Run-off in the rainforest: Brazilian mining sector eyes uncertain future 

B

oth the left-wing veteran Luiz Inacio Lula da Silva and the incumbent and right-wing leader Jair Bolsonaro won enough of the first round vote in Brazil’s presidential election to force a run-off vote later this month. Lula won 48% of the first round vote, held on 2 October, against Bolsonaro's 43%, and the candidates promise radically different plans for the future of the country’s mining sector. 

Considering the scale of Brazilian mining, the stakes could hardly be higher. The country is among the top five mineral producers in the world and possesses proven reserves of several strategic commodities. It is the world’s second largest producer of iron ore, manganese, tantalite and bauxite, and is the world’s top producer of niobium 

According to the Brazilian Mining Institute (IBRAM), a group that represents the largest mining firms operating in the country, investments in Brazil’s mining sector will total $40.4bn between 2022 and 2026. Some 10% of the total amount is expected to be invested in socio-environmental schemes.

The Moody's Investors Service, a US-based credit ratings business, is also bullish about Brazil, with the agency’s senior vice president Barbara Mattos saying in a press release that the country’s metals mining industry will profit from the high price of metals this year. 

“Base metals prices, including aluminium and nickel, approached record highs in the first quarter of 2022, while copper and zinc prices have remained high," she said. 

At the heart of this high-stakes debate is whether the country heads down the path favoured by Lula, which includes raising royalties on certain high value mining projects, or Bolsonaro, who boasts strong support for both agricultural and mining activities in the Amazon rainforest. 

Bolsonaro’s platform also includes the reduction of funding for government agencies tasked with enforcing rainforest conservation measures, which threatens the strength of many of the country’s environmental protections for the mining sector. 

According to documents seen by Reuters, a proposal drafted by mining specialists working for Lula's Workers' Party includes new royalties for among the highest-quality minerals produced in Brazil. Known as a "special stake", this would likely affect iron ore giant Vale’s iron ore complexes in the Carajas region of northern Brazil, as ore produced there is exceptionally pure and generally fetches a premium on the international market. 

Vale is the world’s largest iron ore producer and the world’s third largest mining company overall, so Lula’s policies could have a significant impact on both the Brazilian and global mining industries. This is particularly impactful now, as Vale is undergoing a restructuring in its share ownership. In October, the Brazil-based asset management company Cosan bought a 4.9% stake in the company as part of Cosan’s plan to diversity its portfolio. 

Cosan first entered the mining sector last year when it formed a joint venture with Grupo Paulo Brito, the founder and controller of mining firm Aura Minerals, for iron ore exploration and transportation. Other mergers and acquisitions in Brazil’s mining sector continue apace. In April, local conglomerate J&F Investimentos concluded the acquisition of Vale’s Mato Grosso do Sul state’s iron ore, manganese and logistics assets for $150m. 

Meanwhile, gold mining continues to flourish. In September, G Mining Ventures announced that it had made the decision to proceed with the construction of the Tocantinzinho gold project located in the state of Pará. It will be one of the largest primary gold mines in Brazil. Tocantinzinho is an open-pit gold deposit located on an underexplored land package covering nearly 1,000 square kilometres. 

However, it is the activities of the country’s wildcat illegal gold miners, known as ‘garimpeiros’, in the Amazon that is of greatest concern to environmentalists. Garimpeiro mining, with the blessing and encouragement of Bolsonaro, has now become a billion-dollar industry and accounts for an alarmingly high percentage of Brazil’s overall gold production. 

In 2021, Brazil produced 47.9 tonnes of gold, yet according to think tank Instituto Escolhas, 54% of Brazil’s national gold production is of questionable legality. This is 25% higher than in 2020 and the highest on record. 

“There are two points of attention: first, of course, the significant increase in gold with signs of illegality, which shows the lack of control and actions to curb the extraction of illegal gold in recent months,” said Larissa Rodrigues, portfolio manager at the Choices Institute, an environmental thinktank. “Secondly, almost two-thirds of that gold came from the Amazon. In other words, 32 tonnes of the metal left that region with some indication of irregularity.”  

In March, Bolsonaro tried to push through a bill that would legalise mining on indigenous lands, including in the Amazon rainforest. However, it was met with a torrent of opposition including from IBRAM. In a statement, the group described the bill as "inappropriate" and called instead for a "broad debate" that would include the indigenous peoples. 

It said that although, “industrial mining is viable anywhere in Brazil,” this is only so long as it is subjected to regulations on, “geological analyses, viability studies, environmental licenses and other authorizations required by law." 

In the wake of Bolsanaro’s proposed bill some of the world’s biggest mining companies have chosen to unilaterally withdraw requests to research and extract minerals on indigenous land in Brazil’s Amazon rainforest. According to an internal survey by IBRAM, for the first time in decades, none of the largest mining companies have current research or mining applications for gold, tin, nickel, iron and other ores in indigenous areas. 

Indeed, Rinaldo Mancin, head of institutional relations at IBRAM said of Lula’s plans that, "creating a special mining royalty is going to scare away investors and make our competitors happy, especially the Australians." 

Yet Bolsonaro’s work is not entirely devoid of support, with his performance in the first round election better than many commenters and pollsters expected. Indeed, on 17 October, pollster IPEC published figures that suggested 43% of the electorate was now in favour of Bolsonaro, compared to 42% in earlier polls, numbers that do not point to a dramatic swing since the first round vote, but ones that do suggest the election is growing closer, and Bolsonaro’s policies more popular, with each passing day. 

Even if Lula does win in the run-off, he will still be faced with battling a recalcitrant Congress which since being elected on October 2 is now more right-leaning. This suggests that ‘Bolsonarism’ as a political philosophy could win even if Bolsonaro himself loses the election.

Analyst Oliver Stuenkel at the Brazilian think tank Getulio Vargas Foundation told Agence France-Presse that, “Congress will try to complicate Lula's life," likely blocking his reform agenda. Supporters of President Bolsonaro and the agribusiness lobby managed to win seats in both the lower and upper houses. 

Yet some experts say that if Lula wins the run-off he could at least manage to curtail some of the pressure from the agribusiness caucus and reverse the past four years of destructive policies for the Amazon. Two indigenous women as well as famous environmentalist Marina Silva, founder of the Sustainability Network Party, won seats in the lower house and are expected to lead the opposition against the agribusiness, mining and logging agenda in Congress. 

Much about Brazil’s future political direction still remains to be seen, although Natalie Unterstell, president of the Talanoa Institute, a climate policy think tank, believes the contours of the power struggle might become clearer next year.

Speaking to Mongabay, a non-profit environmental science and conservation news platform, she said that the pro-Bolsonaro domination of the Senate “could see it usher through the anti-environmental legislation already passed by the Chamber in recent years.”  

This includes a slate of bills dubbed the “death package” by critics that would, among other things, allow mining in indigenous territories, weaken environmental protections, and legitimise land grabs. “Currently, much of the ‘death package’ has been approved by the Chamber and is awaiting a vote in the Senate,” she said. “This could happen next year,” she said. 

If these bills do indeed go through it would send out a clear message that Bolsonarism has survived, regardless of the result of the run-off, and would not augur well for attempts to create a more sustainable mining industry in Brazil.