Brazil Mining Report Q3 2009

Brazil has one of the largest and best developed mining sectors in the world. In fact, Brazil is responsible for one-quarter of the world's iron ore output and is the fifth largest producer of. Meanwhile, the country also has ample supplies of bauxite, niobium, manganese, nickel, tantalum, copper and gemstones. All of the major global mining companies operate 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).

In June 2009 it was reported by The Times, that global mining giant Anglo-American is in negotiations with Dubai Natural Resources World to develop an iron ore project in Brazil. Anglo-American is seeking investment in order to bring its sizeable Brazilian iron ore reserves into production. Meanwhile, some analysts believe that a cash injection will be vital for Anglo-American to hold off the numerous suitors circling the company. In total, Anglo-American estimated that it needs US$3.6bn to develop its iron ore deposits in Brazil. Many of these reserves were gained after the company purchased Brazil's MMX-Minas Rio in 2008 for US$5.5bn. According to The Times, a stake in this company is being offered in order to raise the funding to start production. Anglo-American has been criticised for paying over the odds for MMX. However, if it can successfully divest a stake, it would go someway to vindicating the decision and would relieve pressure on the troubled company. So far in 2009, the miner has been forced to lay-off 19,000 workers and cut capital expenditure by US$4.5bn.

Meanwhile, in June 2009 South African mining major Anglo American rejected rival mining group Xstrata's proposed 'merger of equals', raising the possibility of counter bids from the biggest players in mining, such as Vale, and underlining BMI's prediction of increased consolidation in the sector. Last year Vale failed in its attempted acquisition of Xstrata, and with the latter saying that it wants to participate in mergers and acquisitions as acquirer or target, the Brazilian giant could come back to the table. Vale raised BRL18.4bn (US$9.1bn) in a share sale in July 2008 for acquisition and expansion, and it has around US$11bn in cash and US$15bn in undrawn loan facilities, meaning that it would be able to offer a hefty cash component for any offer. A combination would offer Vale geographic and product diversification, increasing its exposure to coal and copper. However, in a research note Citigroup said that the 'challenges to a Vale- Anglo deal remain substantial, including Vale's lack of experience in Africa, lack of synergies and difficult financing.' Global Overview BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry.

Industry Forecast In 2009 investment in Brazil's mining sector is expected to fall by around 30%, according to the National Department for Mining Production. Between October 2008 and February 2009 prospecting licences fell by 37% year-on-year (y-o-y) due to the global economic downturn and the knock-on effects on credit and consumption.

However, in a bid to ease the pressure on the mining sector, the government is looking to implement a legal measure that enables the extractive industry to raise bank loans more easily. At present banks are reluctant to make loans to mines, as the pay-back period is very long and the ventures tend to be quite high risk. However, calls to introduce tax-cuts for mining companies have been rebuffed by the authorities. Despite a contraction in real terms in 2008, BMI forecasts that the Brazilian mining sector will return to growth in 2009. By 2013, the market should be expanding by around 6% a year in real terms and will reach a value of US$41.65bn, an increase of around 70%, compared to 2008

• Executive Summary
• SWOT Analysis
• Brazil Political SWOT
• Brazil Economic SWOT
• Brazil Business Environment SWOT
• Special Focus: Outlook For Global Mining
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