Brazil’s Services and Equipment Supply Chain

The nation’s abundant mineral resources have drawn major international investor interest, but lack of infrastructure is hindering development

Until the turn of the century, Brazil was dismissed as a market of low importance by the majority of mining equipment suppliers. Today, in accordance with Brazil’s status as a powerhouse for the production of mineral commodities such as iron ore, the country is considered to be of vital strategic importance. “Brazil’s mining industry offers a profound set of opportunities that companies such as Atlas Copco have to be involved in,” said Paulo Almeida, general manager of Atlas Copco.

According to the Brazilian Machinery and Equipment Association (ABIMAQ), overall machinery manufacturing and equipment supply throughout Brazilian industry accounts for $80 billion per year in revenues, 245,000 jobs and 4,000 companies.

The healthy outlook of Brazil’s mining industry sets an excellent motivation for further expansion in both domestic and international firms supplying specialist equipment. “I believe Brazil’s GDP will grow by approximately 10% to 11% in the next year,” said Aurelio De Paula, president of medium-scale manufacturer Majestic. “We now have a very stable economy, a growing consumer population as well as strong agricultural and industrial bases, on top of the obvious wealth in raw materials. This progress is the main reason why so many international companies have started to focus on Brazilian growth.”

The Brazil Cost
The Brazilian economy is currently ranked as the eleventh largest capital goods producing market globally, but has slipped from its position of fourth place 40 years ago. This decline can in part be attributed to a general trend in Brazil’s capital goods market, increasingly apparent since 2005: the expanding choice of Asian imports and the declining domestic industrial base in Brazil. The key reason for domestic decline is known by ABIMAQ as the “Brazil Cost,” whereby Brazil is rated as 44% less competitive for the manufacturing of capital goods than leading global suppliers Germany and the United States. The country’s relatively under-developed infrastructure, which places inflationary pressures on input costs throughout the supply chain is a key contributor to the ‘Brazil Cost,’ as are high rates of taxation and the extremely unfavorable exchange rate for domestic producers competing internationally.

Commercial lending rates from state owned banks in Brazil are some of the highest in the world for a major economy, with collateral requirements of up to 130%. In short, Brazil’s domestic business environment is prohibitive to industrial manufacturing. International imports from China are rated by ABIMAQ as high as 100% more competitive.

“Companies operating in Brazil are progressively moving production abroad to cut costs,” said Marcelus Geraldo de Araujo, president of Tecnometal. “Brazilian companies in particular suffer competition from cheap Chinese products, which have the advantage of an artificially undervalued currency.”

Despite Brazil having a very high tax regime for imports into the country, the current competitive disparity domestic manufacturers have to endure is poised to set a trend of deindustrialization, and the mining industry is increasingly looking externally for capital goods input into the industry.

From an investment perspective, this trend leaves the door wide open for capital goods importers who want to move into Brazil’s vibrant mining market. Given forecast rates of growth for the Brazilian mining sector, as well as the present pressures on lead times for delivery, the Brazilian mining market presents extraordinary opportunities for international investors and suppliers. The strength of the Brazilian real renders importing into the Brazilian market from international sources an attractive proposition.

Infrastructure and Staffing
The familiar themes of Brazil’s deficits in infrastructure, affordable energy and qualified labor continue to be the main inhibiting factors on the market’s growth. “The Brazilian market lacks professional human resources. Since demand is very high, there is strong competition to find qualified professionals,” said Sandvik’s Regional Manager Victor Becattini. “To overcome this, we finance training projects for our employees. A lack of infrastructure in Brazil increases the import prices of machines, and the delivery times to our clients. This problem is common amongst our competitors as well.”

It is important both new and established firms focus on sustainable investment in Brazil in order to maintain supply of key inputs such as qualified staff, as well as thinking strategically and innovatively in terms of how to overcome business critical challenges associated with transportation and energy infrastructure. Brazil’s mining industry is in the midst of a period of extraordinarily high demand for fixed capital inputs, and it is vital for companies competing in the market to innovate in any possible way that will give them a cutting edge over their counterparts operating in the market.

Dante De Matos, country manager of relatively new entrant into the market, Outotec, underlines the industry view regarding people and infrastructure in Brazil: “The fundamental challenge in Brazil is the lack of well trained and skilled people, due to the boom of the industry and the consequent high demand for trained professionals. There is huge demand for mining, metallurgical and civil engineers. Brazil also lacks infrastructure and pipelines to transport people, material and goods. In order to be competitive you need to have good professionals that can contribute with both engineering and technical capacities.”

Despite the range of challenges presented to major capital goods suppliers operating in Brazil’s mining market, the industry remains very competitive. This is largely down to the existence of a culture of innovation rarely found in emerging markets. The consensus among Brazil’s business leaders is that the challenging environment has helped to galvanize an operational culture of patience and adaptability and stimulated some world leading companies in terms of their design and engineering capacity.

Brazil’s increasingly stringent environmental regulations are another driving force for innovation in the national engineering and manufacturing industries. Established in 1994, environmental solutions provider Enfil is becoming an increasingly recognised international player. Enfil Director Franco Castellani Tabani attributes this success to sustained investment in research and development. “The technologies applied to the systems offered by Enfil arise from years dedicated to research and development, applied to hundreds of systems the company has supplied throughout the mining industry. Enfil has a proven track record of efficiency for the development of equipment and systems for the atmospheric control of water and liquid effluents treatment. Enfil develops its own technology as well as collaborating with international consultancies, in order to develop the most innovative technologies available on the global stage.”

Outsiders are often surprised by the confidence Brazilian firms have in their ability to innovate. Negotiating the myriads of sophisticated administrative and other hurdles that Brazil throws in their path gives Brazilian businessmen an entrepreneurial attitude and excellent problem solving skills. Companies such as Enfil demonstrate Brazil is not simply an emerging market with huge potential, but also a focal point for the development of new and interesting technologies designed to help overcome many of the mining industry’s 21st century challenges.

Innovation in Heavy Industry and Capital Goods
The capital goods market structure in Brazil is mature, and many of the world’s largest mining equipment suppliers—Caterpillar, Metso, Liebherr, Volvo, Atlas Copco, ESCO and SEW Eurodrive—are well established, some with large manufacturing bases in the country. On top of this, technologically advanced Brazilian firms also have a strong presence: Technometal, SEMCO, CEMI, GEOID and Enfil lead the industry in areas as diverse as plant automation systems, information technology systems and environmental equipment. Both in its breadth and depth, the Brazilian equipment supply market is vast. Of particular note are Brazil’s world class equipment supply agents such as Tracbel and Sotreq, representing Volvo and Caterpillar respectively, whose range of additional services are as comprehensive as any seen throughout the international mining industry.

The presence of the major international mining equipment suppliers in Brazil’s mining sector ensures the technological quality of the products on offer is beyond reproach. Competitive advantage is therefore often based on the additional services a given company is able to offer. This conceptual approach has lead to equipment suppliers also providing engineers throughout Brazil’s major mining sites, conducting maintenance and training activities. “Sotreq’s mining division is very keen on the TCO concept whereby we minimize the total cost of ownership for our customers,” said Marcello Ribeiro, managing director of Caterpillar supplier Sotreq’s mining division. “Sotreq’s fundamental concept is to maintain the machines we sell with a high level of availability, in the long term we benchmark at between 85% and 90% availability for our customers. We obviously have to have some downtime for maintenance however, the whole business is geared up toward ensuring the minimum downtime and maximum efficiency usage for our customers. This is best demonstrated by the near 1,000 employees we have distributed throughout our customers’ operational sites providing maintenance, training and logistics, 24 hours a day, seven days per week, as well as various other services.”

The support service focused-nature of the Brazilian mining market’s heavy capital goods equipment supply industry has led to numerous technological innovations. Sotreq uses satellite technology in order to monitor its machines’ performance on respective mine sites throughout the country; Volvo supply agent Tracbel, has developed its own software platform in order to improve the company’s service offering. “Tracbel Volvo uses a software package called Matrix, which manages our machines’ operations, allowing us to follow our operators and track efficiency,” said Tracbel Vice President Luiz Gustavo Rocha. “For example, with MMX we take care of their machines in terms of maintenance and productivity, ensuring they work 90% to 92% of their capacity per week at the lowest possible fuel consumption. Our engineers are always situated at our customers’ mine sites, supporting the operations in terms of technical assistance and maintenance.”

The increased emphasis on additional services extends to multinational firms operating in Brazil. Swedish company Scania, which has been present in Brazil for more than 50 years, is gearing its operation toward the provision of more services, according to General Director Marcos Cesar Arantes. “In the next five years, Scania intends to develop its services’ segment in order to provide the best possible solutions for our clients. Scania offers to its clients in Brazil the same level of service and training that you would find in Europe. This is the key point of competition for equipment suppliers to be successful in the Brazilian mining industry.”

The growing physical presence of suppliers on mine sites, directly interacting, and working in partnership with their clients to understand their needs, is testament to the services available. While Brazilian equipment suppliers are under significant price pressures from international competitors competing on price differential, their service offering has grown exponentially in importance in terms of maintaining competitiveness over the entire product life-cycle for major capital goods such as plant infrastructure. “Polysius provides a range of complementary services such as spare parts supply, erection, commissioning and start up supervision for plants. Besides that we also do training on issues such as safety, efficiency as well as many of the technical aspects of our equipment. Being prepared to offer a full range of services to our customers provides our business with a significantly more attractive proposition to the Brazilian mining market. Polysius is prepared to embed staff within operations in order to ensure our products are used to their maximum potential,” said Flavio Hanek of Polysius Thyssen Krupp.

As with many of the world’s most mature mining markets, the increasing focus of Brazil’s suppliers is to provide an all-encompassing end-to-end service to its customer base. Given forecast growth in Brazil’s mining industry over the course of the next five years at least, there is huge potential for established players to expand their operations and for new entrants to join the market. Brazil’s 2030 industrial plan also provides plenty of opportunity for specialist firms able to deliver advanced processing plants to sustain the strategic move downstream for Brazil’s mining industry.

“Mining in the short term can give you an enormous return on investment,” said Dante De Matos of Outotec. “I believe in the long run, the Brazilian mining industry should capitalize to sell more manufactured products. For that the engagement of both federal and state governments together with the local industry executives is of paramount importance in order to secure a smooth balance between demand, local development and participation of foreign suppliers in the industrial goods chain of Brazil. We truly believe the market is strong and big enough to accommodate demands and aspirations of all these players.”

Brazil as a Manufacturing Base
Both domestic firms and international investors are gearing up their productive capacities for huge growth expectations over the course of the next five years. In this context, there are tremendous opportunities for new players to develop successful franchises or stand alone businesses. The key strategic decision for international equipment suppliers with an interest in the Brazilian mining market is whether or not to locate their manufacturing bases in the country.

Present market conditions with the over-valued local currency, high input costs for manufacturers and a lack of competitiveness logically dictate for companies with international capacity to produce in lower cost markets. Numerous international players have nevertheless reinforced their commitment to Brazilian manufacturing by retaining their productive bases in the country. “Tecnometal has ensured control over its entire manufacturing output by keeping it in Brazil and not outsourcing any of it. This strategy ensures quality. We consider this to be a key strength for our company, even though we need to support the production sites when there is no commissioned work,” said Tecnomateal President Marcelus Geraldo de Araujo.

Unsurprisingly, many other Brazilian firms have opted to diversify their manufacturing base, such as Enfil. “Enfil has a manufacturing plant in Brazil, but we also produce much of our equipment in China as it is more competitive. It makes sense for us to do this in order to retain market share relative to the competition,” said Director Franco Castellani Tabani.

SEW Eurodrive—the national market leader in supplying gear-engineering technologies—is another company for whom a domestic manufacturing base is of paramount importance. SEW Eurodrive has a huge manufacturing plant in the Guarulhos area of Sao Paulo. A further $235 million has been invested in consolidating the company's production capacity in Brazil with a view to meeting expected rapid increases in demand from the mining sector over the course of the next five years. “SEW has a service center in every Brazilian state, this clearly distinguishes us from the competition in a market where 100% reliability and productivity is the key priority,” said SEW Eurodrive Commercial Director Alexandre Dos Reis.

For numerous firms, a strong presence in Brazil increases access to the wider Latin American market. “Locating our manufacturing base in Brazil, we are much better able to adapt to the changing requirements of our customers, as well as further increase our market-share in regional markets such as Colombia and Chile,” said Daniel Rosetti, director of family-owned transportation manufacturer Rosetti. “Rosetti is currently in the process of expanding our Brazilian manufacturing base in Sao Paulo by 40% in order to capitalize upon the spectacular growth that the Brazilian mining sector is currently experiencing.”

Given the size of the Brazilian market and the dominance of the country’s economy throughout Latin America, international firms are also increasingly using Brazil as a base to enter the Latin American market and then subsequently expand operations throughout the continent. “Brazil is a huge emerging market with diversified economic interests throughout key industry sectors such as agriculture, oil and gas and minerals,” said a spokesperson from international laboratory services firm Intertek. “Intertek is a huge international company, head-quartered in London with great strength throughout Asia and Australasia. Intertek Minerals entered the Latin American market in 2008, with a clear strategy for strong rapid growth. We now occupy approximately 15% of the mineral market in Brazil. The idea now is to use this growth to develop other markets in important South American countries such as Chile and Peru.”

ESCO Corp., which has been active in Brazil since the 1960s, acquired domestic firm Soldering in 2007 in order to consolidate its position in the Brazilian market place. “We significantly increased our interest in Brazil with the 60% acquisition of a company called Soldering in 2007,” said Jose Rogerio de Paula Silva, ESCO. “The main attraction of the Brazilian mining market was the iron ore boom that has been taking place with huge lines of supply into China. Companies such as Vale and MMX have been significantly increasing production in recent years and this opportunity has been regarded as too good to miss.”

As the Brazilian mining market continues to evolve toward procurement strategies increasingly focused upon the requirements of maximum reliability and productivity, a domestic manufacturing base combined with a comprehensive service proposition is ever increasingly the choice for equipment suppliers operating in Brazil.

Consultancy and Engineering
Despite suffering a recent retrenchment in demand caused by the global financial crisis, the Brazilian market for mining and engineering services has followed the trend of strong growth in the broader mining market.

The growth of the Brazilian market, coupled with widespread forecasts of its future expansion, has galvanized a raft of investments, partnerships and smaller start up consultancies throughout the industry. Whilst many of the world’s best known international mining engineering and consultancy practices such as SRK and Worley Parsons have an established presence in Brazil, the services market also has a wealth of domestic firms, all of whom are competing to develop the most advanced technologies to overcome the myriad of challenges present for miners in the country.

“As the demand for qualified personnel is very intensive at this time in the country, investing heavily in training our team is of vital importance to the long term sustainability of our continuous business expansion. We invest a lot in our team of geologists and engineers, sending them to various parts of the world like England or Australia to further develop their skills and capacity,” said SRK Country Manager Gielson Coutinho.

The vast majority of engineers and consultants working the domestic market are Brazilian. This serves to alleviate the labor challenges that exist throughout Brazil’s mining industry. Brazil’s engineers have delivered some of the mining world’s most complex operational project developments such as the Carajas Complex and supporting infrastructure for Mineracao Rio Do Norte’s operations in the depths of the Amazon. “As far as international companies looking to come to Brazil, I would say the most important single aspect to guarantee a successful project is to look to the labor of qualified, local people. Above all, do not underestimate the value and quality of Brazilian engineers,” said Jose Ricardo Barella, president of domestic engineering firm Progen.

Brazilian engineering firm Brasfond is an excellent example of the country’s unique engineering expertise, having developed global leading capacity in underground engineering. A number of other companies are now taking their first steps toward expanding internationally, with a particular focus on the Portuguese speaking regions of Africa, Latin America’s mining centers and Southern Europe. For engineering and construction firms such as Brasfond, Brazil’s much talked about infrastructure challenge presents more of a business opportunity than a threat to operational capacity, said Administrative Director Delio Libano. “Despite the huge costs for their operations, we are now seeing mining companies such as MMX and Vale investing huge sums privately to expand their logistical capacity, and bring their operations into production. This pattern of investment can only be viewed as an opportunity for engineers firms such as Brasfond.”

A recent trend has seen an increase in international partnerships or takeovers of local firms by international engineering and consultancy companies. Eduardo Dias, director president of SNC-Lavalin Minerconsult—a leading engineering and construction group in infrastructure development—describes the benefits of such partnerships. “The merger of Minerconsult with SNC-Lavalin facilitated the growth of our portfolio of services, as well as the geographical expansion of the company’s operations in the international market place. We have been able to achieve this while preserving all of the features and agility of Minerconsult as a domestic Brazilian company that understands the market and industry here.”

CNEC WorleyParsons is another recent merger between an international and domestic engineering firm, whereby domestic Brazilian company CNEC was subject to a takeover by Australian engineering firm, WorleyParsons. “Following CNEC’s takeover we are now able to offer a full range of services to projects, from conceptual and feasibility studies to basic and detailed engineering as well as full program management,” said Jose Ayres, president of CNEC Worley-Parsons. “We are combining the capabilities of the WorleyParsons offices outside Brazil, which have an extremely impressive database of projects, with our extensive local knowledge of the Brazilian market.”

While carefully managed mergers such as the one between SNC-Lavalin and Minerconsult, and CNEC and WorleyParsons have proved profitable, this is not always the case. “Many international investors have a distorted perception of Brazil. Foreign companies often talk a lot about seeking local partners in Brazil, but in truth they do not respect the views and methods of local businesses,” said Marcelus Geraldo de Araujo, president of Tecnometal.

As the mining industry in Brazil continues to strive for greater standards of environmental sustainability and protection in some of the industry’s most hostile environments, innovation is key. While Brazil is replete with engineering expertise, international engineering companies are able to leverage their wider ranging resources and experience in order to gain a competitive edge. “Martin Engineering has a research and development center in our corporate office in the United States which develops the latest technologies for Martin Engineering worldwide. Between 12 and 15 products will be launched into the Brazilian market in 2011,” said Javier Schmal, general director of Martin Engineering.

According to Marco Aurelio Soares, operations director of software firm CEMI, the Brazilian mining market is becoming more autonomous and may become less dependent on research and development undertaken overseas to drive the industry forward. “Brazil has changed; it is more mature now and the mining sector here is booming. Brazil no longer has a colonial mentality, we are able to build ourselves and take responsibility for our national development.”

The Brazilian mining services segment, although at a level of high technical proficiency, has extraordinary potential for growth in terms of the range of challenges that are present within the Brazilian mining industry. From ensuring environmental sustainability to implementing the correct due diligence on international markets, the Brazilian mining market is of increasing strategic importance to a range of international and domestic engineering and mining consultancies. “BVP has plans to increase our revenues by 10 times over the course of 2011,” said President of BVP Engenharia, Sergio de Brito. “As a company our strategy is to position ourselves to work effectively with both international and domestic firms; the Brazilian market is extremely exciting for BVP as a company right now. The Brazilian economy finds itself in a historic position, we fully intend to capitalise upon this.”

The Financing Challenge
Access to affordable finance is an obstacle for the entire Brazilian economy and for the mining industry in particular. Brazil’s aforementioned history of economic instability and inflation has rendered the national economy and financial services industry averse to conventional terms of credit and affordable interest rates. Currently, Brazil’s commercial lending rate is above 11%; a rate widely regarded as prohibitive throughout the mining industry’s value chain from the supply of equipment to basic operational requirements such as cash flow management.

On top of this, Brazilian banks are suspicious of potential debtors and have created a lending regime of extraordinary restriction in access for those without the largest of balance sheets. When asked about the reasons for restrictive credit conditions such as the requirement for 130% collateral on loan applications, Head of Brazilian Development Bank BNDES Mining Division Paulo Moreira De Fonseca said: “Brazil has a history of economic instability and extraordinarily inflation. This legacy has driven the banking sector toward demanding credit conditions such as these. In a broader sense, Brazil does not have as well developed or liquid financial market as those in Europe or North America; over time I am sure this will change. However, as it stands, Brazilian mining companies are at a competitive disadvantage in terms of their access to financing.”

The reassessment of risk by both lenders and borrowers in the wake of the global financial crisis has resulted in a less borrower-friendly environment and more restrictive funding terms.

According to DNPM, a consistent number of the licenses it grants to mining companies are returned because businesses no longer have access to the credit needed to finance site’s exploration or development. To solve this problem, the Brazilian government has adopted legal measures that allow companies to obtain bank loans using their mineral deposits as credit. However, many banks are cautious about using mines as a guarantee, as cash, when the companies go bankrupt, getting cash from the mines is an expensive and complicated process.

Financing equipment purchases in an efficient and economic manner is of vital importance. In coordination with the Brazilian Federal Government, ABIMAQ has worked to encourage the National Bank for Economic and Social Development (BNDES) to extend the Financing for the Acquisition of Capital Goods’ (FINAME) program for up to 10 years. Under the conditions of FINAME, equipment purchases can be financed at significantly lower rates than Brazil’s basic interest rate of 11.75%. FINAME has gone a long way toward maintaining growth in Brazil’s equipment supply market throughout the global financial crisis and beyond.

In order to overcome the constraints associated with Brazil’s extremely prohibitive commercial banking rates and illiquid capital markets, the majority of Brazil’s mining industry is funded by international markets. International funding requirements at a domestic level are a key source of opportunity for the services and consultancy market. “ERM can technically support companies to raise money through international stock exchanges and international financial markets by managing them through the due diligence processes required to be approved for such funding. ERM needs to find a way to develop international contacts and to demonstrate our skills and experience to potential international clients,” said Walter Ladeira, technical director of domestic consultancy ERM.

Opportunity exists for companies that can advise as to corporate governance structures and due diligence processes that prospective firms will need in order to present themselves to the world’s key exchanges such as the TSX, AIM and ASX. Brazil’s underdeveloped and prohibitive finance regime is regarded as an opportunity for international investors and consultancies to make a return on delivering finance for Brazil’s nascent, but expanding portfolio of junior companies.

Geophysical Scanning Services
Services that provide information on the 70% of Brazilian territory that is unknown in terms of its geological profile (and give further insight into the 30% that is known) are of particular importance to the Brazilian market. Geographical profiling helps mining and exploration firms narrow down prospective sites for new development.

CPRM is the government agency responsible for the country’s geological mapping. “They do a good job in terms of investing in geophysical surveys, which are the basis for the geological mapping,” said Jorge Hildenbrand, head of Fugro Lasa’s mining division. “The big problem for CPRM is it doesn’t have a large enough workforce to face the challenge of mapping a huge country like Brazil. Currently, less than 30% of Brazilian territory has been mapped at the 1:500.000 scale and less than 5% of the country has been mapped at the 1:50.000 scale. We have only 1:50.000 scale geological mapping for the main mineral provinces like Carajas. Most Minas Gerais has been mapped with 1:100.000 scale, while the Amazon region, the west and the central-west region have 1:250.000 scale mapping on the well mapped areas. The rest of the country is mapped at 1:1000.000.

“The government should speed up the geological mapping of the country since this is particularly relevant for the mining sector’s growth. Chile, Peru, Australia, Canada and South Africa have very detailed geological mapping and therefore are leading mining countries. Our company has been involved in the surveys performed for more than 50% of the Amazon region, and I believe if this data was transformed into geological information, that would open huge opportunities for the mining industry. The Brazilian government has made consistent investments in magnetic-radiometric surveys, but it should also invest in new technologies like the airborne gravity and electromagnetic surveys. This could offer better opportunities for the development of the industry, and also provide for a rapid full geological mapping of Brazil's territory,” said Hildenbrand.

Mining in the Amazon
The Amazon region has a potential for major undiscovered mineral resources in addition to the large reserves of, in order of volume, iron ore, manganese, bauxite, gold and tin. There are, however, concerns over biodiversity in the Amazon rainforest, which comprises 20% of world’s remaining tropical forests, and which provides shelter to 10% of earth’s plant and animal species and removes excess carbon dioxide from the atmosphere. Therefore, according to the DNPM, much of future mineral production will also depend on finding new approaches and technologies to allow mining in a responsible and sustainable way. “The country has the potential to double or triple the current mining production,” said Marcelo Tunes, director of mining affairs, Brazilian Mining Institute.

Exports from the region account for almost 30% of Brazil’s extractive mining industry according to the Brazilian Mining Institute. The Amazonian state of Pará, for example, is the second largest mining exporting state in Brazil, after Minas Gerais. Iron ore exports from the Amazon totalled around $2.6 billion in 2008, followed by copper ($515 million) and manganese ($402 million). However, exploration was hit by the financial crisis, with a number of smaller prospectors going bust in 2009.

Luis Melges, CEO of Golder Associates—who work in planning mining development in the Amazon region, elaborates on the complexity of mining in the Amazon. “Mining in remote areas in the Amazon forest has a very high social impact, as thousands of people migrate to developing projects searching for work. Golder Associates takes into account all the environmental and social aspects, which are related to the development of a new project. The Carajas mining region, explored by Vale, is a good example, because the mines have been developed in the Carajas National Forest, a conservation area, in a sustainable way. Environmental sustainability is of primary importance for Golder Associates activity.”

In some cases, responsible mining can have a positive impact on the surrounding Amazon rainforest. According to Ricardo Dequech, director of Mineracao Buritirama, an aerial photo of the Buritirama mine clearly depicts an island of forest encircled by recently established farmland. “With regard to mining in the Amazon rainforest, the impact of the mine is limited compared to the impact of intensive agriculture,” he said. “In addition, the mining companies reinvest in social and environmental sustainability in the area because environmental sustainability has become an essential aspect of the industry.” Much of future minerals production will depend on new approaches and new technologies being applied for economic and social developments that protect the environment in a responsible and sustainable way.

The Amazon forest is the supplier of one-fifth of all free-flowing fresh water on earth and Brazil’s government is planning to build several hydro-electrical plants in order to produce energy. According to the Brazilian minister of mining, huge investments need to be made in new generation capacity over the next few years to develop the economy and this will create thousand of job places.

For projects in the Amazon forest it can be very difficult to have access to energy, so many mining companies have built dams next to their operations. For example, the second largest mining company in Brazil, Votorantim produces about 68% of the energy needed from 33 hydroelectric plants and five thermoelectric plants. The company is able to generate 2,380 MW. “We seek the integration in order to keep costs under control,” said Joao Bosco Silva, president of the Group.

Votorantim has plans to expand its energy production to reach a production level of 85% of the consumed energy.

Drilling Services
Although Brazil’s mining industry is dominated by a handful of major firms with significant capacity for vertically integrating their operations, independent drilling operators dominate the market. In terms of market structure, GEOSOL stands out as the market leader, followed by several family-owned Brazilian firms and an ever increasing number of international players such as Master Drilling, Layne Do Brazil and Boart Longyear. As major players such as Vale expand exploration budgets by the hundreds of millions, and global financial markets become emore interested in the country’s junior firms, opportunities for drilling contractors are forecast to grow.

“Continuous investment in technology and human capital always made GEOSOL stand out in the Brazilian and world drilling market,” said Joao Carvalho, president of GeoSol. The company currently has approximately 250 drill rigs in operation.

GEOSOL, in a partnership with the Victor Dequech Foundation, is poised to create a new research, development and innovation department. “We have a special focus on new technologies to increase production and to reach the highest safety standards. Our objective for the next few years is to become more international and to increase our revenue by 15% in 2011,” said Carvalho.

Poised for Leadership?
The Brazilian mining market is one of vast potential. Despite 70% of the country’s geology being unknown, Brazil plays host to colossal mines such as Carajas in Para and at the Iron Ore Quadrangle in Minas Gerais. Brazil faces similar challenges to those of many of the world’s leading mining economies: skilled labor shortages, a requirement for improvements in infrastructure, and a lack of reliable and cheap electricity. Brazil also faces more unique challenges—those presented by undertaking mining in the Amazon, and by abiding to the country’s very strict environmental regulations. In spite of these challenges, Brazil’s mining market is enjoying a boom at present, which we expect to continue for at least another five years and beyond.

Although the China-led East Asian commodities boom is having a huge influence on the demand profile in the Brazilian market, the industry is, in many ways, hedged against a sudden decline in Asian demand as a result of the increasing profile of domestic demand within Brazil.

Brazil’s housing stock is in deficit by eight million houses; this, combined with the swath of infrastructure developments resulting from the upcoming Olympics and World Cup, positions Brazil as one of the world’s most exciting markets for international investment throughout the mining productive chain.

“Brazil is in the midst of an historical moment,” said Da Souza Lima, president of GEOID. “In the past, Brazil has experienced political and economic instability. We believe these issues have now been resolved. There is more and more foreign investment coming into the Brazilian market as investors are increasingly interested in developing their businesses inside Brazil. Brazil is now in a position to fulfil the country’s enormous potential as a global leader in the mining industry.”

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