PESTEL Brazil

Why Brazil?

r z l s pol t lly st l n s pr s n s o F rn n o H nr qu

mo r t rul s v un r t r oso n u z In o ul

lv

Brazil has a diversified and growing economy that plays a significant role in the global economy. Brazil is the largest economic power in Latin America n t worl s 10thlargest economy.

The country is open to and encourages foreign investment by implementing investor- r n ly pol s T ountry s on o t worl s leading destinations for foreign direct investment.

Brazil is the fourth biggest producer of gold in the world. It has abundant reserves of natural resources and many regions are still unexplored which make the country an attractive location for mine development.

Brazil has an established Civil Law system and a modern mining legislation.

The country is a green energy leader, renewable energy supplying nearly 45% o t ountrys n rgy n s

Expanding into Brazil will allow Newmont to reinforce its presence in South America where its competitors are already well established.

PESTEL Analysis Political Type: Federative republic (with 26 states and a federal district) Independence: September 7, 1822. Constitution: Promulgated October 5, 1988. Branches: Executivepresident (chief of state and head of government popularly elected to no more than two 4-year terms). LegislativeSenate (81 members popularly elected to staggered 8-year terms), Chamber of Deputies (513 members popularly elected to 4-year terms). JudicialSupreme Federal Tribunal (11 lifetime positions appointed by the president). Political parties: Work rs P rty (PT-center-left), Democrats (DEM-centerright), Brazilian Democratic Movement Party (PMDB-center) , Brazilian Social Democratic Party (PSDB-center-left) , Green Party (PV-left) , Socialism and Freedom Party (Psol-left) , Brazilian Labor Party (PTB-center-right) , Brazilian Socialist Party (PSB-left) ,Democratic Labor Party (PDT-left) ,Communist Party of Brazil (PCdoB-left). Br z l s n l ng pl y r n t Worl Tr Org n z t ons Do Round negotiations and continues to seek to bring that effort to successful conclusion.

President Lula has made economic growth and poverty alleviation top priorities. Export promotion is a main component in plans to generate growth and reduce what is seen as a vulnerability to international financial market fluctuations. To increase exports, the government is seeking access to foreign markets through trade negotiations and increased export promotion as well as government financing for exports. Economy GDP (official exchange rate): $2.023 trillion GDP (purchasing power parity): $2.182 trillion Annual real growth (2010 est.): 7.6%. Per capita GDP (official exchange rate): $11,220 Per capita GDP (purchasing power parity): $11,514 Natural resources: Iron ore, manganese, bauxite, nickel, uranium, gemstones, o l, woo , n lum num r z l s 14% o t worl s r n w l r s w t r Agriculture (5.6% of GDP): Productscoffee, soybeans, sugarcane, cocoa, rice, livestock, corn, oranges, cotton, wheat, and tobacco. Industry (27.8% of GDP): Typessteel, commercial aircraft, chemicals, petrochemicals, footwear, machinery, motors, vehicles, auto parts, consumer durables, cement, and lumber. Services (66.6% of GDP): Typesmail, telecommunications, banking, energy, commerce, and computing. Trade: Trade balance (2009)$ 25.3 billion surplus. Exports$153.0 billion. Major marketsChina 13.20%, United States 10.20%, Argentina 8.36%. Imports$127.7 billion. Major suppliersUnited States 15.69%, China 12.46%, and Argentina 8.84% Brazil is generally open to and encourages foreign investment. It is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the number one foreign investor in Brazil. Since domestic saving is not sufficient to sustain long-term high growth rates, Brazil must continue to attract FDI. Many business groups and international

organizations have highlighted the need for Brazil to improve its regulatory environment for investments and to simplify the tax code in order to attract increasing levels of FDI. Today, Brazil economy is on the rise. Blessed with abundant natural resources, Brazil has become the most powerful country in South America in economic terms and thus is leading the other countries of South America. With large and growing Agricultural, mining, manufacturing and service sectors, Brazil economy ranks highest among all the South American countries and it has also acquired a strong position in global economy. r z ls gol pro u t on s r t s ourt n t worl T m n pro l m associated with this factor however, is the pollution from mercury, which is a main component in the current gold processing techniques. Mercury is used in the process of separating the gold from other surrounding rock sediments that usually come together with the mineral when it is mined. The largest gold deposits in Brazil in current times are found along the Venezuelan Brazilian border. This area is commonly referred to as the shield and covers an estimated 415,000 square kilometers of jungle and savanna grassland. With over 2,500 currently known gold occurrences within the country, Brazilian gold mining, development, and production is expected to continue increasing significantly in the foreseeable future. r z ls gol n m n ng s tor s go ng t roug p s o r l growt N w mine projects and expansions in progress are expected to ensure that the country retains its leading position in global mineral commodity production for years to come. Brazilian gold explorers like Magellan Minerals should do very well over the next few years. Social

Population: 190,732,694 (largest population in Latin America and ranks fifth in the world) Annual growth rate: 1.17%. Ethnic groups: African, Portuguese, Italian, German, Spanish, Japanese, Indigenous peoples, and people of Middle Eastern descent. Religion: Roman Catholic (74%). Language: Portuguese (Brazil is the only Portuguese-speaking nation in the Americas) Education: Literacy88% of adult population. Health: Infant mortality rate21.86/1,000. Life expectancy72.6 years in 2010. Work force (2009 est.): 101.7 million. Brazil underwent rapid urban growth; by 2005, 81% of the total population was living in urban areas. This growth aids economic development but also creates serious social, security, environmental, and political problems for major cities.

Environmental r z l s t worl s t l rg st ountry w t tot l r o 8 5 m ll on square kilometres. It benefits from a good river system and 7.500 kilometres of coastline (1). The country has abundant reserves of natural resources such as iron, copper, nickel, manganese or tin. Despite having an estimated gold reserve of 2,000 tones the country accounts only for 2.5% of the global production and many regions are still unexplored, which make Brazil an attractive location for mine development and investment opportunity (1). However, the lack of transportation infrastructure (under-developed railway network, poor quality of the highways with development inconsistent between regions) has long been seen as a major obstacle to economic growth (2).

In addition, the country also lacks reliable and affordable energy. Most of the ountrys n rgy is produced from renewable sources, particularly y ro l tr pow r pl nts t t prov our t s o r z ls l tr ty T s dependence on hydroelectricity has resulted in severe supply shortage for example in 2001-2002 the Government had to implement an energy-rationing program (2). r z ls nv stm nt n n r stru tur ll to just ov r 2% o ts GDP rom t year 2000, one third of the proportion allocated in China and Chile (1). However, investment in infrastructure has more recently become one of the priorities of the Government. In 2007, it launched an infrastructure development program, the Growth Acceleration Program (PAC) to address the ountry s gn nt ro , r l, n rgy supply n ot r n r stru tur n s (2). Recent development includes the construction of two new railways connecting central Brazil to ports in the states of Rio de Janeiro and Bahia, and the construction of Au Superport, a port and industrial complex one and a half times the size of the island of Manhattan that should be completed by 2012 (2). Technological Brazil is the leader in science and technology in South America as well as one of the global leaders in fields such as biofuels and deep-water oil exploration (7). The Brazilian government tries to develop and support innovation in business, for example in 2004 the Innovation Law was passed, is meant to provide incentives to increase innovative activities, facilitate scientific and technological research by private companies and encourage collaboration between public and private sector (5). Mor sp lly, t m n ng n ustry s n t rom t Gov rnm nts support in terms of technology and research, for example the Center for Mineral Technology (CETEM) is a federally funded research and development

centre under the Ministry of Science and Technology. Sixteen universities now offer courses in geology, geochemistry and geostatic and seven offer degrees in mining engineering (4). Legal Brazil has an established Civil Law system based on codification and statutory l g sl t on T ountry r nks s on o t worl s l ng jur s t ons or mining investment but because of its complex federal legal structure, the regulation in this area is bureaucratic, inconsistent and lacks certainty. The prospecting and mining of mineral resources may be carried out by Brazilian citizens or by companies duly incorporated in Brazil holding an authorization or grant by the Republic of Brazil (10). Mineral resources are defined and m n ng r g ts gu r nt un r t r z ls F r l Constitution and Federal Mining Code (8). Mineral resources belong to the state and can only be extracted pursuant to a concession (8). According to the Mining Code, mining activities require the grant of concessions from the Departamento Nacional da Producao Mineral (DNPM) that consists of application for prospecting permits, exploration licenses and mining licenses (8). A law enacted in 2010 limits foreign investors to own more than 5,000 hectares of land (11). Brazilian law also protects Indigenous lands estimated to be around 895,000km. For example, the Constitution covers the interface between the mining industry and indigenous rights. It provides that the National Congress must approve the exploration and mining activities and that the Indigenous community has the right to give permission and if the project is accepted, to share the results in the conditions defined by the Congress (12). Brazil has also implemented strict environmental regulations. The regulations of environmental aspects of mining at both federal and local level and the inconsistencies between regulations in different states can create confusion and duplication in the application procedures (13). At Federal level regulations

are developed by the Ministry of Environment and implemented by the National Council of Environment (CONAMA) and the Brazilian Institute of Environmental and Renewable Resources (IBAMA) controls the environmental licensing process (9). Three levels of control have been established, first an environmental impact assessment (EIA) and environmental-impact reports (RIMA) must be completed, an environmental license is then required and finally a plan of recovery of degraded materials (PRAD) has to be submitted (13). The Brazilian tax system is also a matter of complexity. Brazil comprises numerous federal, state and municipal taxes. The law does not distinguish between domestic and foreign owned companies. Companies are generally subject to tax at a rate of 25% (15%, plus an additional tax of 10% on profits exceeding 240,000 BRL), plus social contribution tax equal to 9% of accounting income (10). The country has also implemented a royalties regime or t m n ng omp n s, t omp ns t on or xplo t ng m n r l r sour s (CFEM) which varies depending upon the mineral mined. Gold extraction is subject to this CFEM tax, which is set at 1% of total revenues (8). T r z l n M n stry o M n ng n En rgy s propos r orm o r z ls mining regulation and proposals will be put before the Brazilian Congress in June 2011 (8). If adopted this reform may have important implications for the mining sector. The aim of this reform is reportedly to increase government control and revenue from commodities as world demand and prices rise and to making r z ls m n ng s tor sier to manage for international investors (8). Some of the key proposals are to: Establish a new National Mining Policy Council to rewrite the Mining Code Replace the DNPM with a new National Mining Agency

A public bidding process will be established to award prospective concessions Limit the duration of exploration permits to 5 years rather than 30 and impose a minimum exploration requirement on recipients of concessions. Replace existing mining licenses by mining contract valid up to 30 years

Raise the rate of royalties but charge them at differential rates, progressively lower for firms that adopt more comprehensive ore processing within their overall production strategy in order to incentivise a move towards downstream production in Brazil. However, some concerns have been expressed that raising royalties could do Brazil more harm than good, making countries with lower taxes more appealing to investors (13) (14).