Why Brazil’s mining sector will thrive in the coming years
Friday, January 17th, 2020
The Brazilian mining industry is likely to attract a large amount of investments through 2023 and also see an increasing participation of junior mining firms.
That is the view of Flavio Penido, who is head of Brazilian mining institute Ibram.
In the interview with Penido, BNamercias also asked the expert about potential new mining opportunities on indigenous lands and in pre-salt areas, as well as the impact that the Brumadinho tradegy has had on the industry.
BNamericas: What can we expect for the Brazilian mining sector in terms of future investments?
Penido: Investment projections in the mining industry are always made over a five-year horizon. Our expectation is that investment volume for the period of 2019-2023 will total US$27.5bn. This represents a significant increase compared to the projections we had for the 2018-2022 period of around US$19.5bn.
BNamericas: What would be the main projects driving the expected increase in investments?
Penido: Firstly in terms of companies, there is no doubt that the main volume always comes from [Brazilian miner] Vale, and projects related to Vale should be around 16bn reais [US$3.9bn] in this five-year period.
In terms of individual projects, I would highlight the Sul Americana de Metais project, the Bamin [Bahia Mineração] project and the Riverbank project, among others.
BNamericas: Given the global scenario, can you talk about your metals price estimates for the year?
Penido: Price is always the most difficult element to predict and it always affects the feasibility studies of projects.
Speaking about our main commodity in Brazil, which is iron ore, I believe an estimated average price of US$80 per ton is a good guess for the year.
Now, it is important to note that geopolitical risks continue, we have tensions between the United States and Iran, in addition to the trade issue between the United States and China, and any news on these two fronts will influence prices.
Given this scenario, gold appears as an interesting asset because it is very sensitive to crises. When there is a crisis, investors flee to gold and this greatly affects the price.
BNamericas: Tensions between US and Iran have affected oil prices, although in recent days prices have been more stable, what are the risks of oil price hikes for the mining sector in Brazil?
Penido: The price of oil is a very important issue for us because mining transportation takes place via sea.
Fuel is the main logistics cost for the Brazilian mining industry since our main market for selling products is China.
If the price of oil rises too much, we will find it difficult to have competitive prices and we may lose market share to Australian mining companies, which have lower logistics costs because they are closer to China.
BNamericas: Does Ibram have any plans to boost the activity of junior mining firms?
Penido: We are still in the first stage, preparing a project to attract these companies to the capital market in Brazil. This will open up room for small companies to obtain fresh cash here in Brazil. Currently, we have Australian, Canadian companies operating here with financing obtained from abroad. We can change that picture.
Without a doubt, a specific format within the stock exchange in Brazil, or even a new stock exchange, would serve as a base for the mining sector across Latin America. Companies operating in Chile and Peru, both with strong mining activity, will be the main beneficiaries
At the beginning of March we will make a technical visit to Canada in order to learn about the stock market mechanisms for junior companies and we will also talk to [stock exchange] B3 here in Brazil about the viability of this project.
BNamericas: In Brazil, there is much speculation about the development of mining activities in new frontiers, including indigenous lands and even pre-salt areas, what is your view on these possibilities?
Penido: Indigenous lands are still unknown in terms of potential, we need to wait for the regulation of this, so that we have a better idea through studies.
Junior firms will be able to lead the exploration campaigns across indigenous lands in Brazil, which are likely to be opened up for these activities as, at first, major companies are likely to avoid such exploration in order to avoid reputation risks.
Pre-salt areas will be another important frontier in the future. In the pre-salt area where [state-owned oil firm] Petrobras has already discovered huge reserves of oil and gas, there is evidence of certain mining assets, but exploration in those places is still too expensive. Junior firms are likely to invest in research and development of new means of exploration in those areas to make them viable in economic terms
BNamericas: This month completes a year since the Brumadinho tragedy. What effect has this incident had on the Brazilian mining sector?
Penido: First of all, we cannot forget the lives we lost there and deeply regret it.
After the tragedy in Brumadinho, the mining industry as a whole has maintained a closer dialogue with local communities, in order to explain to these communities more about mining activity and also to explain the risks involved.
Much of the Brazilian regulatory framework changed after the Brumadinho case. There have been specific dam regulation changes, for example, the construction technology known as upstream elevation is no longer authorized so it is no longer possible to license upstream dams.
Remaining facilities, the so-called downstream and center line technologies may still be licensed, so dams with these technologies can still be built. Another point that also changed is that [regulatory and environmental] agencies are requesting more details about projects. Consequently, this may result in a slightly longer period of final project approvals.
We are in an adaptation period and this will consequently impact licensing deadlines.