Brazil is moving decisively to claim a larger role in the global critical minerals economy, but the policy approved by Congress may ultimately be judged by whether its ambitions for national sovereignty can coexist with the legal certainty needed to attract mining investment.
The Senate approved Bill No. 2,780/2024 on Sept. 2, establishing the National Policy on Critical and Strategic Minerals, or PNMCE. Having previously passed the House of Representatives, the bill now goes to the President, who may sign it into law or veto it in whole or in part.
The timing is significant. Governments around the world are competing for reliable supplies of minerals needed for the energy transition, advanced technologies and defence, while long mine-development timelines and increasingly fragile supply chains have exposed the risks of relying on a limited number of producing jurisdictions.
Brazil has an obvious opportunity. Its geological potential gives the country a strong foundation from which to participate not merely as a producer of raw materials, but as a more important part of global mineral supply chains. The question is whether the framework Congress has chosen will help unlock that potential or add another layer of uncertainty to an already complex industry.
Greater control
At the heart of the PNMCE is a substantially stronger role for the federal government in determining how critical and strategic mineral assets are developed, financed and transferred.
The bill creates the National Council for the Industrialization of Critical and Strategic Minerals, or CIMCE, which would formulate policy, classify minerals as critical or strategic, identify priority projects and prepare a national plan for the sector. The council would have up to 20 members, with the federal government holding most of the seats.
More consequential for investors is the requirement for government approval, or homologação, of certain transactions involving critical and strategic minerals.
A direct or indirect change of control involving a company holding relevant mineral rights would require approval. The framework also reaches the acquisition of significant influence by foreign entities, certain transfers or encumbrances of mineral rights, access to geological information considered strategically important and supply contracts whose terms could affect Brazil’s economic or geopolitical security.
There is a legitimate public policy rationale behind greater scrutiny of assets that may be important to national security and economic development. Brazil is hardly alone in reconsidering the strategic implications of foreign investment and control over critical mineral supply chains.
But mining assets do not exist in a static market.
Projects routinely move between explorers, developers, producers and investors as their capital requirements and risk profiles change. M&A, farm-ins, joint ventures, royalties, streams and offtake arrangements are not peripheral activities; they are fundamental mechanisms through which mining projects are financed and advanced.
Introducing government approval into those transactions therefore raises an important practical issue: predictability.
If approval criteria are objective, transparent and applied consistently and within reasonable timelines, the additional oversight may be manageable. If they depend on broadly defined concepts such as economic or geopolitical security without sufficiently clear parameters, the mechanism could introduce uncertainty into transactions precisely when Brazil is seeking additional international capital.
That tension runs throughout the legislation.
The PNMCE expressly embraces regulatory stability, legal certainty and predictability as principles for attracting investment. Yet several of its most consequential provisions will depend on regulations that have not yet been written.
The National Registry of Critical and Strategic Mineral Projects, for example, would require registration of qualifying projects that already have a critical mineral resource, but also those projects and ventures in areas the executive branch designates as strategic. Congress, however, has left the definition of those areas and the criteria governing them for another day.
The same is true of project prioritization. The legislation identifies desirable objectives including local procurement, domestic value addition, environmental protection, community engagement and national sovereignty. Those are understandable policy goals. Investors will nevertheless need to know how they will be measured and how competing considerations will be weighed.
Legal certainty depends not only on knowing what government wants, but also on knowing what rules government will use to reach its decisions.
The bill’s approach to exploration licences illustrates the problem particularly well.
Exploration licences covering critical or strategic minerals would have an absolute maximum term of 10 years, with no extensions, suspensions or tolling, apart from the period between applying for and obtaining an environmental operating licence.
Ten years can be a reasonable exploration period given the technical complexity and risks involved. The difficulty lies in treating that limit as absolute.
Mineral explorers can face delays beyond their control, including disputes over access to surface land. Existing Brazilian mining law provides mechanisms for dealing with those circumstances, yet the bill does not accommodate them when calculating the new exploration deadline.
There is also a more basic question: an explorer may not know whether a deposit contains a critical or strategic mineral until exploration is underway. Regulations will have to determine how the new deadline applies when such a mineral is discovered incidentally or when it is identified only after work has begun.
These may appear to be technical details. For investors committing capital over many years, they are anything but.
Investment test
Congress has paired greater oversight with a considerable package of incentives intended to move Brazil further down the mineral value chain.
The federal government would be authorized to participate in a Mineral Activity Guarantee Fund with up to BRL 2 billion ($390 million). Companies involved in critical and strategic minerals would contribute 0.2% of gross operating revenue, net of taxes, annually for the fund’s first six years.
The legislation also requires affected companies to invest 0.3% of gross operating revenue in research, development and innovation during that period, rising to 0.5% thereafter. Half may be directed internally, while the remainder must flow through specified partnerships or institutions.
A Federal Program for the Processing and Transformation of Critical and Strategic Minerals could provide CSLL tax credits for qualifying domestic processing investments. The credits would be capped collectively at BRL 1 billion ($195 million) annually from 2030 through 2034 and at 20% of qualifying expenditures.
The bill would also extend the Reidi infrastructure tax regime to qualifying mineral projects and broaden Brazil’s incentivized-debenture framework to support certain exploration, mining, processing and transformation projects.
These measures recognize one of the central challenges facing mineral-producing countries: capturing more economic value than can be obtained simply by extracting and exporting ore.
Yet there is an important distinction between encouraging domestic processing and making incentives dependent upon it.
A processing industry becomes competitive because the economics support it: energy, infrastructure, technology, logistics, financing, markets and scale all matter. Legislation can improve those conditions, but it cannot make them irrelevant.
If access to otherwise attractive mining incentives depends too heavily on downstream commitments that are not commercially viable, Brazil risks weakening the investment proposition at the upstream stage without necessarily creating a competitive processing industry downstream.
That would defeat the policy’s purpose.
The legislation fares better in recognizing royalty and streaming agreements. Allowing these contracts to be registered with the National Mining Agency, or ANM, and effective against third parties addresses a longstanding legal concern surrounding transactions that have become increasingly important sources of mining finance.
Its provisions on urban mining, traceability and low-carbon mineral certification also point toward a broader conception of mineral policy encompassing recycling, provenance and the carbon intensity of production.
But one of the industry’s largest practical constraints receives considerably less concrete treatment: environmental permitting.
The PNMCE says critical and strategic mineral projects should receive priority in environmental licensing and government review. It does not establish specific procedures or timelines for achieving that objective.
The CIMCE may refer projects it considers strategic for special environmental licensing, but the legislation leaves unanswered which projects will qualify and what criteria will apply.
This omission matters because geological potential alone does not create mineral supply. Deposits have to become mines.
A policy intended to increase Brazil’s strategic importance in global mineral markets will therefore achieve relatively little if promising projects continue to spend years navigating uncertain approval processes. Faster permitting need not mean weaker environmental protection. It should mean clearer procedures, coordinated agencies and predictable timelines.
The same principle should guide the implementation of the legislation as a whole.
Brazil has good reasons to develop a dedicated policy for critical and strategic minerals. Supply security has become an economic and geopolitical concern, while the energy transition is reshaping demand for commodities in which resource-rich countries may hold substantial advantages.
The opportunity is therefore real.
So is the risk of assuming that more government involvement necessarily produces more investment, more processing or more mines.
The regulations that follow will determine much of the PNMCE’s actual impact. They will have to translate concepts such as national interest, strategic importance and economic security into rules sufficiently clear for companies, lenders and investors to price risk and commit capital.
Brazil does not need to choose between sovereignty over its mineral resources and private investment. A successful critical minerals policy should reinforce both.
That requires incentives capable of changing investment decisions, oversight that protects legitimate national interests and, above all, rules predictable enough for investors to understand before they commit billions of dollars and years of work.
Congress has established the framework. The more difficult task now begins: ensuring that Brazil’s pursuit of strategic control does not make the investment needed to develop those strategic minerals harder to secure.
* Adriano Drummond Trindade is a Brazilian lawyer specializing in the mining sector, partner of Mattos Filho Advogados.
Source: https://www.mining.com/op-ed-brazils-critical-minerals-push-comes-with-a-catch/
