Brazil Mining 2011 - GBR

BRAZIL MINING
ticular. Brazil’s aforementioned history of economic instability
and inflation has rendered the national economy and financial
services industry averse to conventional terms of credit
and affordable interest rates. Currently, Brazil’s commercial
lending rate is above 11%; a rate widely regarded as prohibitive
throughout the mining industry’s value chain from the
supply of equipment to basic operational requirements such
as cash flow management.
On top of this, Brazilian banks are suspicious of potential
debtors and have created a lending regime of extraordinary
restriction in access for those without the largest of balance
sheets. When asked about the reasons for restrictive credit
conditions such as the requirement for 130% collateral on
loan applications, Head of Brazilian Development Bank
BNDES Mining Division Paulo Moreira De Fonseca said:
“Brazil has a history of economic instability and extraordinarily
inflation. This legacy has driven the banking sector toward
demanding credit conditions such as these. In a broader
sense, Brazil does not have as well developed or liquid financial
market as those in Europe or North America; over time I
am sure this will change. However, as it stands, Brazilian mining
companies are at a competitive disadvantage in terms of
their access to financing.”
The reassessment of risk by both lenders and borrowers in
the wake of the global financial crisis has resulted in a less
borrower-friendly environment and more restrictive funding
terms.
According to DNPM, a consistent number of the licenses it
grants to mining companies are returned because businesses
no longer have access to the credit needed to finance site’s
exploration or development. To solve this problem, the
Brazilian government has adopted legal measures that allow
companies to obtain bank loans using their mineral deposits
as credit. However, many banks are cautious about using
mines as a guarantee, as cash, when the companies go bankrupt,
getting cash from the mines is an expensive and complicated
process.
Financing equipment purchases in an efficient and economic
manner is of vital importance. In coordination with the
Brazilian Federal Government, ABIMAQ has worked to encourage
the National Bank for Economic and Social Development
(BNDES) to extend the Financing for the Acquisition of
Capital Goods’ (FINAME) program for up to 10 years. Under
the conditions of FINAME, equipment purchases can be
financed at significantly lower rates than Brazil’s basic interest
rate of 11.75%. FINAME has gone a long way toward
maintaining growth in Brazil’s equipment supply market
throughout the global financial crisis and beyond.
In order to overcome the constraints associated with
Brazil’s extremely prohibitive commercial banking rates and
illiquid capital markets, the majority of Brazil’s mining industry
is funded by international markets. International funding
requirements at a domestic level are a key source of opportunity
for the services and consultancy market. “ERM can technically
support companies to raise money through international
stock exchanges and international financial markets by
managing them through the due diligence processes required
to be approved for such funding. ERM needs to find a way to
develop international contacts and to demonstrate our skills
and experience to potential international clients,” said Walter
92 E&MJ • JANUARY/FEBRUARY 2011 www.e-mj.com