Brazil looks to get tough on Chinese iron ore investments

Brazil’s recently elected government has signaled that it won’t be business as usual when it comes to mining iron ore in the South American country.

In early November Brazilians replaced popular President Luiz Inácio Lula da Silva – who while initially running on a populist platform proved to be adept at managing the economy – with his anointed successor, Dilma Rousseff.

According to the Brazilian newspaper Folha de S.Paulo, Dilma is set to make her mark in the mining sector by tabling legislation that will make it more difficult for Chinese firms to continue to acquire Brazilian mining assets – specifically iron ore mines.

The changes would come as part of a draft legislation aimed specifically at the mining sector which would be put forth by June of this year.

The barriers could come in the form of minimum domestic supply quotas and restrictions on foreign participation in mining projects based on the investors’ profile.

The latter restriction will be designed so as to not eliminate all foreign investment in the sector, but instead aim specifically at Chinese ownership of iron ore production.

Dilma, who as chief of staff of the previous administration fought for tougher oversight of the mining industry, is said to want the measures approved by the end of the year.

The news comes amidst a flurry of activity from Chinese metal companies in the country.

Indeed word of the revisions came on the same day that Chinese-based Hunan Valin Iron & Steel Group – the largest steel producer in China’s Hunan province – signed a long term iron ore supply framework agreement with a Brazilian mine.

And while Dilma pushes to get changes made into law, the process of limiting foreign ownership of iron ore assets began with Lula.

The former president had looked to create a new regulatory agency while forcing concession holders to start exploring more quickly. Some onlookers blame Lula’s inability to get the measures through for the uptick in Chinese acquisitions.

As it stands today, foreign investors and Brazilian investors have equal ownership in rights except in strategic areas, such as near the country’s borders. There is also a moratorium on commercial mining on indigenous Indian lands.

The new legislation could also look to lower royalty charges for companies that choose to process ore in Brazil.

Brazil is currently the third largest producer of iron ore in the world behind only China and Australia. The country weighs in at roughly 250 million tonnes of production per year.