Brazil

An Optimistic Outlook for Mining in Brazil MINING COMPANIES IN BRAZIL According to consolidated annual mining reports provided by the mining companies for 2011, the National Mineral Production Department (DNPM) reported 8,870 mining companies operating in 2011. This includes both the Mining Concession Regime and the Licensing Regime. They are divided by region, as shown in the table below:

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

MINING COMPANIES IN BRAZIL

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Mining Companies in Brazil Mid-West: 1,075 companies Northeast: 1,606 companies North: 515 companies Southeast: 3,609 companies South: 2,065 companies

Source: DNPM – 2012

Brazil in the World

Brazil

Over the past decade, Brazil’s Mining Industry posted vigorous growth thanks to factors such as the profound socioeconomic and infrastructure changes that the country has been experiencing. This has been the case despite the fact that expectations on the mining business have been reduced as a result of the international crisis. This growth is driven by urbanization in emerging countries endowed with significant territorial areas, high population density and large GDP (Gross Domestic Product), such as the BRICs (Brazil, Russia, India, and China), which coincidentally are major players in the global mining arena.

BRAZIL IN THE WORLD Area > 3 million km²

Population > 140 million inhabitants

Bangladesh Nigeria

Indonesia

BRAZIL Australia

China

Índia

Canada

Italy

Source: Banco Mundial – 2010

Germany

South Korea

United Kingdom

Japan

France

Mexico

GDP > US$ 900 billion

Samarco

Spain

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Pakistan

Russia

United States

5

Brazil

MAJOR REGIONS WITH MINERAL DEPOSITS

Presidente Figueiredo (AM) Tin

Paragominas (PA) Aluminum Carajás (PA) Iron, Gold, Copper, Nickel and Manganese Alagoas (AL) Copper

Rondônia (RO) Tin

Sergipe (SE) Potassium Salts Bahia (BA) Bauxite, Iron, Vanadium, Aggregates, Nickel and Chromium Pedra Azul/Salto da Divisa (MG) Graphite Governador Valadares (MG) Gems

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Copper Gold Aluminum Tin Iron-Manganese Graphite Kaolin Nickel Coal Aggregates

Espírito Santo (ES) Ornamental Rocks

Urucum (MS) Manganese and Iron

Rio de Janeiro (RJ) Aggregates

Goiás (GO) Copper, Nckel and Gold

Iron Quadrangle Iron, Gold, Manganese and Bauxite

Araxá (MG) Niobium São Paulo (SP) Aggregates

Rio Grande do Sul (RS) Amethyst and Aggregates

Castro (PR) Talc

Criciúma (SC) Coal

Source: IBRAM – 2012

TRADE BALANCE FOR THE MINING INDUSTRY BRAZIL'S TRADE BALANCE IN 2012 = US$ 29,550

27,603

35,000

9,139

7,757

11,292

12,599

18,096 5,497

10,011

6,540

5,185

5,000

11,030

10,000

4,490

15,000

15,196

20,000

9,729 13,112

22,841

30,000 25,000

29,550

35,360

40,000

38,689

45,000

38,418

49,710

50,000

US$ million (FOB)

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Itaituba (PA) Gold

0 2006

2007

Source: MDIC/Aliceweb – 2012

2008

2009

2010

2011 Exports

2012 Imports

Balance

BRAZIL’S MINERAL PRODUCTION (BMP)

Since 2000, increased demand for minerals, especially due to the high rate of growth globally, has boosted Brazil’s Mineral Production (BMP), in one decade, showed a significant growth. As urbanization rushes ahead and emerging economies go from strength to strength, it is estimated that BMP will continue to grow between 2% and 5% per year, over the next two years.

Brazil

2012: Brazil’s Mineral Production totaled US$51 billion

TRENDS IN BRAZIL’S MINING PRODUCTION US$ BILLION

55

53

50

51

39

40 35 30 25

15 10 5 0 Year 78

80

82

84

86

88

90

92

Growth in one decade = 550%

Source: DNPM/IBRAM – 2012

94

96

98

00

02

04

2008-2012 = 82% 2009-2012 = 112.5% 2010-2012 = 30% 2012 /2011 = -3.7% (estimate)

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08 09 10 11 12 Estimate Does not include oil and gas. Average value for the year.

MINERAL PRODUCTION: BRAZIL’S GLOBAL POSITION (2012) Exporter (Global Player)

Exporter

Self-sufficiency

Niobium (1st) Iron Ore (2nd) Manganese (2nd) Tantalite (2nd) Graphite (3rd) Bauxite (2nd) Ornamental Rocks (4th)

Nickel Magnesite Kaolin Tin Vermiculite Chromium Gold

Limestone Industrial Diamond Talc Titanium Tungsten

STRATEGIC MINERALS Source: DNPM/PNM 2030/IBRAM – 2012

Importer/ Produce

External Depende

Copper Diatomite Phosphate Zinc

Metallurgical Coal Sulphur Potassium Rare Earths

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

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7

Brazil

RANKING OF BRAZIL’S MINERAL PRODUCTION AND RESERVES AT GLOBAL LEVEL Minerals

Global Production

Position in Ranking

Bauxite

14%

3rd

Copper

2%

5

Brazilian Reserves

Position in Ranking

6.8%

5th

th

2%

13th

Ornamental Rocks

7.7%

3rd

5.6%

6th

Gold

2.3%

12th

3.3%

9th

Iron Ore

17%

2nd

11%

5th

Kaolin

6.8%

5

th

28%

2nd

Manganese

20%

2nd

1.1%

6th

Niobium

98%

1st

98%

1st

Tantalite

28%

2nd

50%

1st

Tin

4.1%

5

th

13%

3rd

Zinc

2.4%

12th

0.85%

6th

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Source: PNM 2030/IBRAM – 2012

Brazil is a major player in the global Mining Industry. However, the Country is still dependent on some strategic minerals required by its economy. Brazil is the fourth largest consumer of fertilizers in the world and accounts for only 2% of the global production. The Country imports 91% of its potassium and 51% of its phosphate requirements, both essential for the fertilizer industry. MAJOR EXPORTS AND IMPORTS (US$ 1,000,000) Brazil’s exports

2011

2012

201,915

256,039

242,580

Mineral exports - Commodities

35,362

49,710

38,689

Iron Ore

28,912

41,817

30,989

1,786

2,239

2,341

Gold (in bars) Niobium (Ferroniobium)

1,557

1,840

1,811

Copper

1,238

1,573

1,511

Silicon

460

637

523

Kaolin

275

261

236

Manganese Ore

357

306

201

Bauxite

270

319

325

8

23

16

Tin Lead Granite Other Brazil’s Imports

12

9

7

219

247

233

268

439

495

181,768

226,243

223,154

Mineral imports - Commodities

7,757

11,292

9,139

Mineral coal

3,575

5,231

3,600

Potassium Chloride

2,204

3,471

3,510

Phosphate

135

207

205

Copper

952

1,141

562

Zinc

157

184

169

Sulphur

246

441

414

Other

488

617

678

Balance – Brazil

20,147

29,796

19,425

Balance – Mining Industry

27,605

38,418

29,550

Source: Aliceweb – 2012 (updated in November 2012).

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2010

BRAZIL'S MINING TRADE BALANCE – EXPORTS AND IMPORTS % of amount in US$ Manganese Ore 0.52% Kaolim 0.61%

Bauxite 0.84%

Tin 0.04% Lead 0.02% Granite 0.60% Other 1.28%

Silicon 1.35% Copper 3.90%

Phosphate 2.25%

Brazil

Brazil’s Mining Trade Balance – Exports and Imports

Sulphur Zinc Copper 1.85% 4.53% Other 7.42% 6.15%

Niobium (Ferroniobium) 4.68%

Iron Ore 80.10%

Exports

Imports

Potassium Chloride 38.41%

Mineral Coal 39.39%

Source: MDIC/Aliceweb – 2012

The largest ore producing states in 2012, according to CFEM (Financial Compensation for Mineral Resources Exploitation) revenues are: MG (53.2%), PA (28.6%), GO (4.1%), SP (2.8%), BA (2.0%), and Others (9.3%). In 2012, the royalties (CFEM) reached a new record of R$ 1.832 billion. In 2011 the amount had been significant with R$ 1.540 billion, or 42.8% higher than in 2010, which was R$ 1.078 billion. CFEM – also known as the Mining Royalty – is one of many charges in the mining supply chain. This charge was established in Article 20, paragraph 1 of the 1988 Constitution, and it is payable to states, the Federal District, municipalities, and Federal Government agencies as consideration for the economic exploitation of mineral resources in their respective territories. CFEM’s revenues are distributed as follows: • 12% to the Federal Government (DNPM 9.8%, IBAMA 0.2%, MCT/FNDCT 2%); • 23% to the state where the mineral has been sourced; • 65% to the producing municipality. Tax rates are applied onto the net revenue, and they vary according to the mineral involved: • • • •

3% for: aluminum ore, manganese, salt-gem, and potassium; 2% for: iron, fertilizer, coal and other substances; 1% for: gold; 0.2% for: precious stones, cuttable colored stones, carbonates, and noble metals.

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Gold (in bars) 6.05%

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ROYALTIES IN BRAZIL – 2005-2012

Brazil

(CFEM – FINANCIAL COMPENSATION FOR MINERAL RESOURCES EXPLOITATION) 1,832.8

1,800 1,560.7

1,600 1,400

R$ million

1,200

1,083.1

1,000 857.8

800

742.7

600 400

406

465.8

547.2

200 0 2005

2006

2007

2008

2009

2010

2011

2012

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Source: DNPM/IBRAM – 2012

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Employment in Brazil’s Mining Industry A total of 175 thousand workers were employed in the mining sector in 2011. Studies conducted by the Ministry of Mines and Energy’s Secretariat for Geology, Mining and Mineral Processing show that the multiplier effect of job creation is 1:13 in the mining sector, i.e., for every job created in the mining sector another 13 jobs (direct jobs) are generated along the supply chain. Therefore, in 2011 the mining sector employed about 2.2 million workers directly, not including the job posts generated in research, exploration and planning, and the manpower employed in the mines.

Note: Informal work arrangements in the mining industry cannot be ignored, especially when it comes to minerals of high unit value (gems, gold, diamond, etc.), and also in the extraction of mineral aggregates for the civil construction sector. Many workers across Brazil’s 5,565 municipalities fail to be covered by official statistics. Estimates, though very inaccurate, indicate somewhere between 300 thousand and 500 thousand workers (PNM 2030).

THE IMPORTANCE OF MINING IN JOB CREATION 16 14

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JOB CREATION MULTIPLIER EFFECT 1:13

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2.2 million direct jobs are created in Brazil (175,000 jobs created in the mining industry). Date: 2011

4 2 1

0

Source: Ministry of Mines and Energy (MME)’s Secretariat for Geology, Mining and Mineral Processing – PNM 2030

Suppliers

Mining Industry

Source: SNGMTM/MME

Initial Processing

Total

HDI of Mining Municipalities

Municipalities – States

Ore

HDI for the State

HDI for the Municipality

Itabira – MG

Iron Ore

0.766

0.798

Araxá – MG

Niobium

0.766

0.799

Nova Lima – MG

Gold

0.766

0.821

Catalão – GO

Phosphate

0.773

0.818

Cachoeiro de Itapemirim – ES

Ornamental Rocks

0.767

0.770

Parauapebas – PA

Iron Ore

0.720

0.740

Oriximiná – PA

Bauxite

0.720

0.769

Presidente Figueiredo – AM

Cassiterite

0.713

0.742

Brazil

The Human Development Index (HDI) of mining towns is higher than that of their respective states. Even when mining projects are set up away from major urban areas or even in areas with low social indicators, they bring a tangible potential for regional sustainable development. The HDI is published by the United Nations Development Program – UNDP.

Investments in the Mining Sector The graphs on pages 12 and 13 show the growth in the volume of investments in Brazil’s mining sector. The values provided by IBRAM are projections for five-year periods. Based on data obtained from the mining companies, IBRAM reported massive investments of US$75 billion for 2012-2016, which sets a new record for the Mining Industry. It is one of the private segments with the most significant investments in the Country. After all, investments amount to US$15 billion per year. This figure is recalculated and updated periodically by IBRAM in its website.

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These investments cover a large number of minerals, of which iron ore is the most important, accounting for 63% of total investments.

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

Source: UNDP – 2012

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Brazil

MINERAL PRODUCTION GROWTH BY 2016 Mineral

Production in 2011 (1,000 tons) (A)

Increments by 2016 (1,000 tons) (B)

Expected Production by 2016 (C)=(A+B)

Change (C/A)

Aggregates

673,000

176,000

849,000

26%

Iron

369,000

451,000

820,000

122%

Bauxite

31,000

7,000

38,000

23%

Manganese

2,600

400

3,000

15%

Phosphate

1,800

700

2,500

39%

Copper

400

200

600

50%

Potassium

290

2,110

2,400

728%

Zinc

285

65

350

23%

Niobium

90

30

120

33%

Nickel

70

30

100

43%

Gold

0.066

0.029

0.095

44%

Source: Estimates by IBRAM – 2012

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

INVESTMENTS IN THE MINING SECTOR – 2012-2016

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US$ BILLION Record

2008-2012

2007-2011

80

2009-2013

2010-2014

2011-2015

2012-2016 75

72 62

64 57

54

56 48

48

64,8

68,5

47

49

Mar/09

Jan/10

40 32

32 25

28

24 16 8 0 Jan/07

Jul/07

Source: IBRAM – 2012

Sep/07

Jan/08

Jul/08

Apr/10

Aug/10

Jan/11

Sep/11

May/12

INVESTMENTS IN THE MINING SECTOR – 2012-2016

Brazil

US$ BILLION 46,032

Iron

44,969 7,872

Potassium

2,675 3,743

Rare Earths 3,417

Aluminum Supply Chain*

5,220 3,345

Nickel

6,550 3,296

Aggregates

2,043 2,542

Copper

1,725

Gold

1,005 1,890

Phosphate

993

Limestone

310

Zinc

631

Manganese

400

463

387

200

Chromite

310 193

Niobium

400 148

Lead

129 200 0

10,000

Source: IBRAM – 2012

20,000

30,000

40,000

50,000

New investments in the Mining Sector (2011-2015): US$68.5 billion New investments in the Mining Sector (2012-2016): US$75 billion * Aluminum Supply Chain includes investments in Bauxite, Alumina and Aluminum.

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Vanadium

Information and Analyses on the Brazilian Mineral Economy • 7th Edition

2,418

13

Eugênio Paccelli

Brazil Information and Analyses on the Brazilian Mineral Economy • 7th Edition

MAIN INVESTMENTS IN THE MINING SECTOR BY STATE 2012-2016 – US$ 75 BILLION

AM – US$ 2,666,401.65 (3.56%)

Potassium

Aluminum, Bauxite, Manganese, Copper, Iron, Nickel and Gold

MA – US$ 1,713,284.26 (2.28%) Logistics and Gold

CE – US$ 2,464,294.12 (3.29%) Phosphate and Uranium

RN – US$ 387,840.24 (0.52%) Iron

AL – US$ 121,200.08 (0.16%) Copper

SE – 5,763,736.91 (7.68%) Potassium

BA – US$ 6,535,216.11 (8.71%)

Iron, Gold, Vanadium, Nickel and Chromium

TO – US$ 96,960.06 (0.13%)

Phosphate and Gold

MG – US$ 26,160,139.73 (34.88%)

Bauxite, Alumina, Iron, Phosphate, Gold and Logistics

MT – US$ 621,513.99 (0.83%)

ES – US$ 2,776,936.12 (3.70%)

Limestone, Zinc and Gold

Iron and Logistics

MS – 1,939,201.20 (2.59%)

RJ – US$ 1,939,201.20 (2.59%)

Iron and Logistics

GO – US$ 242,400.15 (0.32%)

Copper and Nickel

Source: IBRAM – 2012

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PA – US$ 18,129,592.04 (24.17%)

Logistics

SC – US$ 145,440.09 (0.19%) Coal