Brazil's legal battle with X adds to worries for miners

The ongoing legal conflict between Elon Musk's social media platform X and Brazil's supreme court has added to concerns in the mining industry about legal instability, although there have so far been no ripples in investments.

In recent days, controversial billionaire Elon Musk has been involved in a battle against Brazil's legal authorities after supreme court judge Alexandre de Moraes ordered the suspension of X in Brazil, a decision that was confirmed by a court panel shortly after.

De Moraes resorted to the move after X did not comply with an ultimatum to appoint a legal representative in Brazil, as required by law. 

Although the dispute revolves around the social network, Musk is also CEO of electric vehicle manufacturer Tesla, which is a big source of demand for mining products, particularly the lithium used for batteries. Indeed, the businessman has said several times that he is interested in investing in the lithium segment.

These issues have raised the question among investors and businesspeople about whether the litigation involving X is an isolated case or there is an environment of rising judicial activism in Brazil, which could have further effects on other sectors.

"I don't think it has a direct impact [on investment decisions] in itself. However, it adds to a series of other problems and difficulties that international investors encounter in the business environment in Brazil. This is yet another negative element, in addition to the issue of taxes, labor legislation, environmental issues, excessive regulation, and now more interference from the judiciary," Tito Martins, a former top Vale executive and ex-CEO of Nexa Resources, told BNamericas. 

"There is no doubt that this type of conflict makes businesspeople concerned about the stability of institutions and laws," Martins, who is now a mining consultant at Kaiau Consultoria, added.

Brazil's mining industry is particularly sensitive to legal issues, as it operates through government-granted concessions for exploration and there is also persistent debate about tax increases and changes to other regulations.

The sector recently celebrated a partial victory regarding the approval of key regulations for the tax reform in the lower house of congress.

As part of the government's efforts to simplify the tax system, lower house lawmakers authorized the creation of a selective tax on activities deemed harmful to health and the environment, which was fiercely opposed by mining companies.

Although the originally proposed 1% levy was reduced to 0.25% in response to mining industry lobbying, the regulations are now being discussed in the senate, with the industry hopeful that it could be eliminated altogether.

More recently, Brazil's tax appeals court (CARF) ruled that areas designated for mining activities, including surface mining, are subject to the rural property tax (ITR).

The CARF decision came as part of a case involving two farms, where the taxpayer requested that the areas designated for mining be excluded from the basis for calculation of the ITR, but the court rejected the suggestion, local media reported.

These legal and tax issues have emerged at a time when mining association Ibram is consulting mining companies to assess their investment plans for the next five-year cycle in 2025-29.

In the 2024-28 period, mining firms operating in Brazil said they planned to invest a total of US$64.5bn, significantly more than the US$50bn forecast for 2023-27, according to Ibram.