Mining in Brazil Plenty of Room to Grow
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Mining in Brazil Plenty of room to grow. TABLE OF CONTENTS Brazil: an overview............................................p80 This report was researched and prepared by Global Producing in Brazil...........................................p84 Business Reports (www.gbreports.com) for Engineering Services..................................................p93 & Mining Journal. Minas Gerais....................................................p97 Editorial researched and written by Ana-Maria Miclea, Clotilde Bonetto Gandolfi, Razvan Isac and Nathan Allen. For more details, please contact info@gbreports. Cover photo courtesy of Votorantim. A REPORT BY GBR FOR E&MJ SEPTEMBER 2013 MINING IN BRAZIL Brazil: an Overview On a slow track but boasting tremendous potential Brazil is home to roughly 9,000 mining money into a jurisdiction that could not offer of independence and autonomy that such companies and a mineral production which clear rules of play. an entity would possess, some commenta- was valued at $51 billion in 2012, a slight As expected, the code addresses three tors point to the success of the National Pe- decrease of 3% compared to 2011. None- main issues: royalties, the concessions sys- troleum Agency, set up in 1997 to regulate theless, the country’s mining industry has tem, and the establishment of a new inde- Brazil’s burgeoning oil and gas industry as a had an impressive run in recent years, more pendent mining agency, the National Mining positive sign. than doubling its output since 2009 and Agency (ANM). But it does not offer an in- One element that is conspicuous by its ab- recording a positive trade balance of $29.5 stant solution to all the industry’s woes. On sence in the new code is any modification to billion last year. A major global exporter of the contrary, as is often the case in Brazil, the existing environmental laws. Today in Brazil iron, niobium, manganese and bauxite, Bra- pace of progress is expected to be painfully there is a certain degree of tension between zil is the world’s fifth largest country with a slow. Now that the bill has lost the consti- miners and environmental authorities, and surface of 8 million sq km. This implicitly tutional urgency provison with which it was attaining an environmental license is widely means abundant mineral riches, yet only originally released, the forecasted timeline acknowledged to be one of the most difficult 35% of the country’s geology has been prop- to pass through the political system is any- and time-consuming stages of developing a erly mapped so far by the CPRM (the Federal where between one and two years. Although project. Barton Stone, director of consultants Government’s Geological Agency). An indi- opinions differ wildly, the majority of parties Runge Pincock Minarco believes this is be- rect consequence of this fact has been the involved in the sector actually welcome this cause the modern mining industry is a fairly strong geographical concentration of mining development, viewing it as an opportunity for recent arrival to Brazil, having only become activities in Brazil, where the states of Minas the private sector to have its voice heard and established in the 1980s. “By this time other Gerais and Para account for a total of 82% of exert a positive influence on those aspects of mining jurisdictions around the world had al- all mining revenues. The mining industry, re- the code that are unclear or are seen to be ready worked out most of the environmental sponsible for 2.2 million direct jobs, attracts potentially damaging to the industry. regulations they needed to impose on the average yearly investments of $15 billion, Under the current system, royalties’ pay- industry. Without this head-start … there is out of which 63% are absorbed by iron ore, ments, officially known as the Financial a definite lack of understanding toward the which also accounts for 80% of Brazil’s min- Contribution for Mineral Collection (CFEM), importance of the environment in small com- eral exports. However, with mineral prices are calculated based on a company’s net rev- panies operating in Brazil,” said Stone. falling in 2012, the South American coun- enue, but this is set to change to a baseline Essentially, the release of the new code try saw its revenues shrink despite its record of gross mineral sales, which would equate to Congress has prompted as many ques- production during the year. Furthermore, in to an overall increase. Furthermore, the rates tions as it has answered. While it is certainly light of its natural resources, Brazil still in- themselves will increase across all minerals. a positive step towards establishing a more explicably lacks self-sufficiency in its fertil- While this is understandably an unpopular stable mining jurisdiction and attracting izer minerals, importing $3.5 billion worth measure amongst miners, it is far from unex- more investment, many of the measures are of potassium chloride a year. Finally, the pected and will bring the financial contribu- unpopular in their current form and a lot of uncertainties created by Brazil’s new mining tion made by miners to local communities work remains to be done before any of the code (which will replace its current one that closer in line with the world average. proposals become law. dates back to 1967), along with the global Perhaps the most controversial element of economic crisis, have created a climate of in- the new code is to be found in the proposed Vale: To Caesar what is Caesar’s vestment reluctance and skepticism in Brazil overhaul of the concession system. Today, With operations in over 30 countries and over the course of the last 18 months. This Brazil’s operates a priority system, with the revenues of $46.4 billion in 2012, Vale, said, the country has enormous mineral po- first claimants to produce a plan to develop a the world’s third largest mining company, tential and the new mining code’s implemen- piece of land receiving the exploration rights. leads global iron ore and pellet production tation should encourage investors to refocus The new proposal is to introduce an auction and ranks second in terms of the world’s their attention to the country that occupies system akin to that adopted by the oil and nickel output. In 2012, the Brazilian mining 47% of all South America. gas sector. However, this is potentially a very titan accounted for 320 million mt of iron risky move; by forcing interested parties to ore (down 0.8% compared to 2011) and New Regulatory Framework – bid on land which, before any exploration 237,000 mt of nickel (down 1.9% com- The jury is still out: work has taken place, is basically worthless, pared to 2011), production that engendered On June 18th 2013, a momentous event oc- the authorities may actually deter investors. 78.2% of Vale’s gross operating revenues curred in Brazil: the long-awaited New Min- The third principal element of the new during the year. China, which accounted for ing Code was released to Congress. Since code will be to replace the existing govern- 36% of Vale’s overall sales last year, has early 2008, the specter of a new regulatory ment administration responsible for mining, been the world’s main driver for minerals framework has haunted Brazil’s mining in- the National Department of Mineral Pro- and metals in recent times, and with its eco- dustry, causing high levels of consternation duction (DNPM), for a new ANM. This has nomic slowdown to 7.8% in 2012 compared throughout the sector as investors shied provoked a wide range of reactions amongst to 9.2% in 2011, Vale inevitably suffered. away from the country, unwilling to put their experts; while many are skeptical of the level This development and the unpromising gen- 80 E&MJ • SEPTEMBER 2013 www.e-mj.com MINING IN BRAZIL www.e-mj.com E&MJ • SEPTEMBER 2013 3 MINING IN BRAZIL eral global economic climate drove down An interview with Katsuo Dias Homma, Manager of steel demand and implicitly the price of iron Integrated Projects Ferrous, Steel and Logistics, Vale ore, which plummeted to a record low $99/ mt in September 2012. Meanwhile, world- wide nickel output has been aggressively which $ 8.1 billion are accounted for increased over the last years, with China at by the construction of the mine and of the forefront of this development, raising its the beneficiation plant while the other $ production by 390,000 mt/y between 2006 11.6 billion will go into CLN S11D. and 2012, putting further pressure on nickel prices. Nonetheless, Vale continued to invest S11D is impressive not only in strongly last year; with a global capital and terms of its size, but also when it R&D budget of $17.7 billion, it managed to comes to the technological innova- obtain a total of more than 100 environmen- tions it employs. Could you detail tal licenses for its projects. Now, in 2013, these processes for us? with iron ore prices slowly recovering, Vale Firstly, our operations will not involve is concentrating its efforts on several key trucks, but rather a system composed projects that are impressive in terms of size, out of excavators and mobile crushers operating costs and quality, allocating a total that will feed the iron ore to the 37 km capital and R&D budget of $16.3 billion for conveyer belt that will reach the benefi- the year (out of which $1.58 billion for R&D S11D is the largest project in ciation plant. This means less workers, and $1.1 billion for CSR initiatives). Vale’s history. Could you give less usage of equipment, dramatically The spotlight of the company’s invest- us an overview of this integrated less fuel usage and improved worker ments for 2013 is taken by S11D, the larg- project and its components? safety.