aggregates, such as rock and some quarried stone for construction.
The bill will test the government's efforts to reduce tensions with investors, many of whom believe Rousseff's economic polices are erratic and her attitude toward business "heavy handed."
Rousseff, in a televised announcement, said the government wants mining companies to have contractual stability and security, and for concession renewals to be contingent on meeting investment and environmental goals.
The bill is expected to saddle new taxes and regulations on companies such as Brazil's Vale SA, the world's No. 2 mining company, Canada's Yamana Gold Inc., and Norway's Norsk Hydro ASA.
Vale CEO Murilo Ferreira said the bill would have "a major impact" on companies in the sector after the announcement.
The bill suggests royalty divisions between local and federal government be maintained, with 65 percent for municipalities affected by mining, 23 percent for producing states and 12 percent for the federal government.