Brazil Mining Report Q2 2008

In late March Vale, Brazil's largest mining company, said that its take-over negotiations to acquire control of Xstrata of Switzerland had failed. Chief Executive Roger Agnelli said the talks broke down because of disagreements over marketing rights for the future merged company. Vale had assembled US$50bn worth of bank finance to carry out the acquisition; some sources said Xstrata had been valued at US$90bn making the deal which, had it been successful, would have been one of the largest global takeovers to date. Agnelli told reporters that Vale would continue to diversify away from its core iron ore business, noting that 'Xstrata is not the only opportunity. There are others'.

Brazil boasts of an illustrious mining industry. The Brazilian geology is endowed with a spectrum of metals and minerals - bauxite, niobium, iron ore, manganese, nickel, tantalum, copper, tin and gemstones.

In fact, Brazil is responsible for one-fourth of the world's iron-ore output and is the fifth-largest producer of tin around the globe. The country is the world leader in production of niobium. Moreover, after Canada, it is the largest producer of alluvial diamonds in the Americas. Other gemstones that are mined exhaustively in Brazil include topaz, Paraba tourmaline, emeralds and amethyst. Global mining majors operating in Brazil include Australia's BHP Billiton and UK-based Rio Tinto, as well as the host nation's Vale (Companhia Vale do Rio Doce; previously known as CVRD).

It is expected that over US$30bn worth of capital will be infused by various players into the Brazilian mining industry by 2012. Of the total, a substantial amount is planned to be spent by the industry to further research on metals and minerals. Adding to the prospects of the Brazilian mining industry is the recent discovery of significant kimberlites, tungsten and copper deposits which have helped attract greater attention from both domestic as well as international mining companies. However, to fully leverage the potential offered by the rich endowments of the country, Brazil needs to make an urgent change in the way its bureaucracy functions and also overhaul its crushing tax regime.

The Companhia de Pesquisa de Recursos Minerais (CPRM) is responsible for basic geological mapping and maintaining mining statistics in Brazil. The country has fairly well-established laws for the management and exploitation of resources, and for the granting of licenses. But the need for permitting a higher number of private players to set shop in the country has gathered voice, prompting the government to reconsider its rules and regulations concerning mining activity.

Industry Forecast Brazil is a significant player in the mining space and is expected to perform well over the forecast period, supported by a number of joint ventures formed by mining companies for exploring Brazilian geology.

According to this report, the domestic mining industry of Brazil is forecast to log an average growth of 5.1% a year during 2008-2012.