Mining to Brazil

(Last updated: 31 Jul 2008)

Trends and opportunities

The market

Brazil has a privileged position in the ranking of worldwide reserves and is the most important mineral producer in Latin America. Brazil has a considerable diversified mineral production and is the largest exporter of iron ore and niobium alloys.

It is also one of the major producers of petroleum, niobium, iron, kaolin, tantalite, bauxite, graphite, asbestos, cassiterite, magnesite, vermiculite, ornamental rocks, talcs, phosphate rock and gold.

Although the mineral extractive industry is only a small share (one per cent of GDP), it is still one of the economy's most important industries.

The mineral exploration spending and objectives outlined by the Brazilian Ministry of Mines and Energy are to:

• Triple mineral production value in 12 years, to US$25 billion by 2010.
• Increase by six times the mining royalty revenue collecting though the widening of the fiscal basis and more efficiency in royalty payment control, increasing the total annual value from US$809 million to US$4.8 million by 2010.
• Generate 460,000 new direct jobs in the mining sector and about 4.3 million additional jobs in the mining, to increase total mining labour force to 7.3 million employees by 2010.

Human resources training

Top-level training by specialists in geology and mining engineering in graduate schools has existed for quite some time in Brazil. The Federal universities are the main centres for qualifying professionals for the mining industry. Companies recruit skilled labour with a secondary school education. The companies also have the support of the National Industrial Apprenticeship Service (Senai) for specific training courses.

Mineral technology centres

Brazil has several research and mining mineral technology development centres in the principal states with major mineral production. All of them are under Federal or State control. The most important of them, the Mineral Technology Centre for Mineral Technology (Cetem), run by the National Research Council (CNPq), is situated in Rio de Janeiro, and is an organisation linked to the Ministry of Science and
Technology (MCT).

Brazilian industry of capital goods for mining

Most machinery and equipment used by the mining industry is produced domestically, either by branches of international capital goods companies or by Brazilian firms using imported technology.  There are as many manufacturers of mass produced equipment as there are of tailor-made.

Opportunities

Australia is generally well known as a premier mining country. Brazil is interested in diversifying its sourcing of equipment and services and Australia’s reputation gives Australian companies a good chance at winning business.

The need for new equipment, development of new mines and exploration is expected to increase significantly in the next few years. With increased mining activity there is a tendency to outsource services and equipment.

Industry specialists have indicated areas where the Brazilian mining industry will be investing:

• Equipment – sample analysis mining laboratory equipment, trucks, shovels, drilling equipment, front loaders, wheeldozers, and environmental control equipment.
• Services – drilling, exploration, airborne geophysics, contract mining and engineering services, materials handling, and environmental management.
• Software – mining, exploration, and geophysics.

Competitive environment

The presence of private Brazilian capital prevails, although foreign capital has a minority interest in many companies. This situation is the result of a development model used in Brazil during the 1970s and 1980s that combined Brazilian private and state capital with foreign capital. The main mining companies, by mineral produced and approximate market share are:

• Cia. Vale do Rio Doce – iron, gold, potassium, manganese (24 per cent)
• Minerações Brasileiras Reunidas (MBR) – iron (4.5 per cent)
• Samarco Mineração S.A. – iron (4 per cent)
• Ferteco Mineração S.A. – iron (3 per cent)
• Mineração Rio do Norte S.A. – bauxite (2.5 per cent)
• S.A. Mineração Trindade Samitri – iron (2.5 per cent)
• Votorantim Cimentos Ltda. – limestone, clay (2 per cent), pyrochlorine (niobium) (2 per cent)
• Cia. Siderúrgica Nacional – iron, limestone (1.5 per cent)
• Cia. Mineira de Metais – zinc (1.5 per cent)

Tariffs, regulations and customs

The Brazilian Government intends to simplify the processing of granting exploration and mining rights and to open up exploration blocks to foreign companies. It is establishing the Agência Nacional de Mineração, which will be the regulatory body for implementing laws, policies and the evaluation of the mineral development process.

With the easing of the processes in granting rights in exploration and mining, plus an improvement in commodity prices, activity in Brazil’s mineral sector is expected to grow significantly.

The use of mineral resources in Brazil are defined and consolidated in the Federal Constitution:

• The Federal Government is the sole responsible for legislating on deposits, mines, or mineral resources and metallurgy.
• Mineral resources, including those in the subsoil, are property of the Federal Government.
• Deposits, mines and other mineral resources are property distinct from the property of the soil for the purpose of exploration and exploitation, guaranteeing the concessionaire company ownership of the mining product.
• Exploration and exploitation of mineral resources may be performed by authorisation or concession from the Federal Government, in the national interest by a Brazilian or by company incorporated under the Brazilian laws and which has its main office and administration in Brazil, as defined by law.
• There are limitations for mining near borders and in areas reserved for indigenous peoples.
• The States, Federal District, municipalities and the Federal Government are assured a share of exploited mineral resources in their respective territory, continental shelf, territorial waters or exclusive economic zone, or a financial compensation for this exploitation.
• The landowner is ensured a share in the mining results.
• Exploration of mineral resources is authorised for a limited period; the mining concession is for an unlimited period.
• Exploration and mining concession rights may not be assigned or transferred, wholly or partially, without prior consent by the Federal Government.
• Small mining cooperatives (‘garimpo’) organised to perform a mining activity have priority in small-scale mining of reserves and deposits in the areas where they operate and those established by the Federal Government.
• Anyone who exploits mineral resources is obliged to rehabilitate the degraded environment, as required by the technical solution of the competent public authority.

The National Bank for Economic and Social Development (BNDES) Sysytem

The BNDES system is controlled by the Federal Government and consists of BNDES, the Special Industrial Financing Agency (FINAME) and BNDES Participações S/A (BANDESPAR).

BNDES uses a network of financial institutions that pass on the system’s resources, known as ‘BNDES System Financing Agents’ – private and state commercial banks, investment banks, state and regional development banks. 

One of the BNDES System’s major objectives is to support the industrial development in Brazil and if therefore offers several lines of financing and shareholdings. 

In developing a mining activity, the BNDES System has been playing a major role as a financing source for most mining projects in Brazil. The system’s credit lines are available to mining companies, independent of the origin and control of their capital.

Mining royalties

The government charges a maximum of three per cent of the sales net revenue of raw minerals, which basically means this is sales revenue less taxes, freight and insurance.  The rate varies according to the product:

• Bauxite, manganese, salt and potash – 3 per cent
• Iron ore, fertilisers, coal and other minerals – 2 per cent
• Gold – 1 per cent
• Gemstones – 0.2 per cent

Marketing your products and services

Market entry

The legal system in Brazil may seem complicated and bureaucratic at first; however, generally you will encounter no major difficulties.

Ideally an Australian company interested in opening an office in Brazil should contract an agent to act as a representative or distributor.

Another successful market entry strategy is to open a foreign subsidiary or enter into a joint-venture agreement with a strong Brazilian partner with excess manufacturing capacity in order to manufacture within Brazil.

If you adopt the latter strategy, it is still recommended you open a small local office with a Brazil based manager in order to solidify the new relationship, to support your local partners and to lend technical support.

The Federal Government has created Regional Investment Funds (RIFs), whose resources are exclusively invested in industrial and farming projects in the areas under Northeast Development Agency (SUDENE) and Amazon Development Agency (SUDAM) jurisdiction, as well as in the state of Espírito Santo.

Corporate taxpayers are able to submit part of their tax payments to the regional funds, which means they can invest in the beneficiary fund of their choice. The RIFs are:

• Northeast Investment Fund (FINOR)
• Amazon Investment Fund (FINAM)
• Economic Recuperation Fund for the State of Espírito Santo (FUNRES)

Federal Mining Incentives exempt or reduce taxes on profits from projects in regions administered by SUDENE and SUDAM. Most Brazilian states grant ‘tax over circulation of merchandise and services’ (ICMS) tax incentives to companies by reducing the calculation base of the tax or deferring collection. Another incentive used by some states is to convert the payable tax into financing at preferential rates.

Links and industry contacts

Mining–related resources

National Department of Mineral Production – www.dnpm.gov.br

Government, business and trade resources for Brazil

Australian Consulate – www.australian-consulate.org.br
Brazil–Australia Commercial Chamber – www.australia.org.br
The National Bank for Economic and Social Development – www.bndes.gov.br