Misconceptions about mining in Brazil

In 1994 the Brazilian government launched a multi-year plan for the development of the country’s mining sector. More than 160 acknowledged professionals, public officers and scientists collaborated with the Ministry of Mining and Energy to produce a report on the state of the industry, as well as an extensive agenda for the 15 years that lay ahead. This agenda still serves as the basis of the national mineral policy.

The multi-year plan had four main guidelines. Two were restricted to the government level: restructuring the mining sector’s federal administration, and simplifying mining legislation. The other two required action from the private sector and civil society: promoting sustainable development, and improving knowledge about Brazil’s mineral resources.

The plan’s ambitious objective was to double mineral production in the country by creating conditions that allowed for greater investment.

Both the Brazilian government and the mining industry believed that an adequate institutional framework and good geological information would result in a new cycle of mining development.

Unfortunately, after 10 years, the recorded investments did not reach the annual target of US$300 million for exploration and US$1.5 billion for expansion of existing mines and development of new ones.

Although geological science suggests Brazil has a rich mineral endowment, this has not been confirmed. The rate of mineral discoveries in Brazil is not compatible with the country’s favourable geology, size and mining tradition.

And yet the public policies applied to Brazilian mining over the past decade, though imperfect, have been consistent with international standards and best practices (in particular, simplification of regulations and more accessible geological and technical information). It is therefore surprising that these policies have had little impact on decision-making in the private sector.

But if, as I believe, mining policy in Brazil is becoming more progressive and attractive to investors, two questions arise: Why are so many companies reducing their activities, and why is less money being spent on exploration? If the public policy is being managed in tune with private investors’ needs, and still there is a feeling of frustrated expectations regarding the country’s mining potential, then the low rate of exploration investments could be a consequence, rather than a cause, of this frustration.

There are two main strategies for investing in mineral exploration in Brazil: the first kind is long-term and geared toward learning more about the country’s mineral potential and business culture; the second has to do with acquiring large areas of prospective ground, and not necessarily carrying out much in the way of exploration.

From the government’s point of view, companies that do not add value to their concessions or to the nation’s social and economic development are stealing value from public assets, and should compensate society for that theft. On the other hand, companies that spend money on mining ventures based only on technical information, without a proper understanding of the social and economic environment in which the venture will take place, represent a high risk for shareholders and policymakers alike.

— The author is a geologist and mineral economist and was formerly the Brazilian national secretary of mines and metallurgy.