The priorities for Brazil's mining sector under Lula

Brazil’s new administration, which takes office January 1, is not likely to mean major changes for the mining sector. 

"One of the top priorities for the next administration is the fact that Brazil needs to encourage mining exploration and for that we need to ensure that mineral titles are a guarantee to finance this activity. That would enable this activity to be taken on by small and medium-sized companies," Marcos Gonçalves, president of mining technology association Adimb, told BNamericas. 

"In addition, we would need to work to create a stock exchange environment in Brazil that allows non-producing companies to access the capital market, with venture capital, focused on projects in the pre-operational phase, like in Canada and Australia. Brazil has a window of opportunity to expand its mining activity in the face of the energy transition that will demand several materials," he added. 

Another important element to be addressed by the next administration will be combating illegal mining, Julio Nery, sustainability and regulations director at local mining association Ibram, told BNamericas.

According to Nery, illegal mining, mostly for gold in remote areas, reduces the sector’s competitiveness and also affects the reputation of companies that operate legally.

POINTS OF CONCERNS 

Although the incoming government of leftist president-elect Luiz Inácio Lula da Silva (pictured) is not expected to promote radical steps against mining nor attempt to nationalize assets, some risks for the mining industry have emerged, linked with potential tax increases to cover government social programs and also risks associated with stricter procedures for environmental licenses.

During the pandemic there was an attempt by the national congress and certain state governors to impose higher taxes on the mining sector – a major producer of iron ore, nickel, copper and other metals – since the industry was seeing record revenues due to high prices. 

This year, the pressures have eased as revenues have declined although the next administration may still look for extra income to cover spending on social programs promised during the election campaign. 

"Mining is a historically cyclical, seasonal sector that is influenced by different factors. Even so, it remains fundamental for the economic prosperity of Brazil, by providing employment opportunities and generating tax collection for governments. By performing positively in troubled economic contexts in the country, we have become the target of proposals for raising taxes. This concern remains, and it is one of the priorities on the sector’s agenda," said Ibram's Nery. 

In terms of regulation, the environmental issue is also a concern. One of the campaign slogans of Lula's was to act more firmly in environmental regulation, an area that during the right-wing Jair Bolsonaro administration was relaxed.

"There is always concern about the risk of the environmental licensing phase being too cumbersome. I am not against rigid environmental licensing, on the contrary. However, there needs to be a balance in the requirements for the different phases of mining. Environmental legislation in Brazil is quite modern and comprehensive. However, we have to say that the mining exploration phase shouldn't be subject to so much rigidity, there has to be a sense of proportionality," said Gonçalves from Adimb.

LULA'S PROFILE 

Lula defeated Bolsonaro in a tight runoff at the end of October and will face a polarized society while a center-right congress will be a major hurdle for any radical steps.

Having previously been president for two terms from 2003 to 2010, Lula is likely to adopt a pragmatic approach to the mining sector as he is familiar with the potential of the industry and its contribution to the economy. 

During his previous time in office, Brazil surfed a boom in the commodities cycle and mining revenues helped the country generate wealth and keep Lula’s approval levels high, and allowing his Workers Party ally Dilma Rousseff to succeed him in 2010.