Challenges loom for Brazilian mining despite expected US$50bn capex in 2023-27

Brazilian mining association Ibram is in the midst of gathering information from mining stakeholders so it can announce the details of companies’ investments plans over the next five years.  

The combined capex of Brazil’s mining firms is set to reach US$50bn in the 2023-27 period, up from US$40.4bn in 2022-26, according to Ibram.

"Our research is still at a very early stage, but we have seen in recent months there are lots of investment announcements being made regarding mining exploration and few announcements on advanced projects, which could mean that the final value of the projected investments in the coming years will be lower than at present, but not too drastically. I believe we should have a projected capex figure for the next [five-year] cycle of between US$48bn and US$50bn," Julio Nery, sustainability and regulations director at Ibram, told BNamericas.

According to the Ibram official, details of the capex for the 2024-28 cycle will likely be announced by the association in January.

The current capex projection for 2023-27 outlines investments of US$16.9bn in the iron ore segment through 2027. Meanwhile, copper mining is expected to see investments of US$4.47bn and nickel is forecast to receive US$2.38bn. Another US$5.22bn is expected to go to investments in fertilizers, US$4.96bn to bauxite and US$2.8bn to gold operations.

For the five-year period, mining stakeholders are also forecast to invest US$4.44bn in logistics and US$6.5bn in ESG practices.

HEADWINDS AHEAD 

Mining players in Brazil harbor some concerns about the scenario for the coming year, amid the ongoing international geopolitical turmoil, which points to greater instability.

"The international scenario creates lots of difficulties for the mining industry, which is a global sector. We already had polarization between the US and China and also the effects of the attack on Ukraine by Russia. Now we have to add the impacts of Hamas’ attack against Israel to these factors of instability," said Ibram president Raul Jungmann.

The revenue of the Brazilian mining sector reached 53.9bn reais (US$10.7bn) in 3Q23, down from 75.8bn reais in the same period of last year, according to Ibram.

Along with the worries about the international scenario, the head of the national mining association also expressed concern about domestic problems, linked to the tax reform being discussed in the senate.

The reform was passed by the lower house of congress in July. It is aimed at simplifying the tax system, but would also give Brazil’s states the power to impose taxes on primary and semi-finished products to finance infrastructure and housing spending. Mining, oil, gas and agricultural representatives claim this will likely increase taxes in those sectors.

Jungmann and Ibram vice president Fernando Azevedo e Silva recently met with the bill’s senate rapporteur, Eduardo Braga, to talk about the possible new powers to be handed to the states. 

"We gave the senator our arguments to try to reverse this part of the law being discussed, but the signs are not good. [Braga] told us that it would be difficult to reverse that in the senate, because there are currently 15 senators representing five state governors [Minas Gerais, Goiás, Mato Grosso, Bahia and Tocantins] who will not allow this to be removed from the reform," said Jungmann.

“This is a very serious issue because it damages the competitiveness of Brazilian mining companies in relation to international rivals, inhibits new investments, and generates insecurity and unpredictability in company management. This situation affects the sector’s performance and is automatically reflected in collection of taxes and charges and could also affect Brazil’s trade balance," he added.

BRIGHT SPOT 

Despite the cloudy outlook, Jungmann did point to one silver lining, saying that the mining sector will probably receive a boost from an initiative backed by state-run development bank BNDES.

"The good news is that we’re working with the BNDES team and before the end of the year it should announce the creation of specific funds to finance projects involving critical minerals linked to the energy transition," he underscored.