Brazil house backs critical minerals bill as Lula meets Trump

Brazil’s lower house approved a bill to regulate the exploration of critical and strategic minerals, a step toward realizing the potential of the nation’s vast reserves as President Luiz Inacio Lula da Silva prepares to meet Donald Trump.

Lawmakers voted 343-97 in favor of the proposal Wednesday night, backing legislation that would provide tax incentives to foster domestic processing and create a guarantee fund to provide credit to mining projects. The Senate still needs to approve the bill.

Brazil is home to the world’s second-largest reserves of rare earths, trailing only China, as well as significant deposits of other minerals essential to modern technology. But it lacks the investment and technology needed to produce them, and has also struggled to finalize a national mining plan or develop a regulatory structure for the industry.

The US has seen Brazil as a potential partner as it seeks to diversify away from China, and critical minerals are among the subjects Lula and Trump are expected to discuss when they meet at the White House on Thursday.

The legislation would establish a basic legal framework for rare earths and other critical minerals, while seeking to protect Brazil’s sovereignty over its substantial reserves, according to the text authored by Congressman Arnaldo Jardim, the bill’s rapporteur in the lower house.

It includes the creation of a special council with powers to oversee and approve projects. In practice, the council could potentially veto foreign acquisitions like USA Rare Earth Inc.’s recent agreement to acquire Serra Verde Group, which owns the only producing rare earths mine in Brazil.

Incentives, uncertainty

Lawmakers revised provisions dealing with the special council to make such decisions subject to a second layer of review by mining regulators after pushback from the industry, which had been caught off guard by the idea.

“It seems premature to celebrate the potential incentives for mining development without considering the impacts that the uncertainties created by the bill itself,” said Christiano Rehder, a partner at Brazilian law firm Lefosse.

The broad discretion “granted to the Executive Branch over strategic transactions and key stages in the life cycle of a mining company is likely to introduce a degree of regulatory uncertainty unprecedented in the recent history of the Brazilian mining sector,” Rehder said.

The bill also provides for tax incentives for companies headquartered and managed in Brazil that undertake domestic processing and transformation of minerals, including the allocation of 5 billion reais ($1 billion) in tax credits between 2030 and 2034.

The credits will be granted to priority projects and will cover 20% of eligible expenditures, capped at 1 billion reais per year. The share of tax credits awarded may vary according to the level of value added within the country.

The bill also establishes a guarantee fund for activities in the sector, financed by contributions from companies and the federal government.

The government would be allowed to contribute up to 2 billion reais to the fund, which would be managed by a federal financial institution and may be used to provide credit risk guarantees and other instruments to mitigate risk.

Lula has said Brazil is open to making deals with other nations, but that it doesn’t want to merely remain a commodities exporter and intends to ensure that extracted minerals are processed domestically. He has sought a diverse array of partners, signing a recent accord with India.

(By Barbara Nascimento and Daniel Carvalho)