Brazil’s Mining Code: Avoiding an Apagão Pará on the Rise: A Talk with David Leal Exploration & Corporate News
BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
Lights Out for Explorers? Brasília finally sent its long-anticipated and long-delayed new mining code to Congress for approval in June. Initial concerns focused on how the draft bill would impact Brazil’s big iron ore exporters. However, a closer look at the bill’s fine print reveals that it may be junior explorers who find themselves hardest-hit by the new regulations. When Brazil’s new mining code was proposed in June, the media focused on how the new royalty would affect the country’s massive iron ore export industry. But with ore prices remaining high and the state promising major investments in rail infrastructure, the focus of debate has now turned to the bill’s impact on explorers. The introduction of an auction system for prospective areas and the bulkingup of the national geological service has led to fears that the private sector could be pushed out of exploration, with potentially disastrous results for the wider mining industry in Brazil. Elmer Salomão, president of the Brazilian Mineral Exploration Association (ABPM), has warned that the country risks facing an exploration apagão—a blackout—if the mining code is approved in its current form. The exploration sector is the lifeblood of the global mining industry. As existing mines are depleted, new discoveries are needed to replenish reserves. In the last decade the majors have reduced their exploration focus, relying instead on junior firms to take the risks needed to make big discoveries. The odds are stacked against firms discovering a commercial project—some say only one in a thousand prospects results in a mine—so firms expect hefty rewards when they hit a major deposit. At present, Brazil’s mineral resources remain the property of the state, but the discoverer has the right to stake the claim and, by acquiring a mining license, extract and commercialize the deposit, subject to taxation. More often, the successful explorer will sell the project on to a major for a hefty sum.
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Brazil’s new mining code looks set to radically change this dynamic, with public auctions set to be introduced for exploration permits. There is still considerable confusion, apparently even among government bodies, about which areas of the country will go to the block. An original version of the bill suggested that the soon-to-be-established National Mining Agency would identify “strategic areas” with high potential for phosphate, copper, and rare
Elmer Salomão, president of the Brazilian Mineral Exploration Association (ABPM), has warned that the country risks facing an exploration apagão—a blackout— if the mining code is approved in its current form.
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earths deposits, and that these titles would be subject to auction. However, in a June interview with Reuters, Manoel Barretto, president of the Geological Survey of Brazil (CPRM) suggested that all exploration titles, excluding those already held by companies, could be subject to auction. The CPRM itself has been significantly bulked-up in preparation for a more central role. Local business daily Valor Econômico reported that the organization has seen its budget grow to R$468 million for 2013, with 355 analysts, geologists, and technicians expected to be hired in the coming months. The Ministry of Mines and Energy has stated that by the end of 2014 an additional 900 square kilometers of Brazilian territory will be geologically mapped, with an additional 1.4 million square kilometers subjected to aerial geophysics studies. However, it is doubtful that building a bigger databank of geological maps will further
BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
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LEAD ARTICLE
IBRAM figures indicate that only 30% of Brazil has been adequately mapped—leaving explorers with little data to go on when they bid for permits at auction Brasília’s stated intention of promoting exploration investment.According to figures by IBRAM, the Brazilian mining chamber, only 30% of the country has been adequately mapped and exploration spending per kilometer in Brazil falls well behind that of Peru, Chile, and Mexico. Will firms still be expected to make competitive bids for an area, even if there is little or no CPRM data available? But even for those areas with more detailed coverage, most explorers and analysts say that the auction system is inappropriate. Government mining representatives frequently make reference to the auction system in the petroleum sector but there are clear differences between the two sectors. Mining projects are higher-risk than oil projects and depend on a greater number of variables, from metal recovery rates to stripratios, making them far harder to value from basic geological data. Mines also take longer to build than oil projects, meaning that there is a greater risk that the fundamentals, such as prices, shift suddenly.
Officially, the government wants to put an end to land speculation by firms or persons who have no intention of developing the titles they own. However, some have interpreted the introduction of auctions as a sign that the government is trying to push out junior explorers as well. Critics point out that fair and wellenforced work commitments would be a better way to get rid of speculators. They also note that most major deposits being mined today were discovered thanks to the high-risk junior explorer model. Publicly listed firms on the TSX-V or ASX are unlikely— especially in current market conditions—to want to stump up cash for the right to explore in Brazil when they can take their teams to other jurisdictions still operating on a first-come, first-served basis. Meanwhile, the majors have cut back on exploration staff and budgets and are hiving off non-key projects to reduce costs. That leaves just a few Brazilian firms, such as Vale and Votorantim, with the cash and the exploration expertise necessary to make successful bids. Combined with local-content requirements proposed by the bill—which are to be set on a project-by-project basis—the measures risk being seen as a move to increase national participation in the sector. Originally, the June mining code held an urgent status that required Congress to submit amendments by August 4. That status has been revoked on the condition that the bill will be ready to go to a vote by early October. In the meantime the fate of the Brazilian exploration sector hangs in the balance.
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BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
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LEADER INSIGHT
RACE TO THE TOP Brazil’s northeastern state of Pará trails only Minas Gerais in mining exports and is home to Vale’s Carajás, the largest iron ore project in the world. But with Vale’s plans to double the state’s iron out output after it launches production at its behemoth S11D (Serra Sul) project in 2016, the Secretary of the state government’s mining authority predicts that Pará will become Brazil’s leading minerals exporter in just half a decade. The strong commodities cycle experienced over the last decade has widely transformed Pará’s economy for the better. During the decade leading up to 2011, Pará’s mining industry saw annual growth of over 25.5%. Fueling this growth is the grand diversity of natural resources that our state hosts. Pará has one of the richest geologies in Brazil and today it’s the second-largest producer of minerals in the country. Today 15% of the state’s GDP and 85% of exports originate with mining; the industry makes up a very important contributor to the development across the various regions of the state. By far the most important industrial engine of the state would be the region of Carajás, which is considered the heartland of mining. Located in Pará’s southeast, Carajás is home to the municipality of Parauapebas, which accounts for 62% of the entire state’s mining production. Even in this phase of lower prices, we are continuing are seeing the state’s mining industry pushing ahead with existing plans to invest and build new mines. If our current predictions are correct, in five years Pará will surpass Minas Gerais to become the country’s number-one minerals-sector producer.
If our current predictions are correct, in five years Pará will surpass Minas Gerais to become the country’s number-one minerals-sector producer. According to IBRAM, in the five years to 2017, $41.3 billion of investment will be directed into Pará’s mining industry. Though Carajás is the largest mining municipality due to Vale’s presence, the state will see a radical change due to strategic investments. Vale is heavily focused on the Parauapebas region, where it is building its Serra Sul project, better known as S11D, which will become Vale’s largest mine. This project in the municipality of Canaã dos Carajás will greatly change the dynamic and accelerate growth in the state. The expected capex through 2018 should reach $19.67 billion and the resulting gains in output will catapult Pará to the top of the country’s mining rankings by doubling our iron ore production. Vale currently produces about 90Mt of iron ore in Pará, but S11D will add another 90Mt to annual production. This single project has created a staggering 5,200 jobs during the construction phase, and once operational the mine will employ about 2,600 workers. Vale attracts most of the spotlight for its investments in Pará yet many other local and foreign companies are active across the state. Canadian companies such as Belo Sun Mining, Colossus Minerals, and MBAC Fertilizer Corp are all developing projects in Pará. In the region of Xingu, Eldorado Gold is investing $330 million at its Tocantizinho gold project in order to begin production in 2016; while to its east, Belo Sun Mining is spending $922 million at its Volta Grande project. Brazilian producers of iron ore are also active throughout Pará. Votorantim, Mineração Rio do Norte, and Mineração Buritirama have mining and infrastructure projects in different regions due to the rich deposits and proximity
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David Leal
Secretary of Industry, Commerce & MIning State Government of Pará to export ports. And Anglo American is making significant investment in nickel: its Jacaré project in Carajás will see just over $4 billion in investment before a production decision is reached. We have been grateful to the mining industry for its contributions to growth in Pará. In order to leverage this growth we are building Science and Technology Parks across the state. Having built parks in Tocantins and Tapajós, the state of Pará has also inaugurated a new Park in Guamá this year. The strategy behind the Parks is to provide the proper skilled workers and business incubation needed to multiply the potential of the mining industry beyond its current capacity. By investing in the people of Pará, we hope that entrepreneurs emerge to continue strengthening our mining industry.
BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
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EXPLORATION NEWS
TSX Belo Sun Mining (TSX: BSX) announced results for 74 new drill holes at its Volta Grande project, with a view to expanding and upgrading its resources estimate, which is to be completed in the third quarter of this year. Brazil Resources (TSX-V: BRI) announced drill results for its Artulandia project in Brazil’s Goiás state. The results reveal polymetallic mineralization of up to 10 meters in thickness. The company’s president and CEO, Stephen Swatton, said of the find: “Our geological team believes the results of this drilling program are significant and a gold equivalent grade of 1.56 g/t or copper equivalent grade of 0.93% is a great start.” Colossus Minerals (TSX: CSI; OTCQX: COLUF) announced that it intersected gold and copper in its phase-one drilling program at its Cutia project in Pará state. Highlights included the CTA-13003 intersection of 2.35g/t gold, 0.32g/t silver, and 0.26% copper over 5.98 meters; CTA-13-005 intersection of 9.58g/t gold, 1.40g/t silver, and 0.41% copper over 1.00 meter. Further, the necessity for further
dewatering capacity at the Serra Pelada mine has delayed the firm’s forecast for production until late in quarter four of this year. Cosigo Resources (TSX-V: CSG) announced the completion of 20 reverse circulation drill holes at depths of up to 95 meters, at its Machado project in the Taraira gold belt. Horizonte Minerals (TSX: HZM; AIM: HZM) awarded the PFS contract for its Araguaia project in northern Brazil, to Snowden Mining Industrial Consultants. As lead contractor, Snowden will be tasked with managing a group of third-party consulting groups to produce the PFS. Magellan Minerals (TSX-V: MNM) reported results from eight infill drilling holes taken from its Coringa project. Highlights included 1.5 meters at 3.09g/t gold including 0.5 meters at 8.03g/t gold in hole 161. The holes were drilled to a maximum depth of 352 meters and represented 2,434 meters in total.
ASX Cleveland Mining (ASX: CDG) resumed production at its Premier gold mine
after taking measures to streamline the operation and cut costs. “We are very happy with the progress that has been made reducing overheads after an extended phase of commissioning. The coming months should see more consistent production with more gold produced,” said managing director David Mendelawitz. International Goldfields (ASX: IGS) announced that it had intersected highgrade gold at its Ouro Paz JV in Goiás state. The firm drilled 14 diamond drill holes on four prospect areas and highlights included 3.38 meters at 13.8g/t gold from 42.74 meters, including 1.5 meters at 29.9 g/t gold; and 8.57 meters at 12g/t gold from 53.63 meters, including 1.8 meters at 50.1g/t gold.
NYSE Eldorado Gold (NYSE: EGO) announced that the fall in the gold price prompted it to reduce its 2013 operating budget. Finances for exploration have been reduced from a planned $98.5 million to $51 million, with a focus on mine-site and brownfields exploration. Capital expenditure, mean while, has been reduced from a planned $670 million to $430 million.
CORPORATE NEWS
BRAZIL EXPLORATION BRIEFING Vol 5 • July 2013
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CORPORATE NEWS
Colossus Minerals (TSX: CSI; OTCQX: COLUF) announced C$33 million equity financing through an underwriting agreement between itself and a syndicate of underwriters, to sell 44 million units at C$0.75 per unit. Each unit consists of one common share and one half of a common share purchase warrant, which can be exercised within a period of 24 months from the close of the offering. The proceeds will be used to fund the Serra Pelada gold project. Lara Exploration (TSX: LRA) announced that it has relinquished its north Brazilian tin project, its Conceição nickel project, and its Canabrava polymetallic project in Goiás state. The choice was made after a series of disappointing drill results, together with a failure by joint partners to secure financing. Serabi Gold (TSX: SBI) acquired Kenai Resources (TSX-V: KAI) under a plan of arrangement. A total of 95,120,675 new Serabi shares were issued to Kenai’s shareholders. Santa Fe Gold (OTC: SFEG) announced that it will receive A$2 million from International Goldfields (ASX: IGS) via a secured
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convertible note, increasing IGS’s investment in Santa Fe to A$6 million. Santa Fe is also considering listing on the Singapore Catalist Stock Exchange (SGX-ST). Carpathian Gold (TSX:CPN) announced a bought deal private placement to be used for working capital on the firm’s Brazilian projects. Cormack Securities and Macquarie Capital Markets Canada agreed to purchase 114,500,000 common shares at a price of $0.14 per share for proceeds of $16 million. The offering is scheduled to close on 5 September. Eagle Mountain Gold (TSX-V: Z) announced that it had completed a non-brokered private placement, issuing 11,482,666 shares at a price of $0.06 per share for proceeds of $688,960. The proceeds will be directed to developing the firm’s projects in Guyana and for general working capital. Rio Novo Gold (TSX-V: RN) announced the resignation of its President & CEO, Julio Carvalho. Patrick Panero, previously the firm’s Colombia Country Manager, was named as his replacement.
BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
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IN FIGURES TOP 5 MOVERS
141
Paringa Resources Belo Sun
30
Santa Fe Gold
19
Serabi Gold
$ 60
66
19
BRAZIL GOLD INDEX
The Brazil Gold Index measures the average market capitalization of 13 Brazil-focused gold juniors (AGC, ORA, BSX, BGC, BRI, CPN, CSI, JAG, LDM, LGC, MNM, CDG and CAS).
Luna Gold
Ticker
Shares
Share Price (C$)
Prev Month (C$)
69.938.085
$0,150
$0.160
% Change Market Cap (C$m)
Cash (C$m)
Moz
EV/oz
$0.00
1.85
$5.67
Canada TSX & TSX-V Amarillo Gold
AGC
Amerix Precious Metals
APM
82.454.934
$0.015
$0.015
0
$ 1.2
Aura Minerals
ORA
228.358.334
$0.100
$0.090
11
$ 22.8
2.60
$8.78
Belo Sun
BSX
265.910.000
$0.780
$0.470
66
$ 207.4
6.90
$30.06
Brazilian Gold
-6
$ 10.5
BGC
103.608.796
$0.100
$0.090
11
$ 10.4
Brazil Resources
BRI
41.330.147
$0.810
$0.790
3
$ 33.5
Carpathian Gold
CPN
555.419.911
$0.170
$0.160
6
$ 94.4
Colossus Minerals
CSI
175,546,151
$0.780
$0.730
7
$ 136.9
Cosigo Resources
CSG
77.630.523
$0.180
$0.220
-18
$ 14.0
Z
38.073.526
$0.100
$0.085
18
$ 3.8
Eagle Mountain Gold
$7.20
2.60
$3.98
0.67
$60.71
9.00
$10.49
0.98
$3.89
8.29
$2.97
Horizonte Minerals
HZM
401.139.497
$0.115
$0.115
12
$ 46.1
INV Metal
INV
493.735.340
$0.035
$0.040
-13
$ 17.3
Jaguar Mining
JAG
86.396.356
$0.285
$0.300
-5
$ 24.6
Lago Dourado
LDM
94.279.828
$0.035
$0.030
17
$ 3.3
Lara Exploration
LRA
30.738.021
$1.000
$0.900
11
$ 30.7
Luna Gold
LGC
105.028.566
$1.680
$1.410
19
$ 176.4
3.90
$45.24
MNM
117.223.226
$0.090
$0.100
-10
$ 10.6
2.40
$4.40
Rio Novo Gold
RN
113.279.180
$0.060
$0.085
-29
$ 6.8
2.66
$2.56
Sandstorm Gold
SSL
94,375,534
$6.750
$6.090
11
$ 637.0
1.01
$630.73
Serabi Gold
SBI
456,389,204
$0.095
$0.080
19
$ 43.4
0.67
$64.71
TriStar Gold
TSG
57.664.803
$0.285
$0.320
-11
$ 16.4
Cleveland Mining
CDG
204.136.669
$0.130
$0.145
-10
$ 26.5
Crusader Resources
CAS
126.646.041
$0.200
$0.235
-15
$ 25.3
2.43
$10.42
Minera Gold
MIZ
550.479.038
$0.010
$0.010
0
$ 5.5
0.10
$55.05
Paringa Resources
PNL
37.391.667
$0.200
$0.083
141
$ 7.5
0.13
$44.08
25.70
$237.70
Magellan Minerals
Australia ASX
Orinoco Gold
OGX
72.545.001
$0.135
$0.140
-4
$ 9.8
BBX Minerals
BBX
112.354.241
$0.015
$0.015
0
$ 1.7
OTC Gold Hills Mining
GHML
34.206.313
$1.650
$2.100
-21
$ 56.4
Aurora Gold
ARXG
249,144,706
$0.023
$0.021
9
$ 5.7
Santa Fe Gold
SFEG
117,599,598
$0.185
$0.142
30
$ 21.8
EGO
714,484,476
$8.550
$8.040
6
$ 6,108.8
NYSE Eldorado Gold
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BRAZIL EXPLORATION BRIEFING Vol 6 • September 2013
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