• Published in March 14, 2024 21:00 inMining

Buying and Selling Mineral Deposits in Brazil

Introduction

In the dynamic world of mining, mineral deposits represent not only the primary source of essential minerals to our daily lives but also the starting point for a value chain that deeply impacts the global economy. Defined as natural deposits of minerals in the subsoil or on the earth's surface, mineral deposits are the foundation upon which the mining sector builds its continuous search for resources. From precious metals to strategic minerals, mineral deposits play a crucial role in various industries, fueling technological development, infrastructure, and innovation.

The process of selling mineral deposits, complex and strategically significant, takes a prominent position in the mining sector. This process not only facilitates the efficient exploration of mineral resources but also substantially contributes to local and global economic development. Companies specialized in the sale of mineral deposits play a vital role in connecting resource holders with industrial players, ensuring that mineral exploration is conducted sustainably and responsibly.

In this context, strategic minerals emerge as protagonists on the global stage due to their critical importance to modern industry and national security. These minerals, which include lithium, used in high-capacity batteries; niobium, essential for the production of special steels; rare earth elements, fundamental for electronic devices and green technologies, fertilizers such as phosphate and potassium, precious metals like gold, silver, and platinum group metals, and other minerals like cobalt, uranium, copper, nickel, zinc, and titanium, are in the spotlight for their innovative applications and growing demand. Brazil, rich in mineral diversity, occupies a strategic position in the supply of these vital resources, standing out as a crucial supplier in the international market.

Therefore, the relevance of selling mineral deposits transcends mere commercial transactions. It is a key element for technological advancement and sustainability, requiring an approach that considers the careful evaluation of deposits, current mining legislation, and rigorous due diligence practices. This process ensures that the extraction and sale of minerals are conducted ethically and sustainably, respecting both the environment and local communities.

Addressing the sale of mineral deposits, it is essential to recognize the complexity and importance of this sector for economic and technological development. Companies selling mineral deposits, M&A experts in mining, and mining law professionals play indispensable roles in facilitating these transactions, contributing to a responsible and future-oriented mining industry. This article aims to explore in detail the universe of selling mineral deposits, highlighting not only the processes and challenges involved but also the inherent opportunities in this vital market for Brazil and the world.

The Market for Mineral Deposits

The mining sector is a fundamental pillar of the global economy, driving industrial and technological development on multiple fronts. The "sale of mineral deposits" represents a critical segment in this sector, directly influencing the production of essential commodities. This chapter explores the market for mineral deposits, both globally and nationally, highlighting the main commodities extracted, their uses, markets, challenges, and the recent trends shaping the economic impact of mining.

Global and National Panorama

The global market for mineral deposits is vast and diverse, encompassing a range of critical minerals for the modern economy. While countries like Australia, Brazil, and Canada are recognized for their rich mineral reserves, the national market of each region faces unique challenges and opportunities, from regulatory issues to environmental impacts. The transition to renewable energies and the increasing demand for advanced technologies have intensified the exploration of mineral deposits on national territory, highlighting the importance of companies selling mineral deposits as facilitators of this process.

Specialized companies in the sale of mineral deposits are especially important in Brazil, given that our country is abundant in world-class mineral opportunities but lacks capital for investment in mineral exploration and mining project development (see our article on the topic at Silveira Capital | Raising Funds for Geological Exploration: Complete Guide). At this point, a company that communicates with international investors is essential because, in developed countries, there are many investors looking for good projects at any stage of development.

To connect the opportunities with foreign capital, it is necessary, besides having connections with various funds, investors, and mining companies, to have expertise in international transactions, mining project development, and knowledge of the M&A process, preparation of important materials, Valuation, negotiation, and closing.

Today the world has a great demand for some minerals, called strategic, we will talk a little more about them below.

Main Commodities in Demand

Gold, Silver, and Platinum Group Metals

These precious metals are highly valued both for their use in jewelry and industrial applications, including electronics and catalyst manufacturing. The market for these metals is influenced by global economic factors, with gold often seen as a "safe haven" in times of economic uncertainty.

Copper, Nickel, and Zinc

Essential to the modern industry, these metals are fundamental in the production of alloys, batteries, and as critical components in energy and telecommunications infrastructure. The transition to electric vehicles and renewable energies has boosted the demand for copper and nickel, while zinc continues to be crucial for galvanization processes.

Cobalt and Rare Earth Elements

Crucial for battery technology and electronic devices, cobalt and rare earth elements face challenges related to sustainability and supply concentration. The search for ethical and sustainable sources of these materials is a growing concern in the market.

Titanium, Potassium, and Phosphorus

Titanium is valued for its strength and lightness, being used in aircraft and medical implants. Potassium and phosphorus, on the other hand, are essential for the production of fertilizers, a market directly linked to global food security.

Recent Trends and Economic Impact

The digitalization and automation of mining operations have increased efficiency and reduced environmental impacts. Simultaneously, the growing demand for strategic minerals, driven by the electrification of transport and the expansion of renewable energies, reflects a significant shift in the market for mineral deposits. These trends not only highlight the "purchase and sale of minerals" as an evolving sector but also reinforce the need for "due diligence in mineral deposits" and a sustainable approach to "mining".

The market for mineral deposits is, therefore, at the center of a critical intersection between economy, technology, and sustainability. As the world advances towards a greener and technologically advanced future, the importance of mineral deposits and the mining sector as a whole only tends to grow, highlighting the relevance of M&A experts in mining and mining law professionals in facilitating transactions that respect both the economy and the environment.

The Process of Selling Mineral Deposits

Selling mineral deposits is a complex and multifaceted process that involves several stages, each with its own challenges and requirements. From the initial identification of a promising deposit to the completion of a sale, owners and investors must navigate a meticulously planned path to minimize risks and maximize value. This chapter details the critical steps involved in selling mineral deposits, emphasizing the importance of each phase in the mining development cycle and mitigating associated risks. With guidance from M&A experts in mining and adherence to mining legislation and sustainable practices, selling mineral deposits can be optimized to achieve beneficial outcomes and maximize value for both sellers and buyers.

Stages of Mineral Deposit Development vs. Risk Reduction

The development of a mineral deposit, from discovery to exploration and ultimately sale, is a complex journey. Each phase of development – prospecting, exploration, assessment, development, and production – carries its own risks and opportunities. Risk reduction is crucial and begins with a detailed understanding of the deposit's geology, market potential of the minerals, and regulatory issues. Careful planning and execution at these stages can significantly increase the perceived value of the deposit to potential buyers.

The development of mineral deposits can be divided into the following stages:

Definition of Potential Areas

Identifying areas with potential to harbor valuable mineral deposits is the first crucial step in the development of deposits. This stage involves preliminary geological analyses, map studies, satellite imagery, and geophysical data to determine regions with mining indicators. The goal is to delineate areas that justify further investigations, maximizing the chances of significant discoveries.

Initial Exploration

After defining potential areas, initial exploration is conducted to gather more information about the local geology and the presence of minerals. This phase may include surface sampling, detailed geological mapping, and non-invasive geophysical methods. The collected data help refine the understanding of the extent and type of mineralization present.

Exploratory Drilling

Exploratory drilling is a direct technique that involves drilling into the ground to obtain subsurface samples, allowing for a more accurate analysis of the mineral composition of the deposits. This stage is essential to determine the location, quality, and quantity of the minerals, providing a solid foundation for assessing the economic potential of the deposit.

Mineral Resource Certification

The certification of the mineral resource is a process by which the information obtained through exploration and drilling is formally assessed to establish the existence of a mineral resource in a certified manner. This typically follows international standards, such as the JORC Code or NI 43-101, ensuring that the data on the resource are reliable and can be used for decision-making and valuation processes.

Feasibility

The feasibility analysis examines the profitability of developing the identified deposit, considering all costs of exploration, development, production, and mine closure, as well as environmental and social aspects. It includes the preparation of technical and economic feasibility studies, which determine whether the project can be economically viable under current and future market conditions.

Implementation

Once feasibility is proven, the implementation phase involves developing the necessary infrastructure to start the mine's operation, including constructing access roads, processing facilities, transportation systems, and environmental mitigation measures. This stage requires significant investments and detailed coordination to ensure that the deposit can be exploited efficiently and sustainably.

Operation

The operation phase is when the deposit begins to be actively exploited, with the extraction and processing of minerals. This stage requires continuous management of mining operations to optimize production, ensure worker safety, minimize environmental impacts, and comply with applicable regulations. Effective operation of the mine is crucial for the return on the investment made in previous stages.

Each of these stages of mineral deposit development presents its own challenges and requirements, requiring careful approach and detailed planning. Understanding and effectively executing these phases are key to success in the "sale of mineral deposits," "purchase and sale of minerals," and sustainable development of the mining sector.

Stages Involved in the Purchase and Sale of Mineral Deposits

Prospecting: Identifying areas with mineral potential for purchase followed by the collection and preliminary analysis of samples. This phase determines whether it is feasible to advance in the transaction.

Assessment and Valuation - Geological Due Diligence: After confirming the presence of minerals, detailed geological studies are conducted to estimate/validate volumes and qualities. The valuation of the deposit uses methods such as Discounted Cash Flow and comparison with similar transactions in the market, which we will discuss in more detail later. In this stage, the buyer validates the geological data provided by the seller and can re-sample drilling cores and outcrops, conduct a new surface sampling in the area, among other validations. Therefore, it is always important to follow international standards in the development of a deposit and conduct the entire process in an auditable manner.

Due Diligence: Before a sale, an in-depth analysis is performed to assess all aspects of the deposit, including legal, environmental, technical, and financial issues. This step is crucial to validate the evaluation and ensure transparency. A mining right is much more than just a deposit; other aspects such as the environment, location, logistics, local communities, legal issues, among others, can be determining factors for advancing or not in the transaction. Therefore, these aspects should be considered from the beginning and should be addressed in detail in the documentation created for the sales process.

Negotiation and Closing: Involves discussing contractual terms, price, and payment conditions (mechanisms such as earn-outs or farm-ins can be created here to dilute risks for the buyer). A successful negotiation culminates in the signing of contracts and the transfer of mining rights.

Assessment and Valuation of Mineral Deposits: Methods and Challenges

The assessment of mineral properties is a complex and multifaceted process based on a series of established methodologies and practices to determine the value of mineral assets at various development stages, from pre-discovery to operation and post-operation. The correct approach to assessment significantly depends on the exploration or development stage of the property. Mineral properties can be classified into four types or stages: Exploration Property, Mineral Resource Property, Development Property, and Production Property, each requiring a specific assessment approach.

There are three general approaches to the assessment of mineral properties: the Cost Approach, the Market Approach, and the Income Approach. The Cost Approach is based on the principle of value contribution, considering exploration expenses and their contribution to the exploration potential of the mineral property. The Market Approach, on the other hand, is based mainly on the principle of substitution and is also called the Sales Comparison Approach, comparing the mineral property being assessed with the transaction value of similar mineral properties traded in the open market. Finally, the Income Approach is based on the principle of anticipation of benefits, including all methods based on the income or cash flow potential of the mineral property.

CIMVAL (Canadian Institute of Mining, Metallurgy and Petroleum on Valuation of Mineral Properties) highlights the importance of considering more than one assessment approach in the assessment report and requires the qualified assessor to justify the selection of the methods used. The assessment of a mineral property should be reported as a range of values to reflect the uncertainty and subjective nature of the assessment process. If the disclosure of a single value is required, the selection of a single value within the range must be explained.

Mineral properties are assessed for a wide range of reasons, including financing needs, purchase and sale transactions, litigation, taxes, and reporting purposes. Given the technical nature and complexity of the assessment process, it is crucial that it be performed by qualified and experienced assessors who deeply understand the nuances of the mining sector and the particularities of each mineral property.

The applicability of each assessment approach varies according to the development stage of the mineral property. For example, for Exploration Properties, the Cost and Market approaches are considered applicable, while the Income approach generally is not. For Mineral Resource Properties, the Market approach is applicable in some cases, as well as the Income approach. For Development and Production Properties, all three approaches, Cost, Market, and Income, are applicable.

Importance of Due Diligence in Selling Mineral Deposits

Due diligence is a vital component in the process of selling mineral deposits, providing a solid foundation for informed decisions. It allows identifying hidden risks, validating the information provided by the seller, and ensuring compliance with mining legislation. Thorough due diligence increases confidence between the parties and contributes to the transparency of the transaction.

The seller, knowing that the sales process goes through all these stages, can prepare in advance, organizing all documentation and even developing the business with this focus so that they can maximize the sale value and the buyer's perception of value.

In summary, the process of selling mineral deposits requires meticulous attention at each stage, from initial prospecting to the completion of the sale. Collaboration with "companies selling mineral deposits," conducting accurate assessments, and performing comprehensive due diligence are fundamental to mitigate risks and ensure the success of the transaction. With the support of qualified experts in M&A for mining and a commitment to sustainability, it is possible to navigate successfully in the complex mining market.

Regulations and Compliance

In Brazil, the mining sector is governed by a robust set of laws and regulations that outline the exploration and sale of mineral deposits, highlighting the importance of environmental compliance and sustainability.

Current Legislation on Exploration and Sale of Mineral Deposits in Brazil

The regulatory framework for mining in Brazil is mainly based on the Mining Code (Decree-Law No. 227/1967) and its subsequent amendments, in addition to specific regulations imposed by the National Mining Agency (ANM). These laws establish the procedures for granting mining rights, including research, exploration, extraction, and the commercialization of minerals. Brazilian legislation considers mineral resources as property of the Union, requiring companies or individuals to obtain specific authorizations to explore and develop deposits.

Critical Legal and Regulatory Aspects

Mining Law in Brazil: Comprises research and extraction rights, which authorize the exploration and extraction of mineral resources. The transfer of mining rights, essential in the sale of mineral deposits, requires the approval of the ANM, following detailed procedures established by legislation.

Environmental Regulations: Brazil has strict environmental regulations that affect the exploration of mineral deposits. Entrepreneurs must obtain environmental licenses at different project stages (Preliminary License, Installation License, and Operation License) and conduct environmental impact studies (EIA/RIMA) when applicable.

Agreements with Local Communities: Mining operations must consider the social and environmental impacts on local communities, including indigenous peoples. Brazilian legislation and sustainability practices emphasize the importance of dialogue and consultation with these communities.

Environmental Compliance and Sustainability

Brazil emphasizes sustainable mining and environmental compliance as pillars for the sector's development. This includes:

Waste Management and Rehabilitation: Implementing practices for proper waste management and rehabilitation of mined areas, aiming for ecosystem restoration.

Efficient Resource Use: Promoting technologies that minimize the environmental impact of mining activities, including reducing water and energy consumption.

Certifications and Best Practices: Adhering to international sustainability standards and obtaining relevant certifications are encouraged to demonstrate a commitment to responsible mining practices.

In Brazil, selling mineral deposits is an activity subject to a network of regulations and norms that ensure the exploration of mineral resources is conducted responsibly and sustainably. A detailed understanding of these regulations, combined with the implementation of sustainable mining practices, is essential for success in the Brazilian mining sector.

Buyers and sellers of mineral deposits should seek assistance from firms specialized in M&A for mining and be well-informed and prepared to navigate this regulatory landscape, ensuring efficient transactions in compliance with legal and environmental requirements.

Challenges in Selling Mineral Deposits

Selling mineral deposits faces significant obstacles for both sellers and buyers. For sellers, the complexity of assessments and compliance with environmental and social regulations represent the greatest challenges. Buyers, especially foreigners, deal with understanding the local legal nuances and concerns about the environmental and social impacts of mining operations. Local communities' resistance, worried about potential environmental impacts, can also complicate the sale process. This is where an intermediary company that knows how to communicate with both sides, master the normative aspects and the national specificities and complexities, and act as a facilitator for international investors is essential.

Market Opportunities and Strategies

In the context of challenges, significant opportunities emerge. The demand for strategic minerals, driven by the global energy transition, opens new markets for deposits containing these resources. To maximize the sale value, it is crucial to present a robust set of internationally standardized studies, as well as implement responsible mining practices that mitigate environmental and social concerns.

The Role of Consultants and Experts

Consultants and experts in M&A for mining play a vital role, offering technical, legal, and environmental support, crucial for navigating the complex market of selling mineral deposits. Choosing an appropriate partner or consultant should be based on proven experience, knowledge of the local and international market, and the ability to address sustainability issues.

Conclusion

Selling mineral deposits is a multifaceted process that requires attention to technical, legal, and environmental details. Understanding the challenges faced by sellers and buyers, combined with implementing effective strategies and support from specialized M&A consultants for mining, can facilitate successful transactions. As the market for mineral deposits evolves in response to demands for strategic minerals and sustainable mining practices, future prospects are promising for sellers and investors attentive to emerging trends.

This article addressed crucial aspects related to selling mineral deposits, from assessment and legislation to sustainability and the role of experts in the process.

For those contemplating selling or acquiring mineral deposits, contact Silveira Capital. Our vast network of national and international connections has the right buyer for your business, and we can provide full support throughout the development and sale of your project.

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