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[colored Changwen] there are too many mines at home? What is the way for Brazil, which is mired in the "resource curse"?
Feb 22,2019 11:10CST
The content below was translated by Tencent automatically for reference.

The dam break in Vale, Brazil has attracted worldwide attention. According to the latest news, Brazilian prosecutors said on February 15 that the police arrested eight employees of Brazilian company Vale do Rio Doce in a criminal investigation into the dam break. A tailing dam at Vale in the Brazilian state of Minas Gerais broke on January 25, and mud flowed down the river, destroying a large number of buildings along the way, killing more than 160 people and still missing hundreds.

It is well known that behind the development and growth of mining giant Vale, there must be rich resources, technology and other inherent advantages, but with rich resources, as a BRICS country, why is Brazil's economic development stagnant? What is the state of Brazil's mining industry?

Brazil: the Kingdom of Football and the Kingdom of Minerals

Brazil, known as the "kingdom of football", is also rich in mineral resources, with more than 50 minerals in proven reserves. Many important mineral reserves are in the forefront of the world, among which niobium, tantalum, talc and pyrophyllite rank first in the world, iron ore and graphite rank second in the world, bauxite, manganese, nickel, tin and zinc rank third in the world.

Iron ore: Brazil is very rich in iron ore resources, according to 2011 statistics, proven reserves of 29 billion tons, accounting for 17.1% of the world's total reserves, ranking second in the world. The prospective resources of iron ore in Brazil are very large. Brazilian iron ore resources are mainly distributed in Minas Gerais state (Minas Gerais), Matogroso, southern Mato Grosso state (Mato Grosso do Sul) and northern Para state (Para), only a small amount of iron ore is distributed in other states. Caracas, one of Brazil's largest iron ore deposits, is a world-class super-large iron-rich deposit. The mining area, which covers an area of about 830000 square kilometers, is located between the Hingu River and the Tocantins River in the state of Para, Brazil. Iron-bearing quartzite occurs in the Caracas formation in the middle of the Dapala Group in ancient Gu Yuan. The layered rock composed of quartz, hematite and magnetite forms rich iron ore by surface weathering. The original reserves of iron-rich iron ore with 63% to 66% iron content is 17.7 billion tons. The unweathered Tie Ying rock contains 45% iron. Another world-class super-large iron deposit is the Tieshijiao deposit, which has a huge amount of iron resources, but the grade is low, with an iron content of 35%.

Manganese ore: Brazil is rich in manganese ore resources, in 2010 proved manganese reserves of 110 million tons, accounting for 14.3% of the world total, ranking third in the world. Mainly distributed in Amapa, Minas Gerais, Para and Mato Grosso South, the main mining area is the Caracas area of the Azur manganese deposit, 40% grade of high-grade ore of about 48 million tons, is a high-grade battery manganese ore; The reserves of Wulukun manganese ore in the western border are very large. It is estimated that the reserves of manganese ore are 100m tons, containing more than 40% of MnO2.

Bauxite: Brazil is rich in bauxite resources, with proven reserves of 3.8 billion tons, accounting for 11.2 percent of the world's total bauxite, ranking third in the world. More than 90 per cent of bauxite resources are located in the states of (Para) and Minas Gerais in northern Brazil.

Tin deposits: Brazil has proven reserves of 712000 tons, accounting for about 13.4 per cent of the world's total reserves. Tin ore resources are mainly distributed in the states of Rond?nia, (Amazonas), Minas Gerais, (Minas Gerais) and Para. In recent years, the reserves of tin deposits in Brazil have declined obviously, mainly due to the rapid depletion of alluvial tin deposits with high SnO2 grade, insufficient investment in tin exploration and less new reserves, resulting in a sharp decline in Brazil's position in the world tin resources.

Niobium and tantalum ore: Brazil is the country with the most abundant niobium and tantalum ore resources in the world. In 2010, the proven reserves of niobium and tantalum were 4.1 million tons and 88000 tons, respectively, accounting for 98.4 per cent and 67.0 per cent of the world total, respectively. The niobium and tantalum ore resources in Brazil are mainly distributed in the states of (Minas Gerais), (Goias) and Paraiba in Minas Gerais, Goas and Paraiba.

Copper deposits: 9.8 million tons of proven copper reserves in Brazil in 2010, mainly in (Para), Para, (Bahia), Bahia, and (Goias), Goas. The Salobo 3A copper deposit, distributed in the Caracas area of Para State, is a giant strata-bound sandstone-shale copper deposit, occurring in magnetite schist associated with the Proterozoic iron-bearing formation, with a resource of more than 10 million tons (grade 0.8% 1%). The contents of gold, molybdenum and silver are all high. The concentrate contains 10 to 159 grams of gold and 100 to 200 grams of silver. At present, the deposit is still being further explored, and the prospect of resources is promising.

Gold deposits: Brazil is the world's top 10 gold resource country, with statistical gold reserves of 2400 tons in 2011, accounting for 4.7 percent of the world's total. It is mainly distributed in (Para) of Para, (Minas Gerais) of Minas Gerais, (Goias) of Goas, (Mato Grosso) of Bahia, (Mato Grosso) of Mato Grosso, (Amazonas) of Amazon, (Amapa) of Amapa and (Roraima) of Roraima. In addition, placer gold deposits in Brazil are widely distributed, almost all over the country, but the most important producing areas are concentrated in the Amazon state.

Nickel ore: Brazil is one of the most executive nickel resource countries in the world. According to statistics in 2011, nickel ore reserves are 8.7 million tons, accounting for 10.9% of the world's total, ranking third in the world. Nickel ore reserves are mainly distributed in (Para), Para and (Goias), Goas. Due to the sharp increase in demand for nickel and the rise in nickel prices due to the development of the world stainless steel industry in recent years, these factors have stimulated the exploration and investment of nickel deposits in Brazil, and the reserves of nickel deposits have increased significantly.

Zinc deposits: proven reserves of 2.6 million tons of zinc deposits in Brazil, mainly in (Minas Gerais), Minas Gerais, and (RioGrande do Sul), Rio Grande do Sul. The main types of zinc ores in Brazil are silicon-zinc oxide and smithsonite, containing 16% zinc (39%) and 5.0% zinc blende (5.2%).

Deep in the "resource curse"-high debt, devaluation, economic contraction

Brazil is very rich in mineral resources, and there are currently more than 50 kinds of minerals with proven reserves. Many important mineral reserves are in the forefront of the world, among which niobium, tantalum, talc and pyrophyllite rank first in the world, iron ore and graphite rank second in the world, bauxite, manganese, nickel, tin and zinc rank third in the world.

However, these unique natural conditions have not brought corresponding wealth to Brazil. With low commodity prices and domestic political turmoil, Brazil's economy, which is dominated by exports of resource-based goods, has been declining in recent years. The long-term depreciation of the real against the dollar has exacerbated the problem.

Brazil's GDP reached a high of US $2.62 trillion in 2011, and in 2016, Brazil's GDP shrank again to US $1.8 trillion, down 32 per cent in five years. According to the latest figures, Brazil's GDP of US $2.05 trillion in 2017 (US $1.47 trillion in China's Guangdong Province in 2018) the national economy of a country and a local economy in China are quite thought-provoking.

Resource curse is an economic theory, which refers to the economic and social problems related to mining resources. Rich natural resources may be a curse rather than a blessing of economic development, and most natural resource-rich countries grow more slowly than those that are scarce.

In 1993, when studying the economic development of mining countries, Auty put forward the concept of "resource curse" (Resource Curse) for the first time, that is, abundant resources are not sufficient favorable conditions for the economic growth of some countries, but a kind of restriction.

After that, Sachs and Warner (1995, 1997, 2001) published three consecutive articles to test the hypothesis of "resource curse". Economists attribute the resource curse to the deterioration of the terms of trade, over-reliance on some rich resources or underinvestment in human capital, and so on, and Brazil is fully in line with all the characteristics of the curse. The resource-based industry is like a huge "pump", bringing together all kinds of superior resources from Brazil to this sector, making it difficult for other industrial sectors to develop and grow normally because of the lack of the necessary factors of production.

Main risks and difficulties of investing in Brazilian mining industry

1. The formulation process of the new mining law has increased a great deal of uncertainty.

The Brazilian government is currently planning to enact a new mining law, and according to information disclosed by the Brazilian Mining Association, three independent bills are currently under consideration:

(1) it is related to the adjustment of the rate of mineral rights gold;

(2) it is related to the management of mining rights in mines;

(3) the establishment of a new regulatory body to replace the current Brazilian Ministry of Mines and Energy. Among them, the important purpose of the proposal related to the adjustment of mineral rights gold rate is to increase the rate of mineral rights gold in order to increase the income of the state in the exploitation of mineral resources. The establishment of a new management body is also to improve management efficiency, attract mining investment, and promote the healthy development of the mining industry. However, it is not clear when the proposal will be submitted to Congress, as mining companies still want to advise the government on the issue, and so far, the two sides are still in discussion. It is precisely because the new law has not yet been formed, it is still unknown what impact it will have on its mining investment environment. Therefore, there are many uncertainties in its mining investment environment. This is also one of the important reasons for the decline in the Brazilian mining policy potential index over the past three years.

2. The trend of thought of resource nationalism is increasing.

Brazil's foreign investment policy in South America is relatively loose, but in recent years, the hot international mining situation has stimulated the spread of resource nationalism in some neighboring countries, and the awareness of resource sovereignty has been continuously strengthened. The door, which was originally open to the outside world, began to narrow, increasing restrictions on foreign investment. Many countries have issued some new policies and regulations, some of which are beginning to be detrimental to mining investment, especially foreign investment. Under its influence, resource nationalism is also growing in Brazil. A more representative event is the 2010 appeal to the Brazilian government by the president of the Brazilian Federation of Industries of Sao Paulo State to restrict Chinese investment in the Brazilian mining sector, especially iron ore, which he believes is already the world's largest importer of iron ore. Once Brazilian iron ore production is dominated, Brazilian companies will be squeezed out of the market in the long run. But the Brazilian authorities have not responded. Calls for higher mineral rights gold are also growing, with sources saying that among the proposals to raise mineral rights gold rates, new mineral rights gold rates will be as high as 10 per cent, and iron ore royalties will be raised to 4 per cent from the current 2 per cent. Proponents argue that this is the only way to maximize the protection of Brazilians' interests in the development of mineral resources.

3. It is difficult for foreign enterprises to obtain work visas

The Brazilian government has imposed high requirements, strict vetting and long delays on work visas for personnel from foreign enterprises, which has affected the timely dispatch and rotation of personnel from foreign enterprises.

4. Brazil further tightens restrictions on overseas loans

The Brazilian real has appreciated too fast in recent years, rising 7.9 per cent in the first two months of 2012. Economists are concerned that excessive currency appreciation will not only weaken the international competitiveness of Brazilian products, trigger a surge in imports, but also lead to imported inflation, causing more problems for the already anaemic economy. To this end, the Brazilian government has tightened restrictions on overseas loans and issued a decree on March 12, 2012, expanding the scope of the 6% financial transaction tax on overseas loans from three years to five years. This is the second time this month that the tax on foreign loans has been raised, and on the 1st of that month, Brazil just raised the tax on foreign loans from a two-year period to a three-year period. The Brazilian government has further tightened restrictions on access to loans abroad by its companies and individuals in order to curb the flow of international hot money into Brazil and avoid excessive appreciation of the local currency, the real. The decree has some negative effects on mining investment, at least increasing the cost of foreign investment.

5. The infrastructure is not sound, and the development of railway, highway and port systems lags behind.

At present, Brazilian ports are saturated, access is blocked and equipment is out of date. The railway system is also relatively backward. At present, Brazil has only nearly 30,000 km of railway, which is obviously insufficient in capacity, mainly for the transport of mineral resources, and is generally distributed in mining areas and major port areas. Other goods transport is mainly road transport, transport services are not perfect, high charges. According to information, Brazil is one of the countries with the highest road construction fees in the world, and the phenomenon of goods being damaged or stolen in the course of transportation has occurred from time to time, which has increased the cost of production. The development of highway system is also uneven. At present, roads are mainly distributed in the south and southeast, and the road network is developed and the grade is higher, but in the northwest, due to the existence of Amazon rainforest and less population, there are fewer roads and lower grades, and the road condition is also poor. Most of Brazil's roads were built in the 1950s and 1960s because of long-term climatic conditions and excessive use beyond the design period, coupled with the fact that the government's investment in road maintenance did not reach the necessary amount. Road conditions are declining due to lack of maintenance, and many road ruts and potholes are more numerous, which is the main problem that the Brazilian transport sector urgently needs to solve. All this will increase the cost of investment in mining projects.

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There are mines at home
"resource curse"

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