18.3 C
Belgrade
Supported byspot_img
spot_img

Unlocking U.S.-Brazil collaboration: Brazil’s role in diversifying U.S. critical mineral supply chains

Member of Europium Groupspot_img
Supported byspot_img

The United States, one of the world’s two largest greenhouse gas emitters, requires a reliable supply of critical minerals to support its energy transition technologies, such as electric vehicle batteries and grid reliability, to meet its 2050 net-zero goals. However, the U.S. faces significant geopolitical challenges, particularly with China, which dominates global critical mineral supply chains. To reduce dependence on China, the U.S. can increase domestic production of critical minerals and diversify its foreign supply chains.

Efforts to diversify supply will encounter obstacles. Many mineral-rich countries are shifting away from extractive-export models, seeking to capture more economic development opportunities by taking ownership of larger portions of the supply chain. While this shift may not impede supply in some countries, it could pose investment challenges in others. For example, several Latin American countries have a history of fluctuating between privatization and resource nationalization, complicating new partnerships with the U.S. These partnerships have been criticized by leftist political actors for granting too much power to international companies, allowing them to extract and export under the guise of economic efficiency without significantly benefiting local development.

Despite these challenges, the energy transition offers geopolitical opportunities. Latin America has the potential to become an equal partner with the U.S. and the West in efforts to avoid catastrophic climate change. This commentary specifically evaluates Brazil’s potential as a U.S. trade partner in critical minerals, considering the country’s reserves and production, environmental landscape linked to mining, evolving policy framework, and market and investment ecosystem. The authors highlight increasing foreign investment in Brazil’s critical mineral mining, especially from China. A potential critical minerals agreement (CMA) between the U.S. and Brazil could support U.S. needs while countering Chinese influence. To make such an agreement feasible, Brazil would need to address environmental concerns and streamline its licensing approval process.

Supported by

Reserves and production

Brazil’s mineral richness aligns well with U.S. needs. The country holds about one-quarter of global reserves in graphite and nearly 15% of global reserves in nickel and manganese. Despite these reserves, Brazil’s production levels currently do not reflect its potential. However, Brazil’s critical mineral industry is growing, with a trade surplus of $27.9 billion in 2022. It is among the world’s top five mineral producers and has the largest share of niobium. China currently dominates production and supply of many of these critical minerals, controlling 76.8% of the world’s natural graphite production and over 90% of refined spherical graphite used in batteries. China also dominates global supply chains for rare earth elements and nickel, primarily through its operations in Indonesia.

Given its significant reserves, Brazil could be a viable partner for the U.S. in diversifying its critical mineral supply chains. Brazil is rapidly expanding its mining activities, with over 9,000 active projects and a forecasted private investment of $64.5 billion in the mining sector between 2024 and 2028. This level of investment, the highest in a decade, focuses on logistics, environmental standards, and critical mineral development. Brazil seeks to supply necessary minerals to battery manufacturers globally and strengthen its integrated supply chain both domestically and with other South American partners. Most of this private investment will come from foreign sources, influencing the global energy transition and geopolitics.

Environmental challenges

As Brazil’s mining expansion gains momentum, the potential for environmental harm cannot be overlooked. Currently, 122 tailing dams in Brazil are flagged as “concerning,” with 97 involving structural concerns. The collapse of the Brumadinho tailing dam in 2019, which led to 270 deaths and severe environmental impacts, underscores the importance of reinforcing responsible mining practices and higher environmental and safety standards, especially given the increased attention to ESG performance.

Evolving policy landscape

Brazil is developing a regulatory framework to support critical mineral mining, but bottlenecks exist due to a lengthy licensing process involving multiple government levels. While Brazil generally treats local and foreign investors equally, activities within its border zones require majority Brazilian ownership and workforce. To attract foreign investment, Brazil has offered benefits such as tax exemptions for exports, reduced financing costs, and lower income tax rates. However, mining taxes remain high, and the tax environment is complex, despite ongoing reforms aimed at enhancing transparency and regulatory certainty.

Brazil is also creating initiatives to support the development of a national mining industry that is attractive to foreign investors. The country is devising a new strategic national plan for critical minerals, aiming to restructure the National Mining Agency and address the estimated 70,000 pending mining licenses. Finding the balance between facilitating license approvals and engaging with stakeholders on environmental and Indigenous rights is crucial.

Brazil’s national geology department has established a division focused on critical minerals, streamlining approval for strategic projects, particularly in lithium and rare earth elements. The country has also engaged in marketing campaigns and international forums to promote its mineral wealth. Additionally, Brazil is participating in global dialogues on critical minerals, including joining the UN Panel on Critical Energy Transition Minerals, which promotes equitable standards and practices in the sector.

Brazil’s recently released industrial policy, “Brazil New Industry,” directs about $60 billion to modernize the country’s industrial sector, with a focus on increasing autonomy and developing clean energy sources. The Growth Acceleration Plan directs about $61 million to mining-related research and development, and the Green Mobility and Innovation program offers over $3.8 billion in tax incentives for companies investing in Brazil’s electric vehicle supply chain. The Brazilian National Development Bank (BNDES) seeks to acquire company shares to de-risk investments in strategic sectors, including critical minerals, batteries, and electric vehicles, with a budget of about $1.6 billion for acquisitions.

In February 2024, Brazil announced the creation of a $200 million investment fund in partnership with BNDES and the Ministry of Mines and Energy to attract investments in mineral exploration projects supporting the energy transition and fertilizer supply chains. The fund aims to increase local production of materials required for electric vehicle batteries and promote ESG practices in invested companies.

Market and investment framework

Brazil’s energy resource mix, with about 45% renewable energy, is increasingly attractive to international investors focused on decarbonizing their supply chains, including mining interests.

Rare earth mineral investments are gaining traction with international players. In August 2023, Meteoric Resources NL, an Australian mineral exploration company, signed a protocol of intention to invest over $200 million, with additional support from the U.S. Export-Import Bank, in one of the world’s largest rare earth projects. In February 2024, Viridis Mining and Metals of Australia signed a protocol of intent to invest $272 million in another rare earth project in Minas Gerais, Brazil, which claims record recovery rates. Brazil Rare Earths mining company also raised about $33 million on the Australian Securities Exchange in December 2023 to support exploration of a large-scale rare earth project in Bahia, Brazil.

Brazil is advancing at least six rare earth projects, each requiring adequate processing equipment. The U.S. is seen by the local market as the most reliable partner for such equipment, opening trade opportunities for the U.S.

Lithium investments in Brazil are also growing, with four mining companies—Sigma Lithium, Atlas Lithium, Lithium Ionic, and Latin Resources—announcing lithium exploration projects. Brazil’s cost competitiveness leads some experts to believe that mining lithium in Brazil remains profitable despite a significant decrease in prices from 2023 to 2024. Atlas Lithium advisor Rodrigo Menck estimates Brazilian lithium costs to be one-third or less of production costs in Australia. Lithium projects in Brazil have received a “green” seal for their environmental standards due to the lack of tailing dams and the country’s clean energy mix.

Expanding the lithium value chain in Brazil could be costly, with experts suggesting high investment needs for lithium processing plants. However, AMG Brazil, a private company specializing in critical minerals, is considering building a lithium carbonate conversion plant projected to cost $250 million and produce 15,000 tons annually.

Sigma Lithium, a Canada-based producer, announced a 27% increase in its audited mineral resource estimates for Grota do Cirilo, making the Brazilian mine the world’s fourth-largest pre-chemistry lithium operation. Companies like BYD, Volkswagen, and CATL, which heavily depend on lithium products, have shown interest in acquiring Sigma Lithium. Brazil’s “Lithium Valley” initiative, celebrated by ringing the Nasdaq opening bell in May 2023, aims to attract foreign investments for exploring 45 high-purity lithium deposits and expanding the lithium supply chain.

China remains the largest purchaser of Brazilian minerals, buying about $23 billion in 2023, mostly iron ore. BYD, a Chinese company, announced plans to establish its largest industrial hub outside China in Brazil, with an investment of over $1 billion and expected vehicle production by the end of 2024. Chengxin Lithium Group and Yahua Industrial Group, two Chinese companies supplying lithium hydroxide to Tesla, BYD, and LG, announced a $50 million investment in Atlas Lithium’s Brazilian project.

US-Brazil trade opportunities

The U.S. is the primary destination for Brazilian exports of value-added manufactured goods and was the largest source of foreign direct investment in Brazil in 2023, totaling $207.86 billion. The U.S. is Brazil’s second-largest mineral export partner, with trade amounting to $13 billion in 2023, while China remains Brazil’s largest mineral export partner, with a total of $77.7 billion in trade that same year.

Critical minerals are integral to Brazil’s trade and investment relationship with the U.S. Several U.S. government officials and investors have visited Brazil in recent years, including a visit in June 2023 by the director of the U.S. Export-Import Bank and other U.S. diplomats to discuss possible collaborations in the lithium and rare earth sectors.

Some officials have called for a comprehensive trade and investment deal to strengthen critical mineral ties between Brazil and the U.S. Considering Brazil’s new president, Lula, who aims to boost U.S.-Brazil relations and strengthen bilateral trade, a Critical Minerals Agreement (CMA) between the two nations appears plausible. Such an agreement could be instrumental in Brazil’s attempt to diversify its mineral export markets and reduce dependence on China.

Expanding trade with the U.S. could enhance Brazil’s domestic manufacturing and promote sustainable mining practices through access to cutting-edge technologies, particularly in critical mineral production. This process, however, depends on a thorough evaluation of Brazil’s market, environment, and policy landscape by the U.S. Government, as well as the potential political implications of an expanded relationship.

Given the diverse challenges in the critical minerals supply chain and the need for a secure supply of these resources, forging strong trade ties between Brazil and the U.S. could significantly benefit both nations in the context of the global energy transition.

You sa
Supported byElevatePR Digital

Related News

Austral Resources reveals positive scoping study for copper production expansion in Queensland

Austral Resources has announced the results of a promising scoping study that outlines a significant copper production pipeline in Queensland. Conducted by ERM Australia Consultants,...

Investment of £4.5 million to boost critical mineral mining in Devon and Cornwall, UK

More than £4 million is being allocated to expedite the mining of "critical" minerals in Devon and Cornwall. The University of Exeter will receive...

Brazil’s bid to challenge China’s rare earth dominance

For decades, China has been the undisputed leader in the rare earth market, holding the largest reserves of these minerals essential for various technological...

Brazil takes steps to boost critical minerals development with new investment fund

Brazil is making significant strides in developing its critical minerals sector, aiming to diversify its mining industry while attracting global interest. The federal development...
Supported by
Supported by
Supported by
error: Content is protected !!