The federal government is seeking to create financial support mechanisms for mining projects in the field of strategic minerals for the energy transition. In February 2024, mining projects of this kind were included in a decree setting rules for the issuance of incentivized debentures raising funds for the benefit of certain infrastructure sectors (including logistics and transportation, urban mobility, energy, telecommunications and broadcasting, basic sanitation, irrigation, free public education, free public health, public safety, and others).
In the case of strategic minerals, the financing can be used to cover the cost of the development phase of the mine as well as the mining operation itself.
The type of debenture provided for in the decree allows an issuing company to deduct the interest paid when calculating net profit and the CSLL (Social Contribution on Net Profit). For investors in incentivized debentures, the incentive is a flat 15 percent rate in the case of corporate income tax or zero in the case of personal income tax.
The decree followed earlier government initiatives aimed at increasing investments in the mining industry, such as the creation of an investment fund announced by BNDES (the National Economic and Social Development Bank) to support mining projects. The target is to raise R$ 1 billion, to include R$ 250 million contributed by the bank. The Equity Investment Fund (FIP) to finance mining projects, a BNDES initiative, may receive initial contributions of over R$ 3 billion (approximately US$ 500 million). In addition to the contributions to be made by BNDES and Vale, in the amount of up to R$ 500 million, other financial institutions have expressed an intention to contribute up to R$ 3 billion.
Ore Investments, one of the companies forming the consortium appointed to manage the new fund, jointly with JGP BB Asset, reports that the FIP will have a ten-year lifetime, comprising a four-year investment period to be followed by a six-year divestment period. Fund managers will seek a return in the 20 to 25 per cent range per year, multiplying the initial capital investment by a factor of three to five and yielding an average annual return of 8 percent in real terms, on top of the consumer price index.
These parameters are said to be in line with what is observed in the international market for funds in natural resources, including mining. The company adds that, since this involves financing assets at an earlier stage, the return needs to be higher, in line with the greater risk.
The fund intends to make ten to fifteen investments in pre-implementation or pre-Capex assets and around five investments in Capex and in operation. A portfolio will be assembled with mineral research as the main focus, but also with exposure to assets under development and in operation.
Another initiative aimed at supporting strategic mineral projects for the energy transition was also launched by BNDES together with another federal agency, Finep (Finance for Studies and Projects). An announcement was published, inviting applications for financing ventures engaged in processing strategic minerals for the development of the chain of sustainable strategic materials in Brazil. With a R$ 5 billion budget, credit lines, equity stakes in companies, and non-reimbursable resources, the two institutions intend to invest in production capacity and in research, development, and innovation (RD&I), aiming at the processing of minerals for the energy transition and decarbonization.
BNDES and Finep intend to develop supply chains for lithium, rare earths, nickel, graphite, and silicon, among other products, and to mobilize investments for the manufacture of components: battery cells, photovoltaic cells, and permanent magnets. The support includes industrial-scale plants and pilot or demonstration plants, research and studies needed for the feasibility of new industrial capacity, depending on the stage of the projects and the technologies involved. This new source of financing has the potential to leverage investments, over a period of years, in a volume equivalent to five to ten times the budget made available, the two institutions say. If the result matches this expectation, it will mean investments in the range from R$ 25 billion to R$ 50 billion.
Current strategic mineral production projects in Brazil are "world-class", the government says. In combination with Brazil's clean and low-cost energy, this puts the country in a privileged position to build production capacity for sustainable, low-carbon materials. Brazil holds the world's largest niobium reserves and is also the top producing country. It holds the second largest reserves of natural graphite, the third largest reserves of nickel, and the third largest reserves of rare earths, among others, in addition to being the fifth largest lithium producer and the third largest silicon producer. The country is now on its way to becoming one of the largest suppliers of critical materials for the production chains included in the energy transition and decarbonization agenda.
The BNDES expects the announcement to have the effect of mobilizing players in different links in the production chains dependent on these minerals. "Mining companies and those in possession of technologies and experience in processed materials and manufactured components, in Brazil and abroad, will be able to form partnerships and can count on the best financing options for industries in Brazil," said BNDES president Aloísio Mercadante, adding that "it signifies a major step forward towards achieving the Brazilian government's objectives of expanding the industry's productive capacity in the context of sustainable and technological development of the new industrial policy and the ecological transformation plan."
BAHIA: A POWERHOUSE IN GLOBAL RACE FOR RARE EARTH ELEMENTS
In recent years, the growing global demand for critical and strategic minerals, such as rare earth elements, has placed Brazil in a privileged position to become a relevant supplier of these essential inputs. In this scenario, Bahia—one of Brazil's leading mining states and a reference in the production of nickel, copper, vanadium, phosphate, silica, graphite, and manganese, minerals that are crucial to the technological and sustainable industries—stands out as a strategic territory for the exploration of indispensable elements to the energy transition.
Essential for manufacturing equipment such as electric vehicle batteries, wind turbines, and solar panels, rare earth elements play a key role in the energy transition and the advancement of sustainable technology. Although China leads global production, the increasing demand for these minerals has triggered a race to discover new sources of extraction. This movement aims to global diversify supply and reduce dependence on the Chinese market.
In this context, Brazil emerge as one of the countries with the greatest potential for rare earth production, and Bahia, with recent discoveries of promising deposits, becomes a key player in the global strategy for supplying these strategic minerals.
As a major booster of mineral development in the state, the Companhia Baiana de Pesquisa Mineral (CBPM) invests in research and promotes strategic partnerships to sustainably utilization of new mineral deposits. CBPM's commitment goes beyond exploration: the company aims to foster the industrialization of strategic minerals, ensuring that Bahia not only supplies raw materials but also increased value to its mineral production.
Regarding rare earth elements, CBPM has led strategic initiatives to identify new areas rich in these minerals and enable their sustainable exploration. The company has been identifying promising deposits in Bahia, with a special focus on the Strategic Minerals Project in the Southwest region of the state. This area, which hosts key players in rare earth elements research in Bahia, has shown promising numbers aligned with other established companies, encouraging CBPM to intensify efforts and investments in the project.
Another important example is the Northern Bahia Metallogenic Province, mapped by CBPM and recognized for its enormous potential in exploring critical minerals, including rare earth elements. In addition to these strategic elements, the area also contains iron-titanium-vanadium, nickel-copper-cobalt, graphite, and phosphate, further increasing its economic relevance and attracting the interest of investors and industry investors.
To facilitate the exploration and processing of rare earth elements, CBPM has been investing in strategic partnerships with private companies, universities, and research centers. These initiatives go beyond mineral extraction, aiming to add value to production and encourage the establishment of industries that utilize these inputs within the state itself, thus strengthening and verticalizing the local supply chain.
Furthermore, CBPM maintains a strong commitment to sustainability and responsible mining, adopting practices that ensure activities are accomplished in harmony with the environment, minimizing impacts, and promoting economic and social development in mining regions.
The global race for rare earth elements and other critical and strategic minerals places Brazil, and especially Bahia, in a prominent position on the international stage. With rich and diverse geology, robust investments, and a strong commitment to sustainability, the state is well-prepared to meet the growing demand for these essential resources. This presents a significant opportunity for Brazilian mining, particularly in Bahia, to position itself as a global leader in the energy transition.