The challenges of diversifying Brazil's mining industry

While the Brazilian mining sector is projected to attract investments of US$38bn through 2025, exploration remains thin on the ground, threatening attempts to diversify the industry. 

Currently, mining in Brazil is highly concentrated on iron ore and gold, despite the potential to produce more copper and nickel, among others. 

Luis Mauricio Ferraiuoli Azevedo, a lawyer and geologist, and president of Brazil’s association of mining exploration companies ABPM, talked with BNamericas about the challenges faced by juniors in Brazil, along with topics such as the controversy surrounding mining on indigenous lands and even mineral exploration in deep waters.

BNamericas: What is the current scenario for mineral exploration in Brazil, at a time when the mining sector is going through a positive cycle in terms of prices?

Azevedo: The scenario regarding exploration hasn’t changed much over the past few years in Brazil, despite the positive performance of the mining sector.

What we've seen since the start of the pandemic is that the price of iron ore has gone up a lot, as well as of some other metals, based on China's rapid economic recovery and also on China's search for more environmentally friendly iron ore sources.

The positive sentiment is therefore very influenced by this and the increase in iron ore and gold prices ends up benefiting Brazil a lot, because 75% of what we produce and export is iron ore and 10% is gold, with the rest being copper and a few other metals.

But if we look in more detail, the sector in Brazil is not very diversified and we only benefit due to the prices of some commodities. That's just a cycle.

What we need in Brazil is to take advantage of this positive cycle to invest in infrastructure and also in a more efficient mining policy, to allow a major diversification in the sector, allowing for the development of other minerals such as graphite, lithium, palladium and nickel, among others.

BNamericas: Does Brazil really have the potential to further diversify its mining sector? What are the main bottlenecks?

Azevedo: Brazil is able to produce much more, but it’s not taking advantage of the moment.

The major bottleneck today is the environmental issue. Brazil has become used to large mining projects, so our entire legal model was designed for large projects.

What happens with that is that large projects today in the mining sector face the same bureaucratic processes as a small project. In other words, small projects, needing two or three years of development, often face a wait of five years to obtain licenses.

It’s up to the federal government to make structural changes to improve this, to the point that it also forces state governments to change their approach as well.

I'm not talking about relaxing environmental licensing rules, but faster processes for smaller projects.

BNamericas: Would this environmental licensing bottleneck be the main one then?

Azevedo: As everything was made to attend large projects, this also affects the financing of small projects. The structure of the national banking sector also ends up contributing to hindering the development of small projects. In Brazil there’s a high degree of banking concentration, so the large banks only have an appetite to finance large projects, they’re not very interested in evaluating smaller projects.

People forget that big mining projects are born small and become bigger. We cannot create in Brazil a mistaken expectation that the small projects will always be small.

BNamericas: Where do you think Brazil is still underdeveloped in terms of mining potential?

Azevedo: I would say that the northeast is totally unexplored, with the exception of the state of Bahia, which has a mining policy under development. In the state of Ceará there’s a lot to be explored. We also have states in other regions, such as Mato Grosso and Goáis, which have great potential as well.

Regarding materials, I think we still have a lot of potential in copper, nickel, platinoids and vanadium. We also have diamonds. Twenty years ago, Australia produced three or four minerals, today it’s much more diversified than Brazil.

BNamericas: What is the status of the evaluation processes for mineral exploration at mining regulator ANM?

Azevedo: Because of COVID-19, many processes within ANM were halted. I think that ANM needs to speed up the automation of its procedures, to move forward with the filed requests, this will help players obtain mineral titles, which would help in obtaining financing.

BNamericas: Is the existing financing structure in Brazil for project development adequate?

Azevedo: We need to create our own [mining] financing network in Brazil. I have already created 13 junior companies and financed projects in London, Australia and Canada.

Of each dollar raised in financing, 10% is in the hands of the financial transaction brokers. If Brazil creates a structure with local lawyers, local banks, this would be interesting for the entire sector, as this money, in addition to being in the hands of Brazilian agents, would help to foster a whole chain of financing in the segment.

BNamericas: What is your view about the controversy regarding approval of mining on indigenous lands?

Azevedo: I don't think this is the time to discuss mining on indigenous lands. Brazil is currently unable to assess all current processes in progress, so I don’t see that the country has either the infrastructure or the maturity to discuss this at this time.

Now, talking about the future, I don't think it's very fair that the indigenous people in these regions have to live in the current conditions they live in, but this is a decision that has to be taken after a consultation with them, we cannot let this discussion take place between government and NGOs, it’s just not fair, the right thing is to listen more to the indigenous people.

But I think that at this moment we’re not prepared for such a discussion in Brazil. We’ve just gone through major disasters in the mining sector, society still has many reservations about mining, so we need to better discuss the sector with the whole of society.

In addition, before we talk about indigenous lands, there are many places where these controversies don’t exist and that are not explored in the country, in the states that I’ve already mentioned.

We see that with regard to ESG practices, the miners themselves are more attentive, solving their internal issues. The pandemic showed this, we saw that within mining companies, the degree of protection for workers was very high.

BNamericas: We see in some parts of the world discussions about offshore exploration. Given Brazil's expertise in deepwater oil and gas, could this be a reality in Brazil?

Azevedo: I don't think this is such a distant reality for Brazil. There are deposits that we’re not aware of, however, in the short term we have a huge area of unexplored land in Brazil. Perhaps, what we’ll have first in relation to deep waters will be more from the scientific survey side.