Brazilian gold - into a new era: as alluvials become scarcer, primary production increases in importance.
AS ALLUVIALS BECOME SCARCER, PRIMARY PRODUCTION INCREASES IN IMPORTANCE
Following the first democratic elections in 26 years, Brazil's new president, Fernando Collor de Melo, has wasted no time in trying to halt hyperinflation and bring order to the economy. A string of radical, almost revolutionary, measures including the effective freezing of savings accounts, elimination of the dual exchange rate, a new currency, and increases in taxes on companies and private wealth were introduced immediately he took office. Outrage, disbelief and temporary chaos have been followed by admiration for the boldness of the moves, and cautious optimism. The Collor Plan seems to be working.
It is certainly the most severe and serious economic plan ever implemented by a Brazilian government, and if successful, its affects will be profound. Apart from stabilizing the economy, the main long-term objective is to promote a "cultural revolution" and steer the nation onto a more international course and away from protected home markets and industries.
The plan aims to attack the basic cause of inflation, the huge $30 billion government deficit and the cost of financing the $70 billion internal debt. Taxes have been raised and spending cuts introduced. Further down the line, many state enterprises are expected to be privatized. Despite opposition, the measures were approved by Congress within the 30-day constitutional limit with only minor alterations.
With 80% of bank deposits frozen and a new currency (cruzeiros again. 1,000 new cruzados for one cruzeiro), there has been a drastic squeeze in the money supply. This has had the desired effect of reducing the spiralling price rises and has caused immense cash-flow problems for industry. Official inflation in April was less than 1% a month.
In the immediate aftermath of the plan, the dollar and gold both fell with the creation of a single free exchange rate. This eliminated the mark-up on the international gold price miners had previously enjoyed due to the discrepancy between the official, and the parallel exchange rate to which the local gold price was linked. For gold-mining companies the drop in price and increase in the tax on gold sales has meant a sharp reduction in revenues, but in the medium term industry leaders expect the local gold price to stabilize at a premium of about 30% over the international price.
Most of Brazil's gold still comes from the garimpeiro sector, the army of independent miners who scour the creeks and rivers of the country's vast interior. In 1989 garimpeiros are estimated to have produced around 90 mt gold, of which about one third was registered. Garimpeiros are also responsible for most of Brazil's diamonds and gemstones, and much of its tin production. Their numbers are estimated at nearly a million and over the past 20 years they have moved relentlessly north and west from the more settled southern and coastal regions so that now the latest discoveries are right on the frontier with Venezuela. There, earlier this year, their activities came into conflict with the indigenous Yanomani indians and caused an international outcry.
The government has, until recently, encouraged garimpo production through paying a premium on the gold price to discourage smuggling, reducing taxes, and attempting to legitimize the sector through granting preferential rights. The advantage to the government is a boost to its own gold holdings and the reduction of a chronic unemployment problem.
The policy is paying off but a considerable proportion of the gold produced is still estimated to be sold outside official channels. The country is so large and the areas of garimpo activity so scattered and far from the centers of population that policing is impossible. It is for this reason that the government was forced to reach a compromise in the conflict with the Yanomanis. Faced with the prospect of armed garimpeiro resistance to removal orders, which would have meant Brazilian troops fighting their own countrymen, the government backed down. It simply did not have the ability or desire to enforce its will over several thousand garimpeiros thinly spread across several thousand square kilometers of Amazon forest.
THE PRIMARY SECTOR
One of the reasons for the expansion of gold mining in recent years, both the garimpeiro and official sectors, is the Brazilian gold price. Until the implementation of the latest economic plan, Brazil operated two exchange rates, an official and free-market rate with the free market generally offering a premium of around 50% over the official rate. However, in the hyperinflationary conditions prevailing in the early part of this year it was much higher. In March 1990 the premium reached 120%.
To encourage production and discourage smuggling, gold was paid for in cruzados at the equivalent of the free-market rate, which means the Brazilian gold price has been $600-$700/oz when in the rest of the world it has been trading at around $400/oz. However, mining companies may buy dollars at the lower official rate for essential imports, payment of interest on loans, and remission of dividends.
Garimpo production will remain dominant for several years but primary production from more organized conventional mines is rising. Brazil's registered gold production in 1989 was 55.6 mt of which about 30 mt was from company-controlled operations compared to a little over 22 mt in 1988. Primary production is expected to reach 34.8 mt in 1990 and should rise significantly over the next few years. State-owned CVRD (Companhia Vale do Rio Doce), Mineracao Morro Velho, Sao Bento Mineracao, Rio Paracatu Mineracao, and Companhia de Mineracao e Participacoes (CMP), among others, all have expansion projects.
CVRD produced only 1,520 kg gold in 1988 but plans to produce 12 mt/yr by 1993. The major project is a $35 million investment to triple production at Fazenda Brasileiro in Bahia to 6 mt/yr gold. The most important CVRD project after Fazenda Brasileiro is the Igarape Bahia mine in the Carajas region, which will treat 2000-3000 mt/d ore for an output of 4-5 mt/yr gold. Operations are expected to start in 1991.
Other CVRD projects include establishment of the Maria Preta mine, also in Bahia, which will treat 500 mt/d for a production of 700 kg/yr, and two small mines in Minas Gerais, Riacho de Machado and Caetes. Riacho do Machado is due to start this year.
Mineracao Morro Velho, owned 49% by Anglo-American Corp., is Brazil's largest gold producer. Production was 8.6 mt in 1988 and 7.3 mt in 1989 but shuold rise to 11.5 mt this year and 13 mt in 1991. The original operations are concentrated at Nova Lima in the state of Minas Gerais. New projects include a small mine near Santa Barbara in Minas Gerais, the Joao Belo mine in the Jacobina district of Bahia, and the Crixas mine in Goias.
The Corrego do Sitio mine near Santa Barbara is an open pit/heap leach operation treating 20,000 mt/mo ore for the production of 1.5 mt gold over the projected three-year life. At Joao Belo, $33 million is being invested for additional production of 1.5 mt/yr gold. The open pit operation treats 2,500 mt/d at 2.9 g/mt and will progress underground.
At Crixas, Morro Velho, in partnership with Inco in Mineracao Serra Grande, have invested $68 million in an underground mine and concentrator. Crixas started up in October 1989 and will produce 2.5 mt/yr gold in 1990 rising to 3.5 mt/yr at full production. Estimated throughput is 1,000 mt/d at an average grade of 12.7 g/mt.
Sao Bento Mineracao, in which Gencor is a major shareholder, announced in December 1989 that it is to proceed with a doubling of capacity to 50,000 mt/mo and 3.75 mt/yr gold. The expansion includes sinking a 1,080-m vertical shaft and installation of a bio-oxidation circuit in the concentrator to partially oxidize flotation concentrates before pressure leaching. Start-up of the first two of a projected eight biox tanks is scheduled for October 1990.
Brazil's second-largest primary gold producer is Rio Paracatu Mineracao SA owned 51% by RTZ Mineracao Ltda. Paracatu's Morro de Ouro mine produced 4,500 kg in 1989 and this can be expected to increase gradually in the years ahead. The 49% partner in Paracatu is Autram Mineracao e Particapacoes, a partner of CMP which operates two other Brazilian primary gold mines, Novo Astro and Xapetuba.
Novo Astro, located in the territory of Amapa, produced 2.05 mt gold in 1988. Most came from eluvial material in the open pit processed through a gravity plant installed in 1984. In October 1988 a 100,000 mt/yr agitation-leach plant was commissioned to treat primary ore from the open pit and plans are to increase production to 180,000 mt/yr. The underlying primary structure has been drilled to a depth of 250 m and is still open at depth and along strike. Primary reserves are estimated at over 18 mt and it is envisaged that underground mining will commence in 1992 once open-pit reserves are depleted.
Xapetuba is located 150 km from Natal in the state of Rio Grande del Norte and is only the second heap leach operation in the country. The 1988 production totalled 335 kg and current reserves of oxidized material indicate a mine life of approximately two years.
Brazil's new constitution requires all mining companies to be controlled by Brazilian residents within four years but it is not yet clear exactly how this regulation will be interpreted. However, the new President is expected to adopt a more pragmatic approach to foreign investment and tightening of the existing mining code is unlikely. Indeed, some Brazilians believe that as a true market economy evolves under the new plan, mining laws may be further liberalized to attract foreign investment.
The probability of majority Brazilian control does not appear to be a serious concern among foreign mining companies already operating in the country. Most already have Brazilian partners. The country has undoubted mineral wealth, an able workforce, and is self-sufficient in most items of capital equipment which means foreign-currency requirements for mining projects are much lower than in most developing countries. Neither are financial regulations concerning investment nearly as onerous as might first appear.
Various revenue taxes amount to about 5%. Income taxes start at 35% and rise steeply to 45% and above but there are many allowances and concessions. Dividends equivalent to 16% of a company's capital base can be remitted overseas every year subject to a withholding tax of 25%. Greater dividends may be repatriated subject to higher withholding taxes and there is a three-year rollover arrangement whereby monies not remitted one year may be remitted the next. Interest on loans can be remitted without restriction. Under the new Collor Plan foreign-exchange regulations remain unaltered, so remittances of dividends will continue as before. As the economy improves remittances may even become easier.
The coming years should see continued steady growth in Brazil's mining sector.
PHOTO : One of the many churches in Ouro Preto, center of Brazil's 18th-century gold rush.
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|Author:||Suttill, Keith R.|
|Publication:||E&MJ - Engineering & Mining Journal|
|Date:||Jun 1, 1990|
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