2012-09-09 03:47:19 - Recently published research from Business Monitor International, "Brazil Mining Report Q3 2012", is now available at Fast Market Research

Brazil's mining sector is poised for a period of strong growth as domestic and foreign demand for mineral resources spurs investment. The sector remains relatively small as a percentage of GDP compated to regional mining peers such as Chile and Peru. However Brazil's large untapped reserves and generally favorable business environment make it a compelling sector growth story. Iron ore production will be the key driver of mining sector investment, but we expect significant growth in several base metals as well, providing opportunities for mining companies and investors. Investments into infrastructure in advance of the 2014 FIFA World Cup and 2016 Olympics will not only help support demand for raw materials, but also enable more efficient transport of mineral resources.


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We forecast that Brazil's mining industry will contract in 2012, due primarily to lower than average iron ore prices for the year. We expect the industry's value to reach US$61.7bn in 2016, up from US$51.0bn in 2012. Our below consensus view on Chinese economic growth has caused us to revise our forecasts for iron ore production downward. This has reduced our growth forecasts for the sector as a whole with average annual industry growth expected at 2.9% between 2012 and 2016.

Continued Growth In Iron Ore Production

Brazilian iron ore miner Vale will continue to dominate the mining industry well past our forecast period. The company's performance in 2011 supports our view that iron ore is driving sector growth. While the company has recently moderated its view towards sustained iron ore demand growth in China, the People's Republic will remain the world's largest steel producer in the coming years even as output growth slows. We expect China will be the largest importer of Brazilian iron ore for the foreseeable future. We have lowered our growth forecast for total iron ore output but see production rising to 491mnt (mn tonnes) by 2016, as companies bring multiple large projects online. Average growth over our 2012- 2016 forecast period is expected to be 4.5% year-on-year (y-o-y).

Vale's 2011 iron ore production came in at 322.6mnt, a y-o-y increase of 4.8%, as it increased output from the Carajas mines in Brazil. Production slowed in Q112 as harsh weather impacted operations. However iron ore will be the mainstay of the company's growth, with the Carajas Serra Sul mine expected to reach 90mntpa (mn tonnes per annum) in 2014. Vale's strong project pipeline both domestically and increasingly abroad, will help maintain its position as one of the world's leading iron ore miners.

Regulatory Environment

We expect the current administration of President Dilma Rousseff to maintain favourable policies towards the mining sector. The federal government is in the process of approving revisions to the mining tax and industry regulatory bodies, although details and a timeline for final approval remain unknown. In the meantime, mining companies are opposing recently installed provincial taxes in key mining states such as Para, Amapa and Minas Gerais. Further government intervention in the mining sector remains a modest threat in the coming quarters. The government's ownership stake in Vale and the company's recent challenges may encourage the government to take a greater role in influencing company strategy.

As we have seen rising mining taxes in regional competitors, we expect higher taxes to be a theme in Brazil in 2012. We believe the new structure currently being considered will increase taxes from 2.0% to 4.0% of company revenues. This compares with revised tax schemes in Peru and Chile, where mining companies are taxed on operating profits in order to remain competitive. However, we do not believe this would make Brazil significantly less competitive relative to its regional peers, as the 4.0% rate is not overly burdensome. Government efforts to increase contributions from the mining sector are in line with a recurring global theme we have seen of late, as countries attempt to benefit from elevated metal prices and attractive long-term market fundamentals.

Key Players

Brazil's mining industry is dominated by several domestic companies. Most notable is Vale, which operates in 14 Brazilian states and is expanding its presence internationally. Vale is also Brazil's largest logistics operator, with an extensive network of railroads and ports. Other significant Brazilian companies include Votorantim Group, Mineracao Rio do Norte and Companhia Siderurgica Nacional.

Although large diversified global miners such as BHP Billiton and Rio Tinto operate in Brazil, they are not major players in the sector. That said, Anglo American is developing several nickel mine projects that will substantially boost its market share. Key international firms include US-based Jaguar Mining, which explores and extracts gold in Minas Gerais state, and Australian company Mirabela Nickel, which operates the Santa Rita nickel sulphide mine in Bahia state.

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