Brazil needs price floors to back processing, miners say

Brazil is on the cusp of a new policy to fund domestic refining for lithium and the world’s second-largest rare earth reserves, but miners say it lacks U.S.-style metal price guarantees to fight Chinese domination.

The R$7-billion (US$1.4-billion) funding bill could become law this month after clearing Congress on Sept. 2. It offers financing and tax credits for processing plants, but nothing like the $110 per kg price floor the Pentagon guarantees MP Materials (NYSE: MP) for neodymium-praseodymium oxide, which has traded as low as US$61 per kg in China this year.

“If you ask me what the odds are of refining investment happening outside China without a public policy that breaks the pure economics, it’s zero,” Vinicius Alvarenga, CEO of Companhia Brasileira de Lítio (CBL), Brazil’s only integrated lithium mining-to-chemicals producer, said in an interview.

Vale (NYSE: VALE), Brazil’s mining giant, has said price floors or similar commercial guarantees could help make refining projects viable outside China, and defends the company’s choice to stay upstream.

“Refining is a separate business, capital-intensive and lower-margin, one China has already mastered,” Vale CEO Gustavo Pimenta told reporters in Rio de Janeiro last month. “Vale’s job is to be the best possible mining operator.”

Competition

The gap points to a wider question facing Brazil’s push into processing: financing alone may not be enough to keep critical minerals onshore if China can still undercut the price once the material is refined.

Brazil holds rare earth reserves of about 21 million tonnes, or a quarter of the global total, behind only China. But the South American country accounts for just 0.15% of global rare earth production and doesn’t refine magnet metals, according to the Center for Management and Strategic Studies (CGEE), a federal government-linked think tank in Brasília.

The bill, formally called the National Critical and Strategic Minerals Policy, creates a mineral project loan guarantee fund with up to R$2 billion in federal backing alongside tax credits for building plants that provide R$1 billion annually between 2030 and 2034, for a total of R$5 billion over five years.

“Brazil cannot continue to be a mere exporter of raw materials and an importer of high-value products manufactured with our own minerals,” Zé Silva, the congressman who authored the bill, said Sept. 2 on the website for União Brasil, the party he belongs to.

Investment

Anderson Arruda, a senior official at the Ministry of Mines and Energy, didn’t address concerns that Brazil must compete with the U.S. Inflation Reduction Act and Europe’s Critical Raw Materials Act to draw processing investment, nor did he mention price floors or government offtake guarantees.

The country “is already in this race and gaining ground,” Arruda told The Northern Miner in an exclusive interview by email.

He cited new low-cost financing from the Brazil Soberano 3 program backed by state development bank BNDES, as well as funds from its investment arm BNDESPAR, and research funders Finep and Embrapii.

Pablo Cesário, president of the Brazilian Mining Institute (Ibram), called the congressional vote “a sophisticated political agreement between government, opposition and industry, resulting in the best possible consensus.”

Yet even in celebrating, Cesário signalled the real fight is still ahead. Ibram is drafting its own proposals for the bill’s regulation stage, and he said the industry’s priority “continues to be ensuring legal security and predictability.”

Foreign ownership

Foreign acquisitions are also drawing regulatory scrutiny. In a US$2.8-billion transaction completed this year, Texas-based USA Rare Earth (Nasdaq: USAR) acquired full control of Serra Verde Group in Goiás state. Serra Verde will continue to mine and process ore into mixed rare-earth carbonate in Brazil, but the deal sends separation and downstream manufacturing abroad to the UK and Oklahoma.

The agreement is secured by a 15-year offtake agreement for the mine’s entire stage-one output, financed through a special purpose vehicle backed by U.S. government agencies and private capital. Brazil’s antitrust regulator, CADE, opened a review in May into whether the deal should have required prior notification.

Australia’s Viridis Mining (ASX: VMM), developing an ionic-clay rare earths project in Poços de Caldas, a city in southern Minas Gerais state, is also looking abroad for downstream processing. It signed a letter of intent with Solvay (EBR: SOLB) to supply Brazilian rare earth feedstock to France for separation..

On Tuesday, BNDES approved R$77.5 million for Viridis to build a pilot research and processing center in Poços de Caldas that will produce mixed rare-earth carbonate. The financing covers only the early stage of the chain. Separation, the higher-value step, still takes place in France.

Processing finance

BNDES has tried to finance processing projects more broadly. The bank structured a R$2-billion private equity fund with Vale that received 56 proposals worth roughly R$50 billion in demand.

“We currently have 10 to 12 mature projects under direct review at BNDES, worth about R$10 billion in investment,” Jose Luis Pinho Leite Gordon, the bank’s director of productive development innovation and foreign trade, told The Northern Miner. “All of them involve beneficiation and value-added stages, not just raw mining.”

Credit, though, covers construction costs, not price risk. The CGEE study found that even after the bill’s passage, the legislation “leaves open the two structural gaps identified in the roadmap: a sovereign floor price for heavy rare earths and an operational offtake function.”

Brazil has some processing capacity. Companhia Brasileira de Metalurgia e Mineração refines niobium at a global scale in Araxá, Minas Gerais state. And lithium refiner CBL headed by Alvarenga says current market conditions threaten the viability of its refining operation.

The question isn’t whether Brazil can process its own minerals. It’s whether that capacity survives the next cycle, or whether processing keeps moving to whichever country backs the price.

Japan secured a 12-year, US$110-per-kg floor with Australia’s Lynas (ASX: LYC; US-OTC: LYSDY), which also has U.S. Pentagon backing for its rare earth supply chain.

Australia’s government is financing processing directly, too: Iluka Resources’ (ASX: ILU) Eneabba refinery, in Western Australia, more than half built and due to start production in 2027, is backed by a A$1.65-billion (US$1.19-billion) non-recourse government loan.

Serra Verde

In August, the U.S. government increased its investment in the Serra Verde offtake vehicle to US$750 million, part of a US$1.55-billion package that also includes a US$500-million bank credit facility and at least US$300 million in forward purchases. Separately, the U.S. International Development Finance Corp. committed up to US$565 million to expand mining and processing operations.

“Together with the establishment of floor prices for the four magnetic rare earths Serra Verde produces. . . the company is grateful for the U.S. government’s support,” Serra Verde CEO Thras Moraitis said in announcing the measures.

For CBL’s Alvarenga, Brazil’s new mining guarantee fund solves a real problem, but on the wrong side of the value chain.

“It’s revolutionary,” he said of the mechanism, which would reduce the collateral banks such as BNDES require from miners. “But it has nothing to do with refining. Those are mining projects.”

On the midstream side, he added, the difficulty is far greater. CBL keeps its refining operation running, he said, “only in the hope that something eventually gives us an incentive to stay in refining, because right now it puts even that at risk.”

Brunno Braga is a Rio de Janeiro-based journalist and market analyst who’s been covering commodities, energy, and metals across Latin America for international institutional audiences for more than 25 years.