Brazil's US$80 billion mining sector once accounted for 4% of Latin America's biggest economy, and though this share has fallen with the steady decline of iron ore prices in recent years, the sector itself still rivals those of the country's peers. But the Brazilian mining industry is facing two overarching challenges: the unfavorable external market conditions that have put the brakes on mining development globally, and a deteriorating internal investment climate.

The sharp drop in iron ore prices has particularly hurt Brazil, as the steelmaking mineral accounted for almost 90% of mining exports in 2013, which in turn made up 21% of total exports. Iron ore's share of mining exports is already shrinking, with just 75% in 2014. Even the world's biggest iron ore mining company, Rio de Janeiro-based Vale, is starting to shut down higher-cost production. Falling prices for gold and other minerals have also taken a toll and companies are halting operations, scaling back investment plans and writing down asset values.

Meanwhile, political and economic turmoil has created heightened uncertainty and sinking business confidence. For the mining sector, there are two facets to this factor: a drawn out process to reform mining code and institutions and Brazil's wider problem of economic contraction, inflation, downgrades, corruption scandals, calls for impeachment of the president and political impasse. Although some major mining projects are going ahead, such as Vale's flagship S11D, the overall mining investment portfolio is getting smaller and the value of the nation's mineral production has been declining despite growing production volumes, with the total US dollar value of mining exports falling 17% in 2014 to US$34 billion.

It may be tough times, but perhaps the glass is still half full. USGS data show that Brazil holds 14% each of the world's iron ore and nickel reserves, 98% of the niobium, 9% of the manganese, 10% of the tin and 4% of the gold, along with a wide array of other minerals, indicating vast potential for exploration and development. Vale plans to invest US$3.69bn just in Brazilian iron ore in 2015 alone and though the total mining sector investment portfolio is shrinking, miners in Brazil are still expected to spend more than US$$50bn in 2014-18, according to mining institute Ibram - more than Chile or Peru.

Figure: Brazil's Mining GDP


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