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Brazil Mining Report Q4 2010
Business Monitor International, Oct 2010, Pages: 86
Business Monitor International's Brazil Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's mining industry.
While many countries are still feeling economic pain, Brazil’s economy is performing very well; in fact, better than many analysts expected. Figures released by the Brazilian government on September 3rd showed in Q210, the county’s GDP increased by 1.2% over the previous year and was up 8.8% from the previous year. BMI forecasts that the mining sector in Brazil will perform equally well, recovering from virtually zero growth in 2009 to bounce back strongly with an increase of 7%.
Already vastly endowed with mineral wealth and one of the world’s largest iron ore producer it has recently been announced that a huge new reserve of iron ore and phosphates have been discovered in the state of Mato Grosso located in the country’s south west. The State Governor estimates that the area could yield as much as 11.5bn tons of iron ore as well as up to 430mn tons of phosphates.
The Brazilian Presidential election will be held on October 3. Both leading candidates have intimated that they support a law on a change the way mining taxes are calculated which will be to the benefit of the state rather than the companies. There is also a suggestion of a significant increase in mining royalties from the current 2% which by international standards is comparatively low to possibly as high as 10%. Of course, what is said on the campaign trail does not necessarily translate into legislation but mining companies are watching the situation carefully and will be lobbying hard to minimalism any increase in costs. Already companies including industry giant Vale are bemoaning the staggering costs of opening up new mines and the prospect of an increase in taxes and a reduction in profits my harm investment in new mines.
Currently, however, the signs are that international companies see a bright future in Brazil and there have been some significant investments over the past quarter. Sumitomo of Japan has just reached agreement for the purchase of the 30% of the mining assets of Brazilian steelmaker Usiminas with the intention that the cash will be used to invest in developing the company’s iron ore assets.
Meanwhile, the London-listed Kazakh company ENRC has increased its interest from 50 to 100% in Bahia Minerals BV after a purchase from the Swiss Group Zamin Ferrous for US$670mn. ENRC wants to develop Bahia’s rich iron ore holdings.
BMI predicts that in the medium term, the prospects for Brazil’s mining sector are favourable. We forecast that from this year’s growth of 7%, a pattern will emerge of around 5% growth y-o-y up until 2014. This year, we believe the sector will reach an annual value of 30.3% which we forecast will reach
US$46.4bn by 2014.
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