Brazil is the industrial dynamo of South America and its economy is heavily dependent on the mining sector. In 2002, for example, marketable iron ore production surpassed 200 Mt and exports of iron ore rose to about 158 Mt.

The Brazilian mining industry has been undergoing considerable change, reflecting reorganization of the industry internationally and the national program of privatization.

In respect of government regulations, several measures concerning the concession of mineral rights are now in place and showing favourable results. Consideration is being given to establishing a more powerful structure to lead the industry.

According to the level of gross production (run of mine), 1,611 mines have been selected and classified as small (1,127 mines - 70% of the total), middle-sized (402 mines - 24.9% of the total) and large ones (82 mines - 5.1% of the total).

With 888 mines, the South-East Region is still the unchallenged leader in Brazil, presenting the highest concentration of mines (55.1%), where the state of São Paulo can be highlighted with the highest number of mines (432), followed by Minas Gerais (291) and Rio de Janeiro (141). In the other regions, one can highlight the States of Rio Grande do Sul (206), Santa Catarina (122), Paraná (83), Goiás (52) and Bahia (38). These eight States together concentrate 84.7% of the mines selected.

The total market for engineering and consulting services for the mining sector in Brazil is estimated to be Cdn.$64 million per year. At least 25% of this amount is directly related to environmental projects. Six Brazilian companies and four foreign companies with offices in Brazil control nearly 90% of this market. It is very important for foreign suppliers to establish a local presence in Brazil, either with their own office or through joint ventures with Brazilian engineering companies.

The potential for foreign companies to supply this market lies especially in front-end engineering services. Brazilian engineering companies have been more successful in supplying detailed engineering, local procurement and commissioning services.

This analysis takes into consideration a national perspective that focuses primarily on the Brazilian state of Minas Gerais, since it is considered to be the mining state of Brazil. The Brazilian Federal Constitution General Amendment passed by the National Congress on August 15, 1995 provided some major changes to Brazil's economy.

Particularly for the mining industry, it is important to note that the Constitution General Amendment ensures isonomy (equality of fiscal and economic treatment before the Law) for all companies operating in the country irrespective of the origin of their capital.

This amendment opened the country's doors and now Brazil welcomes foreign investments in exploration and mining of its mineral resources. These changes introduced modernization and disclosure of important information that is now easily accessible to investors.

• EXECUTIVE SUMMARY



• MARKET OVERVIEW
• General Country Information
• Key factors shaping market growth
• Opportunities


• COMPETITIVE ENVIRONMENT
• Competitive advantage through Canadian Government Policies and Initiatives


• PRIVATE SECTOR CUSTOMERS
• Degree of concentration and integration in the Brazilian Mining Industry
• Competitiveness in the Brazilian Mining Industry
• Key Brazilian Mining Companies


• PUBLIC SECTOR CUSTOMERS
• Federal Organizations
• State-Level Organizations
• Research Centers
• Government Procurement Regulations


• MARKET LOGISTICS
• Channels of Distribution
• Market-entry Considerations
• Import Regulations
• Special Customs Arrangements
• Export Credit Risks, Restrictions and Currency Controls
• Financial Considerations for Brazil's Mining Industry


• KEY CONTACTS AND SUPPORT SERVICES



• LIST OF USEFUL SITES



• Annex A: List of the key suppliers active in the Brazilian market
• Annex B: List of the key Brazilian potential importers, in the Mining

Brazil is the world's fifth largest country, with an area of 8.5 million sq.km. Located in eastern South America, it borders every South American country, except Chile and Ecuador. Brazil's coastline along the Atlantic Ocean extends approximately 7,500 km. Brazil's population is estimated to be about 165 million. The estimated annual growth rate is approximately 1.93%. The Brazilian GDP is Cdn.$720 billion (US$ 450 billion) and is the 12th largest world economy.

The country is divided into the following five geographic regions:

• The North, consisting primarily of the Amazon Basin states, including Acre, Amapá, Amazonas, Pará, Rondônia, Roraima and Tocantins;
  
  
• The North-East, including the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe and Bahia;
  
  
• The South-East, including the states of São Paulo, Rio de Janeiro, Minas Gerais and Espírito Santo;
  
  
• The South, consisting of the states of Paraná, Santa Catarina and Rio Grande do Sul; and
  
  
• The Center-West, made up of the states of Mato Grosso, Mato Grosso do Sul, Goiás and the Federal District.

The South-East has the largest population concentration, approximately 42.65% of the population, followed by the North-East with about 28.91%. The South has 15.05% of the population; the North, 6.98%; and the Center-Western region, 6.98%.

The largest city in Brazil is São Paulo, with an estimated population of 17 million in the metropolitan area. Rio de Janeiro, the second largest metropolitan area, has nearly 10 million inhabitants. Belo Horizonte, 4million; Porto Alegre, 3.5 million, Recife, 3.2 million, Salvador 2.8 million and Fortaleza 2.8 million. Portuguese, the official language, is used throughout Brazil.

Since 1994, Brazil has implemented significant economic liberalization measures that are expected to facilitate an annual economic growth of 3% to 4% in the medium term. After a long period of severe macro-economic instability, which resulted in very high rates of inflation, mediocre and intermittent growth of the GDP and stagnation of per capita income, a successful stabilization program has restored the country to the list of stable economies. This enabled the country to resume growth at reduced rates of inflation.

Brazil enters 2003 amidst an unfriendly international scenario, an important political transition and some pending vulnerability on economic fundamentals. Such a delicate combination imposes constraints and challenges on economic policymaking, especially at a time when President Lula will be tested by the markets on his commitment to macroeconomic stability, and by the electorate on his commitment to the social agenda.

Existing external financing appears sufficient to cover the gap in 2003. The main challenge that President Lula will face rests on preserving the adjustment in the external accounts, while fighting the effects of the weak currency on inflation and debt dynamics.

Fiscal policy appears to be on track. The recent increase in the target for the primary surplus in 2003 is sufficient to prevent deterioration in the public debt-GDP ratio. In the medium run, the challenge is to promote fiscal reforms that enable strong fiscal surpluses without prolonging the sacrifice in public investment and without increases in the tax burden.

The monetary policy dilemma of the last two years should persist in 2003. Inflation appears set for a decline in the near term, but it is still running at a two digit level. The limited scope for further aggressive tightening of monetary policyin the context of a sluggish economy should pose the main monetary test for the new administration.

The average annual growth for the mine sector over the last five years was 7%. Brazil has important reserves of many minerals and is the world's leading supplier of niobium (91.1%) and tantalite (49.4%). Brazil's share in world production of raw materials is remarkable, ranking first in production of niobium (94.3%), second in iron (20%) and third in tantalite (14.1%).

In 2001, Brazil was trading mineral commodities with 207 countries for a total of Cdn.$40 billion, a 2.1% decrease over the year. Brazil exported to 177 and imported from 126 countries, having a positive balance with 145 and deficit with 62. In 2001, investments in mineral exploration reached Cdn.$156 million.

Despite the inaccurate survey base of the investments, the states of Pará and Minas Gerais continue to have the most companies with investments in mineral exploration. In 2001, the North and South-east regions accounted for 58% of total investments.

The renewed growth of the Brazilian minerals and metallurgical industry brought about by the Real Plan and the substantial elimination of constitutional restraints on foreign capital is expected to continue in the future.

The Brazilian production of primary mineral goods adds up to more than Cdn.$10 billion, representing around 1% of Brazil's GDP. This contribution from the mineral sector rises to 8.2% of the GDP when adding to the extractive industry the transformation of its primary minerals into metals and alloys, cement, ceramics, fertilizers, glass and chemical compounds, among other products.

Today, the industry accounts for about 27% of Brazil's GDP. Engineering and consulting services for the mining sector in Brazil are estimated at Cdn.$64 million annually.

At least 25% of the total consulting engineering services expected to be performed will probably be associated with environmental issues. Therefore, the estimated market size to provide consulting environmental services for the Brazilian mining industry can be estimated at about Cdn.$16 million.

It is worth noting that some companies are not only providing services to the mining sector. Some are specialized: COBRAPI is generally dedicated to the steel-making industry; EPC specializes in the area of project and construction management; GOLDER focuses on civil engineering; and BRANDT focuses on environmental consulting services.

It seems that the following four main areas within the mining and metallurgical industries will play the most important roles as far as investments, and therefore are potential services for engineering companies:

• Iron Ore
• Steel-Making Industry
• Coal
• Precious and Base Metals.

Both international and domestic demands for Brazilian iron ores have been increasing in the last couple of years. This is mainly due to China's soaring steel-making industry, as well as to the increased demand from other Asian countries that are supplied directly with Brazilian iron ores.

Demand for domestic steel products is also expected to increase over this period, highlighting another important target market in the mining (iron ore) and metallurgical sectors. The iron ore mining segment, as well as the steel-making industry, will be searching for state-of-the art technologies, and will encompass not only the implementation of new production units, but expansion and optimization of existing facilities.

Those foreign engineering companies in a position to effectively offer proven technologies leading to capital and operating costs reductions will definitely hold a privileged position. Adaptive control systems that make use of fuzzy logic and neural nets seem to be one of those top notch technologies required for a successful approach in this area.

There is potential market opportunity in the short run for optimizing existing facilities by creatively making use of cutting edge mining and processing technologies and therefore substantially reducing operating costs.

In 2001, iron ore and pellets exports totalled 103.2 tonnes, providing CVRD with a market share of 22.9% and consolidating its leadership in the global market.

In the domestic market, CVRD sold 21.5 million tonnes in 2001, achieving a position of leadership in sales within Brazil's steel and iron industry, with a market share of 51.7%. In addition, CVRD owns 100% of the capital stock of FERTECO, 50% of the capital stock of SAMARCO, 50% of the controlling interest of CAEMI (equivalent to 19% of MBR and 8% of QCM) and 50% of GIIC (Gulf Industrial Investment Co.), located in Bahrain.

In 2003, CVRD is planning to invest Cdn.$3 billion in the areas of iron ore, copper, aluminium, pig iron, logistics, electricity and research on mineral exploration in Brazil and abroad. In the next eight years, the Vale will invest Cdn.$11 billion.

The largest contributor to this year's overall figures attributed to the area of iron ore and manganese (Cdn.$921 million), followed by nonferrous metals - mostly copper - (Cdn.$ 365 million), logistics (Cdn.$694 million), aluminium (Cdn.$291 million), electricity (Cdn.$116 million), metallic and semi-finished products (Cdn.$77 million), and corporate areas, including research (Cdn.$284 million). Funds include capital outlays and maintenance expenses.

Recently, CVRD signed a Cdn.$240 million agreement with the Japanese bank JBIC, the first stage of a Cdn.$480 million financing. The money will be used in the replacement, alteration, improvement, modernization and expansion of logistics capacity, focusing mostly on railways and ports.

The coating kaolin (used for high-quality paper coating) mining company is having good market performance. In a marketplace valued at Cdn.$2 billion, this company is the fifth biggest global producer of coating kaolin, exporting 90% of its production.

As part of its strategy to reach production of 1 million tonnes a year by 2006, Cadam recently approved a Cdn.$48 million investment in its industrial unit. The plant - a chemical factory rather than a mining facility - is located in the town of Almeirim, state of Pará.

The money will be used to build a second spray dryer unit, used for drying the kaolin and enhancing its quality, and to buy peripheral items for its operation. With the spray dryer, estimated at as much as Cdn.$24 million, the company reduces the sales of raw kaolin (lump ore), which is less value-added. The new facility will start operating in early 2005, with a 300,000-tonne capacity. During the second stage, one or two years later, it may reach 500,000 tonnes.

One of the company's assets is slurry kaolin, a product delivered to the customer in its liquid form. "It is a trend in the paper industry," says França, who has been at Grupo Caemi for 17 years, the last 12 years as the CEO.

Ferteco operates two mines, with a total capacity of 20 million tonnes of iron ore products. Twelve million of these are sinter feed/concentrates, 3.7 million tonnes are pellets, and 4.3 million are lump ores, of which 2.7 million are for direct reduction. The Fábrica and Córrego do Feijão mines are located in the state of Minas Gerais.

Ferteco is the third largest iron ore producer in Brazil, with potential reserves of 2 billion tonnes. It meets the needs of world and domestic markets with its highly industrialised products: sinter feed, concentrates and pellets, as well as granulated ore for direct reduction (Midrex and Hyl) and for blast furnace consumption.

The Fábrica Mining Complex, with a capacity of 13 million tons per year, is linked by the Vitória-Minas railway to the port of Tubarão, in the state of Espírito Santo, where up to 300,000 DWT capacity vessels can be loaded.

MBR introduced the Capão Xavier Project, designed to replace iron ore production at the Mutuca Mine, which closed its activities after 40 years of continuous operation. Approximately 8 million metric tonnes per year will be produced, maintaining approximately 360 direct jobs.

An environmental impact study obtained information on physical, biological and socio-economical issues that involve this new project by MBR. The project will allow the topographic restoration of the exhausted pit at Mutuca Mine, eliminating the need for utilizing areas for the release of sterile materials and the construction of waste dams.

This project will comprise the following stages:

• Construction of a private roadway linking Capão Xavier and Mutuca;
  
  
• Deployment of drainage structures that will prevent sediments from entering the Ribeirão Mutuca basin, where there is rainwater catchment;
  
  
• Construction of a dike on the Córrego Seco to form a sedimentation basin where there is now a clay mining site.

• Construction of acoustic and visual barriers in strategic locations around the mine. They will be covered with vegetation and will separate the mine and the neighbouring community. Such barriers will be built with materials from the mine itself.
  
  
• Transport by trucks, through MBR's private roadway, of the ore to be improved at Mutuca's facilities.

• Continuation of the plowing, with the progressive deepening of the pit;
  
  
• Transport of the produced ore and of the sterile products by MBR's private roadway, to be improved at Mutuca's facilities;
  
  
• Around 2007, the ore will start being transported via the conveyor belt, with the construction of a primary crusher inside the pit and far from neighbouring communities;
  
  
• Reclaimation of mined areas;
  
  
• De-activation;
  
  
• Reforesting of remaining mined areas;
  
  
• Creation of a lake in the mine pit;
  
  
• Backfilling and reforesting of the former clay mine pit which was used as a decanting basin for the project.

• Re-incorporation of the terrain to the natural environment;
  
  
• Incorporation of the lake to the water supply system of the metropolitan area of Belo Horizonte;
  
  
• Environmental preservation, with the incorporation of the former mined area, already reclaimed, to the Serra do Rola Moça State Park.
  
  

Votorantim Metais produces nickel, zinc and iron in its plants in the states of São Paulo, Minas Gerais, Rio de Janeiro and Goiás.

Votorantim's business units employ 4,200 people and ensure that Grupo Votorantim holds a position of leadership in the Brazilian zinc market as well as being the largest producer of electrolytic nickel and a major producer of long steel.

In Brazil, the Cia. Brasileira de Alumínio (CBA), its subsidiary, is in the final stage of its expansion, with investment in the order of Cdn.$640 million. It is already looking to new growth leap that will result in reaching a production capacity of 500,000 tonnes. Votorantim Metais, after having acquired Paraibuna de Metais in April 2002, announced a Cdn.$1billion program aimed at the sectors of zinc, nickel and steel until 2005.

For this year, the Group's budget has Cdn.$4 billion in expenses, from which Cdn.$960 million came from acquisitions in energy (hydroelectric power plants) and cement. The largest part is comprised of investments in fixed assets, such as expansion and maintenance.

Votorantim Metais is increasing the productive capacity of its subsidiary Níquel Tocantins. The goal is to produce more than 20,000 tonnes until the end of the year, surpassing the 17,800 tonnes produced in 2002. The company's exports could reach 12,000 tonnes in 12 months, a 13% increase over the year.

The company is also expected to increase the zinc exports of its subsidiaries (Companhia Mineira de Metais and Paraibuna Metais) by 1%, reaching 54 thousand tonnes, thanks to increases in production.

After the acquisition of Paraibuna in March last year, the production of zinc at Votorantim grew by 28% in 2002, reaching 250,000 tonnes. In 2003, the company intends to increase its production with improvements in the production process, reaching 270,000 tonnes.

For its part, Caraíba Metais, a copper producer, is expected to see a drop in exports, due to a reduction in production caused by a stoppage for maintenance. However, the company must start to recover its sales in Argentina, which fell by 60% in 2002.

The preventive maintenance at Caraíba is going to cost Cdn.$80 million and is expected to stop production for one month. The company's exports will be reduced from 76,000 tonnes last year to 70,000 in 2003, and will serve the domestic market. On the other hand, sales to Argentina are expected to reach 10,000 tonnes, a 66% growth year over the previous year.

A list of the key players in the Mining Sector are provided as follows:

Appendix A: List of the key suppliers active in the Brazilian market.
Appendix B: List of the key Brazilian potential importers in the Mining Sector.

Export Development Canada - EDC offers export financing and insurance to Canadian exporters. Additionally, insurance can be provided for larger transactions that are subject to the terms and conditions established by the buyer. EDC prefers to work through letters of credit, bank credits or bank guarantees. Approval for financing is considered on a case-by-case basis.

The Canadian Commercial Corporation - CCC gives Canadian companies access to financing and better payment terms under the Progress Payment Program (PPP). The PPP concept was developed as a partnership between major Canadian financial institutions and the CCC. It enables the exporter's bank to open a project line of credit for the exporter's benefit, based on CCC approval of the project and the exporter's ability to perform. The CCC will also act as a prime contractor on behalf of Canadian small and medium-sized enterprises, giving those businesses increased credibility and competitive advantage.

The Program for Export Market Development - PEMD helps Canadian companies enter new markets by sharing the costs of activities that companies normally could not or would not undertake alone, thereby reducing risks involved in entering a foreign market. Eligible costs and activities include market visits, trade fairs, incoming buyers, product testing for market certification, legal fees for international marketing agreements, transportation costs of offshore company trainees, product demonstration costs, promotional materials, and other costs necessary to execute a market development plan. Activity costs are shared on a pre-approved, 50/50 basis.

The PEMD refundable contribution ranges from Cdn.$5,000 to a maximum of Cdn.$50,000. Preference is given to companies with fewer than 100 employees for a firm in the manufacturing sector and 50 in the service industry, or with annual sales between Cdn.$250,000 and Cdn.$10 million. Other components of the program include international bid preparation (Capital Project Bidding) and, for trade associations, developing international marketing activities for their membership. For additional information visit http://www.infoexport.gc.ca/pemd-e.asp or call 1-888-811-1119.

WIN Exports, a database of Canadian exporters and their capabilities, is used by trade commissioners around the world and by Team Canada Inc. partners in Canada to match Canadian suppliers with foreign business leads, and to share information on trade events. To register your company in WIN Exports or for more information, visit http://www.infoexport.gc.ca/winexports/menu-e.asp or call 1-888-811-1119.

The Brazilian government's is involved in both the extractive and mineral transformation industry, with the exception of the monopoly areas, which came to an end when Companhia Vale do Rio Doce (CVRD) was privatized in 1997. Another company, Companhia Riograndense de Mineração - CRM, a coal producer belonging to Rio Grande do Sul State Government - is still under state control.

In the world of companies comprising the Brazilian mineral sector, the presence of private Brazilian capital prevails, though foreign capital has a minority interest in many companies. This situation is the result of a development model used in Brazil during the seventies and eighties that combined Brazilian private and state capital with foreign capital.

The following are considered the most important technologies required to support Brazil's mining and minerals industry during the next few years:

• Advanced Mineral Process Control Systems, encompassing both Expert and Intelligent (adaptive) Control Systems;
  
  
• Semi-Autogenous and Full- Autogenous Grinding Mills (SAG Mills and FAG Mills, respectively) Circuits;
  
  
• Semi-mobile In-Pit (and Near-Pit) Crushing Circuits;
  
  
• Long Distance Belt Conveying Systems.

One hundred Advanced Control Systems per year are forecast to be purchased by the Brazilian mining and minerals industry. This represents an estimated Cdn.$360 million market over the next three years, including engineering services, software, hardware and technological fees.

Advanced Mineral Process Control Systems, both expert and intelligent levels, have proved to be extremely helpful tools to optimize plant performance, generally increasing throughput from 2% to 15%. Investments are very modest when compared to increased revenues and profits.

Some other Brazilian mineral-related industries will play a minor role. The gold industry is depressed and new investments are unlikely to be made on declining reserves, while the bauxite /aluminum industry already makes use of Expert Systems provided with the equipment by their suppliers. However, the emerging copper mines and concentration plants (Sossego: Phelps Dodge/CVRD; Cristalino: CVRD; and Salobo: CVRD/Anglo American) will undoubtedly make use of Advanced Control Systems. This will probably occur after 2004.

The main factor impacting this segment is competitiveness: relatively large increases in throughputs - after relatively small investments - will definitely affect unit operations costs, and allow for increased margins in a market where they are typically very narrow.

Commination (fragmentation) circuits encompassing both crushing and grinding operations are the most costly operations in a mineral processing plant. Typically they account for at least 30% of the capital costs and sometimes as high as 50%. Large Semi-Autogenous Grinding Mills (SAG Mills) and Full Autogenous Griding Mills (FAG Mills) have been extensively used by the mining industry in the U.S., Canada, Australia, Chile, South Africa and other large ore producing countries for the last decade. They offer advantages, both from the operations and the economic standpoints, provided that the ore to be ground is competent enough to be used at least partially as a grinding media, and the plant processes a reasonably large throughput. Despite the fact that Brazilian ores and plants tend to meet these requirements, there are only four SAG mills currently on operation in Brazil: Mineração São Bento (Gold) has a large length - over-diameter ratio SAG mill, CVRD's Igarapé Bahia gold mine has two high ball charge SAG mills, and Mineração Serra da Fortaleza nickel mine (Rio Tinto) also has one SAG mill.

There has been an unequivocal trend in the global mining industry to utilize Semi-Mobile In-Pit Crushers (SMIPC)- which can be relocated to new areas being mined, in connection with Long Distance Belt Conveying Systems (LDBCS), that will transport the ore (5 to 20 km in general) to the mineral processing plant and feed a secondary crusher.

This concept replaces transportation of the Run-Of-Mine (ROM) ore from the mines/pits by large trucks to the plants, feeding a plant-located primary crusher. The technical and economic advantages of the new concept are remarkable, mainly for large production rates.

So far, there are only a few long distance belt conveyors systems in operation in Brazil and they are not fed by semi-mobile in-pit crushers: The Casa de Pedra iron ore mine (CSN) 5 km. LDBCS, the 5 km. Pico/Andaime LDBCS (iron ore mine- MBR), the Mutuca Mine/Terminal de Olhos d'Água (TOD) LDBCS (iron ore - MBR, and the 10.9 km Capanema /Timbopeba Mines CVRD LDBSC (iron ore) are some of the few examples of existing LDBCS.

Despite the large number of mining companies, the Brazilian mineral sector is still considerably concentrated in the majority of mineral production segments and has a high level of integration between the mine and metallurgy/metal refining industry.

Thirteen companies are responsible for more than 99% of the iron production, with three companies controlling 75% of the total. The leader, Cia. Vale do Rio Doce, the leader, holds 55%. These percentages are the same for the other mineral substances extracted from the Brazilian subsoil, with the exception of sand, clay, gravel, limestone and ornamental rocks.

The high content of the major Brazilian mines, good transportation infrastructure, technological upgrades, competitive production costs and managerial skills are the factors for competitive advantage which the mining industry in Brazil has vis-à-vis its international competitors.

The production of iron, pyrochlorine, nickel, bauxite, cassiterite, ornamental rocks, gold, among others, are examples of the competitiveness of the Brazilian mineral production sector.

According to a government policy to substitute imports, implemented since the early 1970s and based mostly on the mineral goods industry, Brazil has become self-sufficient in most of the ferrous and non-ferrous metals and industrial minerals. And with its surplus, has become a major exporter of bauxite, kaolin, aluminium, nickel and tin, besides consolidating its position in iron ore and niobium. Other surpluses also contribute favourably to the trade balance: gold, ornamental rocks, manganese, lithium minerals, among other primary mineral goods.

As a result of this increased domestic production, together with the market diversification strategy adopted by Brazilian export companies, mineral goods have been contributing significantly to the steady trade balance of Brazil. The trade balance has a heavy reliance on petroleum and its by-products that, separately, are still responsible for more than 50% of the mineral sector's imports.

Exports of Brazilian mineral goods are more than Cdn.$11 billion, the largest portion of this total being petroleum (Cdn.$6.6 billion). In addition to petroleum, other products on the list of imports, in order of expenditure, are metallurgical coke, potassium, phosphate fertilizers and non-ferrous metals.

In Brazilian mineral exports, the contribution from the mineral extractive industry is represents more than 58% of all mineral goods exported. Iron ore continues to be, by far, the primary mineral product most exported by Brazil, generating annual revenue of over Cdn.$5.1 billion.

In 2001, Brazil's commercial trade of mineral commodities comprised 207 countries and totalled Cdn.$40 billion, a decrease of 2.1%. Brazil exported to 177 countries and imported from 126 countries.

Ministério de Minas e Energia - MME (Ministry of Mines and Energy)
Esplanada dos Ministérios - Bloco U - 8º andar
70065-900 Brasília, DF
Phone: + 61 223-9059 / 223-4572

Departamento Nacional de Produção Mineral - DNPM (National Department of Mineral Production)
SAN - Quadra I - Bloco B
70040-200 Brasília, DF
Phone: + 61 224-7041 / 312-6748

Companhia de Pesquisa e Recursos Minerais - CPRM (Geologic Service of Brazil)
SGAN - Quadra 603 - Módulo I - 1o andar
70830-030 Brasília, DF
Phone: + 61 312-5167/5252/5253

Ministério do Meio Ambiente - MMA(Ministry for the Environment)
Esplanada dos Ministérios - Bloco B - 5o / 9º andar
70068-900 Brasília, DF
Phone: + 61 322-8225

Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis - IBAMA (Brazilian Institute for the Environment and Renewable Natural Resources)
SAIN - Avenida L-4 Norte - Edifício Sede do IBAMA
70810-900 Brasília, DF
Phone: + 61 316-1212

Conselho Nacional do Meio Ambiente - CONAMA (National Environmental Council)
SAIN - Avenida L-4 Norte - Edifício Sede do IBAMA
70810-900 Brasília, DF
Phone: + 61 226-2837

Brazil has numerous R&D centers specializing in the mining and mineral sectors. CVRD R&D center in Belo Horizonte, in the state of Minas Gerais, is a remarkable example. Some university R&D centers in this area also enjoy an international reputation, e.g. the Federal University of Minas Gerais (UFMG) and the São Paulo University (USP).

Additionally, there are some established state run R&D centres: CETEC (Minas Gerais), CIENTEC (Rio Grande do Sul - specializing in coal), CEPED (Bahia), to name the most important ones. In general, they are well equipped to carry out metallurgical testwork for conventional technologies (e.g. leaching tests, grindability indexes, various chemical, petrographic, and mineralogical analyses).

CPRM is the institution that holds a vast amount of information and data available on the geology of Brazil. Anyone interested may access its databases and acquire basic and detailed geologic maps, on different scales, metallogenic and mineral resource forecast maps, to aerial surveys of regions with a high mineral potential, and obtain guidance and support with any geological work required for mineral exploration.

The National Department of Mineral Production (DNPM), the government regulatory agency linked to the MME structure, has the objective of planning and fostering the exploration and exploitation of the mineral resources. It also oversees geological, mineral and mineral technology research DNPM also ensures, controls and oversees the mining operations throughout Brazilian territory, as stated in the mining legislation.

However, exposure to more complex technologies is rather scarce, and this substantiates a very promising opportunity for foreign engineering companies wanting to team up with foreign R&D centres, since there has been a noticeable change of thinking with regard to the payment of technological fees.

The contacting information of the key R&D centres is:

The federal, state and municipal governments, as well as related agencies and companies, follow a buy Brazil policy. However, Brazil permits foreign companies to compete in any procurement-related multilateral development bank loans and opens selected procurement to international tenders.

The bidding regulations introduced in late 1993 allow consideration of non-price factors and give preferences to digital electronics goods produced in Brazil, and stipulate local content requirements for eligibility for fiscal benefits.

In practice, it is difficult for foreign service firms to operate in the public sector in Brazil unless in association with a local firm. To be considered Brazilian, a firm must have majority Brazilian capital, Brazilian participation and decision making. A Brazilian state enterprise is permitted to subcontract services to a foreign firm if domestic expertise is not available for the specific task. A foreign firm may only bid for government contracts to provide technical services when no qualified Brazilian firms exist.

In the case of international bids to supply goods and services or specific government projects, successful bidders are required to have local representation, i.e. legal presence in Brazil. Since the open period for bidding is often as short as one month, it is advisable to have a partner resident in Brazil able to act on tenders as soon as they are announced.

A foreign supplier may find that inclusion of local purchases of Brazilian goods and services within its bid, or significant subcontract association with a Brazilian firm, will improve its chances for success. Similarly, a financing proposal that includes credit for the purchase of local goods and services for the project will be more attractive.

Foreign manufacturers of mining equipment usually sell through a local agent or distributor. Due to the large size of the country, most agents and distributors cover only specific regions. In very few cases an agent or distributor has nationwide coverage.

Local distributors are usually small to medium-sized companies that lack financial capability to invest heavily in product promotion, technical training and translation of technical manuals. To be successful in Brazil, new foreign suppliers should work closely with their distributor developing marketing strategies together and sharing costs, until their product and technology gain market exposure and confidence.

Ontario companies are advised to use the services of local law firms when signing an agent or distribution contract with a Brazilian partner. General Brazilian commercial law regulates commercial distribution contracts; however, specific legislation regulates the relationship between the foreign company and the Brazilian agent.

Although the Ontario company and its local agent can negotiate freely the contract clauses, there are laws that govern this relationship that are usually favourable to the agent in case of contract termination.

Brazilians prefer to receive product literature in English - if the Portuguese ones do not exist, of course - rather than in Spanish. Further, developing a personal relationship through periodic visits and invitations to visit your facilities are important and increases the chances of being short-listed in future tenders or contract renovations.

In general, business practices and the taxation system in Brazil are similar to those in Canada. However, Brazilians prefer to develop friendships, before doing business, which makes a good network of contact fundamental. They enjoy fast and effective communication and consider personal contact imperative for any negotiation.

To be successful in the Brazilian market, Ontario exporters should establish some kind of presence in Brazil through representatives and after-sales support.

Individual independent representatives should be avoided because of labor laws that may consider them direct employees with certain legal rights, which may prove costly.

Exporters should approach the decision-makers with a commercial approach, as well as a technical approach. Generally, two or three presentations need to be made before the negotiations proceed. The technical personnel usually have a role in the decision process and they are concerned with the price and quality of products.

Since March 1990, Brazil has sought to deregulate and reduce trade barriers. The government has eliminated many bureaucratic procedures that were considered obstacles to free trade.

Despite the government's efforts to reduce the bureaucracy connected with importing and exporting, the use of a local customs agent remains essential in dealing with the peculiarities of the Brazilian customs authorities.

The Secretariat of Foreign Trade (Secretaria de Comércio Exterior - SECEX), an agency of the Ministry Development, Industry and Foreign Trade, controls imports and exports in Brazil. Companies engaged in foreign trade must register with the SECEX as importers or exporters.

The import of certain products from certain countries is forbidden or restricted. Brazilian legislation has determined certain quotas of goods to be imported. In general, the importation of used consumer products for commercial purposes is forbidden.

Importers must obtain Import Licenses - LIs from the SECEX. Import Licenses may be obtained electronically by means of the Integrated Foreign Trade System (Sistema Integrado de Comércio Exterior - SISCOMEX), an online computer registration that processes all import licenses. Licenses normally are issued within five days of receipt of application. Goods must be loaded for shipment within 90 days of the issuance of the import licenses.

Certain products, such as weapons and ammunition, require authorization from special agencies as a condition for the issue of an import license. This is the case of the imports of some security products that need to have special authorization from the Brazilian Army.

Importers must submit the following documents to the customs authorities:

• Original trade invoice (proforma invoice);
• Import Declaration. SISCOMEX issues an electronic receipt of collection of federal VAT.
• Document of collection of state VAT
• A document showing knowledge of the original freight or an equivalent document proving the property or the possession of the goods (bill of landing or airway of landing); and
• Other documents that may be required in conformity with the regulations of international trade or other specific legislation as certificate of origin, quality and health certificates.

Import duty (Imposto de Importação - II) is levied on imported goods, based on their custom value. In accordance to GATT legislation, customs value includes cost, insurance, freight and othe costs that the legislation specifies. The duties rates vary according to the classification of the product in the TEC (External Tariff Code). Rates of import duty range from 0% to 30 %.

Importers must also pay federal VAT (IPI – Imposto sobre Produtos Industrializados) and state VAT (ICMS – Imposto sobre operações relativas à circulação de Mercadorias e sobre Serviços de transporte interestadual e intermunicipal e de comunicações) on imported goods.

IPI is calculated on the sum of the Custom Value (cost, insurance, freight and other costs that legislation specifies). Plus II value and the import duty ranges from 0% to 365.63%.

ICMS is levied on the sum of the Customs Value Plus II and IPI value, the import duty, the IPI tax and other customs charges, and ranges from 3.5% to 30%. If the imported goods are destined for manufacture or sale in Brazil, the importer may recover the value of the IPI and ICMS taxes.

The possibility of duty reductions is related to the character of the products imported, its destination, origin and value. The Brazilian government has also created tax incentives programs, which may benefit the import of certain types of products.

Two gross revenue taxes, Social Integration Program Tax (Programa de Integracão Social - PIS) and Social Security Financing Tax (Contribuição Social para Financiamento da Seguridade Social - COFINS) are levied at a combined rate of 3.65% on the sale of imported goods in the local market.

SECEX uses information from international commodities exchanges, specialized publications, price lists of foreign producers, prices declared by importers and other means to evaluate prices of imports and exports. The Brazilian authorities exercise control over import and export prices and investigate cases in which they suspect dumping may have occurred.

Importers should document their declared prices either through international commodities exchanges, specialized publications or price lists of foreign producers, or through pro forma invoices, letters, facsimiles, telexes and orders or contracts.

Under certain circumstances, goods may be temporarily imported free of import duties, IPI and ICMS for a period of one year (with a possible one-year extension if they are subsequently exported. Under special circumstances, the admission period may be extended to a total of three years. In the case of operational leasing, rental and goods imported related to the rendering of services, the import duties, IPI and ICMS may be paid proportionally to the period the goods stay.

The bonded warehouse regime defers payment of import duties and other taxes on goods deposited for a certain period in a pre-determined location in Brazil.

Companies are allowed to import raw material and other goods with import duty, ICMS and IPI suspension that will be submitted to an industrial process and after export. The imported goods can be stored in the industrial establishment under tax authorities control. The warehouse permission determines the period of use of the warehouse the maximum value of goods that can be imported and stored; the period of the suspension of tax payments; the minimum of industrialized products required to be exported. Also, the warehouse permission determines which goods can be imported under this regime, which industrial process can be used and which products can be obtained after the industrial process.

Exported products from bonded warehouses will be eligible for all the benefits in accordance with the Brazilian export legislation. In the case of the industrialized products shipped to the internal market, the Import duty, IPI and ICMS (Federal and State VAT) will be levied on the part of imported goods. The goods may remain in the bonded warehouse for a one-year period, which may be extended by one year. Under special circumstances, the storage may be extended to a total of three years.

The Brazilian legislation refers to three Drawback policies:

• Drawback suspension: raw materials and goods imported and exported after an industrial process are free of Import duty, IPI and ICMS. This policy is ruled by DECEX which verifies the plan of exportation plan.
  
  
• Drawback exemption: an exemption of Import duty, IPI and ICMS are allowed on importation of raw materials and goods to replace the stock company after an industrial process and eventual exportation of products. The raw materials and goods have to be equal in quantity and quality of the products used before. Similar to the Suspension regime, DECEX gives permission to import under an exemption. In this particular case the importer has to prove with the export documents that exportation ahs been made.
  
  
• Drawback refund: in the case of regular importation of raw materials and other goods submitted to an industrial process and then exported, the importer can request (in 90 days) to the tax authorities for a refund. The importer has to prove the importation and the exportation of the products with the Import and Export Declarations and also present the tax payment forms. If the request is approved, the importer will get a Tax Credit Certificate to be used on the next importation.

Brazil exercises considerable control over cross-border currency trans-actions. Exchange-control policy is established by the National Monetary Council - CMN, the president of which is the Minister of Finance. The Brazilian Central Bank (BACEN) administers exchange-control policy and has the exclusive legal rights to operate in foreign currency. However, BACEN delegates these rights to private commercial banks, which operate in accordance with rules established by BACEN.

Controls are exercised over all foreign-currency transactions, including transfers of capital, dividends, interest, royalties, payments for imports and exports, and compensation for services. No exemptions from the exchange-control system are available.

Foreign currency is exchanged based on the official exchange rate, which is now a combination of the commercial and tourist rate. This exchange rate is no longer controlled by the Brazilian Central Bank and varies according to market conditions. The exchange rate of the black market is still quoted daily in the media.

The tourist dollar exchange rate, introduced in 1989, normally follows the illegal parallel market rate and is generall higher than the commercial rate. The tourist dollar exchange rate is used for numerous exchange operations, including the purchase and sale of foreign currency for business and vacation travel abroad, the transfer of assets abroad in connection with an individual's definitive departure from Brazil, the transfer of an inheritance and donations abroad, membership fees for certain international organizations and the importation of software.

Royalty payments are authorized only after the underlying patent or trademark is registered in both the country of origin and in Brazil. To establish remittance rights for patent and trademark royalties and technical assistance fees, licensees must have the underlying licensing agreement approved by the National Institute of Industrial Property (Instituto Nacional de Propriedade Industrial -INPI) and registered with the BACEN.

Remittances of royalties and fees through the official market to foreign licensers are generally limited to 1-5% of sales. The maximum amount deductible on the remittance is 5% of net receipts from the product manufactured or sold.

Individual Brazilian residents are not allowed to maintain Brazilian bank accounts denominated in a foreign currency. They may maintain these accounts in banks abroad and the funds must be declared on the individual's personal income tax return.

Foreign investors operating through branches or as subsidiaries in Brazil generally have access to the sources of finance available to Brazilian companies. However, the financial instruments offered by banks and other financial institutions are unavailable to individual non-resident investors.

Incentives are available for export production and for local production of capital assets. Most incentives apply to new investment and are offered by state or municipal governments. They normally include substantial reductions in taxes, utility charges and other expenses. Federal incentives are available for investments in less developed areas.

Financing for mining projects is essentially an international market. This holds especially true for Brazil where, for the time being, there is no known local currency available for long-term finance.

Therefore, the principal options for project financing typically include either foreign commercial bankers or Brazilian-based investment bankers with a track record in securing financing on the international markets. Project finance alternatives are influenced to a large extent by the local economic and political stability, local tax regime, cash remittance, foreign exchange laws and regulations, which are favourable with the Constitution General Amendment.

Historically, raising capital for exploration work in the Brazilian stock exchange has not been a valid option for mining companies. The amount traded on local exchanges has not been sufficient to allow this risk investment alternative. However, this is expected to change in the future as a result of local and international institutional investors looking for high growth stocks.

The Brazilian pension funds already hold strong positions in mining companies. To date, the main source of equity financing for exploration activities in Brazil has been either direct cash from parent companies abroad, and/or the Canadian Stock Exchange for junior companies.

The BNDES System, controlled by the Federal Government, consists of the National Bank for Economic and Social Development (BNDES), Special Industrial Financing Agency (FINAME) and BNDES Participações S/A (BNDESPAR). In addition to those subsidiaries, BNDES uses a network of financial institutions - commercial, investment, state and regional development banks, among others that - who pass on the system's resources, known as BNDES System Financing Agents (private and state commercial banks, investment banks, state and regional development banks, among others).

One of the BNDES system's major objectives is to support the industrial development in Brazil and it therefore offers several lines of financing and shareholdings.

In developing the mining activity, the BNDES system has been playing a major role as a provider of financing resources for most of mining projects, whatever their size, installed or in the process of installation in Brazil. It is worth mentioning such projects as: Carajás (iron ore), Salobo (copper), Rio Capim (kaolin), Igarapé Bahia (gold), Caraíba (copper mining and smelting) among others.

The System's credit lines are available to Brazilian or foreign-owned mining companies, independent of the origin and control of their capital.