Image courtesy of Samarco

Brazil will find itself in the international spotlight later this year as it takes on the rotating presidency of the G20 in 2024 and prepares to host world leaders from the world's biggest economies in Rio de Janeiro this November. The summit's motto, 'Building a Just World and a Sustainable Planet', underlines the Lula government's attempts to make green diplomacy the fulcrum of Brazil's foreign policy. There are two central pillars to this policy: custodianship of the Amazon rainforest and the provision of critical minerals for the electrification of supply chains. The mining industry is transforming in Brazil, growing, diversifying and coming under greater scrutiny from over-stretched regulators. 

Brazil is clearly a mining power, as the world's largest producer of niobium and second largest of iron ore, and home to Vale, which generates over US$40 billion in revenue a year. According to figures from IBRAM, Brazilian mineral exports reached US$42.98 billion in 2023. Despite these figures, over 50% of the country remains geologically unmapped, and several discoveries in recent years across different commodity classes, from gold to rare earths, point to the country's untapped potential.

Brazil's mining sector is still dominated by iron ore production, however, there are developments and projects across a suite of different minerals laying the foundations for the country to become a leading exporter of minerals crucial for the energy transition. Marcos André Gonçalves, president of ADIMB, said: "There are several new developments in the mineral exploration scene for rare earth, lithium, and base metals… The energy transition has influenced the mining sector for good, with new exploration investments from Australian, Canadian and American companies." 

The mining industry's principal challenge globally is access to capital, and in Brazil it is no different. The sector is caught in a curious paradox between the increasing demand for critical metals and less financing available to develop long-term, capital-intensive projects. Discussing Brazil's mining finance eco-system, Guillaume Légaré, head of South America for the Toronto Stock Exchange and TSX Venture Exchange, said: "Brazil ranks fifth in Latin America, with 34 companies with 95 mining projects in the country. Given its size, this makes it a relatively under explored jurisdiction represented on our exchanges, underlining its potential. Although there is significant potential for growth in Brazil's mining sector, we need to promote it further to facilitate capital access for local entrepreneurs." 

Mining leaders stressed the need for more financing opportunities due to the dearth of available capital, distorted by market trends, and a reluctance from public investors and traditional banks to invest in sensitive mining and long-term capital projects. Instead, private equity houses are picking up some of the slack. There are, however, public initiatives to encourage a mining finance eco-system in the country. In addition to talks about promoting a Rio de Janeiro stock exchange, which will be more open to junior mining companies, Adriano Trindade, partner at Mattos Filho, a leading Brazilian law firm, said: "Currently, BNDES is structuring a fund aimed at investing in critical minerals, particularly in exploration and development. BNDES will contribute 25% of the fund and is now seeking the remaining 75% from other investors." 

For Appian Capital Advisory LLP, a leading private equity player in Brazil's mining industry with US$3.6 billion of assets under management, whose portfolio includes Atlantic Nickel, Mineração Vale Verde, Graphcoa and Omnigen Energy, the dearth of available capital for mining projects is being tackled head-on. Discussing these challenges, Silvio Lima, head of corporate affairs, ESG and community engagement said: "The inherent volatility of commodity prices makes securing financing for long-term projects difficult. Additionally, mining projects often have lengthy lifespans. This extended project cycle can deter potential investors seeking quicker returns." 

The investment house is bullish about the future of mining and Brazil's role as a provider of critical minerals necessary for the global energy transition. Lima said: "The increasing demand for minerals essential for renewable energy technologies and electric vehicle batteries creates a unique opportunity for investors to support the green transition."