Mining Leaders: Brazil 2014 Preview by Mining Leaders

2014 In association with:

politics & Economy 2 lead article: Pre Match Jitters

32 lead article: Bounce Begins

7 Q&A

36 Q&A

José Fernando Coura, Ibram

8 Feature interview: Paulo Sérgio Machado Ribeiro, Minas Gerais

10 leader insight: Race To The Top. David Leal, State Government of Pará

Publisher: Freestone Publishing Field Research Country Coordinator: Majo Rosa & Gabriella von Ille Country Editor: Grant Morimura Sunderland, Steffan Adams and Emma Tracey Headquarters Regional Editor: Mathew Youkee Production Editor: Samantha Eyler Art Director: Karen Montenegro Operations Manager: José Luis Rincón International Media Coordinator: Karen Delgado Executive Directors Charlotte de Casabianca & Raluca Monac Mining Leaders is a trademark of Freestone Publishing Inc. Copyright Freestone Publishing Inc. 2013. No part of this publication can be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopied, recorded, or otherwise without the prior permission of Freestone Publishing Inc. Freestone Publishing has made every effort to ensure that the content of this publication is accurate at the time of printing. However, Freestone Publishing makes no warranty, representation, or undertaking, whether expressed or implied, nor does it assume any legal liability, direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information contained in this publication.

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GOLD

12 leader insight

Peter Bowler, Beadell Resources

37 PROJECT fOCUS: Ouro Paz 38 Company focus: Mark Papendieck, Orinoco Gold

40 project focus: Borborema 41 Q&A: Alan Carter, Magellan Minerals 42 Article: Interior Designs 44 Q&A: Buddy Doyle, Amarillo Gold 45 project focus: Aurizona

Soon To Be Number 3. James Correia, Bahia

13 company focus: Richard Aldrich, Skadden 14 Article: A Welcome Preposition 16 company focus: Raul Papaleo, Brazilian Canadian Chamber Of Commerce

17 leader insight: State of Matter. Wilson Brumer. Vicenza Mineração

18 leader insight: Growing Together. Charles Tang, Brazil-China Chamber Of Commerce

19 Q&A: Kim Fullgrabe, Austrade

other minerals 46 lead article: Investments in Diversity 50 Q&A: Eran Friedlander, EagleStar Minerals 53 project focus: Valdirao 54 company focus: Ingo Wender, Terrativa 55 q&a: Kenneth Johnson, Lipari

mining Equipment, technology & services 56 lead article: In The Service of Giants

iron ore 20 lead article: Competitive Spirit

59 COMPANY FOCUS: NCL Ingeniería y Construcción 60 company focus:

24 Q&A

Nigel Grigg, Gekko Systems Murilo Ferreira, Vale

26 Q&A: Michael Boge, Cabral Resources 28 company focus: Sebastiao da Costa Filho, Arcelormittal Mineração

29 PROJECT FOCUS: Friable

62 Q&A: Othon Diógenes, Caterpillar 63 COMPANY FOCUS: Control Systems Technology 64 PROJECT FOCUS: Guamá Technology Park 66 Q&A: José Virgili & Luiz Ojima, Walm 67 company focus: RungePincockMinarco 68 Q&A: Rolf Fuchs, Integratio

Mining Leaders

politics & economy

lead article

pre match

jitters T

he Maracanã stadium in Rio de Janeiro is one of the world’s iconic soccer venues. Opened to host the 1950 Soccer World Cup, it has seen numerous redevelopments, most recently an expansion of capacity to 76,000 and an addition of a fiberglass roof in preparation for the return of the world’s largest sporting event in 2014. But even as the revamped arena was hosting the 2013 Confederations Cup, a warm-up for next year’s big event, Brazil was experiencing its most serious wave of public demonstrations in recent memory. What started as a protest over a modest increase to bus fares rapidly morphed into a general outcry about the state of the Brazilian economy and society. Those marching in the streets of many major cities decried rising inflation, poor public services, corruption, and the funneling of state funds to sporting events such as the World Cup and the 2016 Rio Olympics. The country’s decade long-boom, which saw growth rates frequently top 6% and lifted 35 million poor Brazilians into the middle classes, ground to a halt in 2012. When Brazil won the right to host the World Cup in October 2007, many expected the event to be an Mining Leaders

lead article

Hundreds of thousands of demonstrators poured into the streets of Brazil's cities in during the summer of 2013 to demand better governance

the country has already made some positive steps. The government appears to accept the need to boost domestic investment, targeting an investment rate of 25% of GDP, and the stimulus program has allowed industries to invest in new machinery and processes to boost efficiency. Spurred on by the forthcoming sporting events, investment in transportation systems in host cities has also increased and, despite opposition from unions, the country opened up national ports to private investment in 2013. In the first quarter of the year investments grew by 4.5% on the previous quarter. However, much of this was destined for the purchase of heavy trucks by the agriculture sector and, if anything, this will place greater

Critics of the model have long decried that it focused too much on boosting consumption and not enough on improving productivity and competitiveness through investment and measures to dampen the effect of the dreaded custo Brasil, the costly and complex systems of taxation and bureaucracy that have become synonymous with doing business in the country. On the investment front,

GDP growth and unemployment rates 10

GDP growth (left)

unemployment rate

6 9 4 7 2 5

3Q13

1Q12

3Q12

3Q11

1Q11

1Q10

3Q10

3Q09

1Q09

3Q08

3Q07

1Q08

1Q07

3Q06

3Q05

1Q06

1Q05

1Q04

3Q04

-2

3Q03

3Q02

Rousseff’s first challenge is to restart economic growth. In 2010, with the economy boosted by strong Chinese demand for its mineral and agricultural exports, Brazil’s GDP grew by 7.5%. In 2012 annual growth reached a meager 1.3% and, by August 2013, the BOVESPA was the worst-performing stock exchange of major emerging markets, falling 16% since the start of the year. From 2010 to 2012 the rapid appreciation of the Brazilian real undermined the competitiveness of Brazilian manufacturing exports and pushed up costs for natural resources firms operating in the country. Rousseff introduced a major stimulus program including tax breaks for critical industries but it was not enough to keep the wheels turning. Only strong growth in the agricultural sector allowed the economy to avoid negative growth in the first quarter of 2013. Under President Lula de Silva, Rousseff’s predecessor and mentor, Brazil had embarked on a decade-long spree of rising minimum wages and easy credit that boosted consumption and living standards for large numbers of Brazilians, particularly

from the poorest sectors of society. However, with consumption falling in the first quarter of 2013 and inflation frequently at the upper end of the targeted 4.5% ± 2 percentage points, many believe that this growth model has run its course.

1Q03

announcement of the country’s arrival on the international stage, similar to the effect the Beijing Olympics had for China. Instead President Dilma Rousseff finds herself facing pressing domestic political and economic issues.

Source: World Bank Group

40M

Poor Brazilians moved into the middle class during the '00s Boom strain on one area that desperately needs funding: the country’s national transport network. Unfortunately, investment in major rail and road projects is one of the areas most heavily burdened by the custo Brasil. The National Logistics and Transport Plan (PNLT), launched in 2007, calls for investments of up to $180 billion in transport infrastructure between 2010 and 2025. Expansion of road and rail networks and the integration of waterways into these network are key focus points. However, both the permitting and tender processes for such projects, the latter of which includes an appeal process for losing bidders, have been highlighted as major causes of delay, with some key projects taking a decade to get off the ground. Furthermore, as foreign investment begins to slow, Brazil will be forced to look for domestic sources of capital. With such a focus on consumption, Brazil has the lowest savings rate in Latin America, at just 16% of GDP—compared to over 20% in Peru and Chile. But encouraging Brazilians to save and invest more of their salary is a tough ask when the country has one of the most generous and costly public pension schemes in the world. However, pension reform, like a planned overhaul of the tax regime, is an issue that perennially sits on Congress’s to-do list. The nature of the Brazilian constitution, which allows for a large number of political parties operating in coalitions, makes such major reforms next to impossible to push through. The vested interests of different groups and the political horse-trading between them can paralyze decision-making. The biggest corruption scandal of the Lula era, the so-called Mensalão, was an attempt by the ruling Workers’ Party (PT) to secure votes from members of the Brazilian Labor Party in order to push through key reforms. The corruption that previously greased the wheels of Congress is under greater scrutiny than ever and as a result the wheels can shudder to a halt.

The Brazilian mining sector has firsthand experience of the glacial pace of domestic politics. Alongside hydrocarbons and agriculture, the industry is one of the key drivers of the Brazilian economy, contributing $51 billion to GDP in 2012. Vale’s iron ore shipments accounted for 16% of total exports in 2011. Since Rousseff came to office, the government has made it clear that a reform of the country’s 1967 mining code was imminent. In late 2011 the authorities stopped issuing new mining permits in anticipation of the new rules, but it took until July 2013 for a bill to be presented to Congress. In the meantime billions of dollars of potential investment sat on the sidelines. When mining reform finally took center stage in Congress, the PT’s coalition found that it had spent much of its political capital pushing through a controversial presidential decree on port reform, and elected to pursue mining reform as a bill rather than through executive decree. This means it will be subjected to a lengthy congressional debate likely to take place late in 2013. The delay may yet prove to be a blessing in disguise. The decline in metals prices, speculation that Chinese demand for raw materials may be slowing, and the high-profile collapse of Eike Batista’s commodity empire may have served to remind the Rousseff government that mining is a highly cyclical industry and the mega profits achieved from 2004 to 2011 are not guaranteed in the long term. The version of the bill sent to Congress did not feature an anticipated windfall tax and the royalty rates of 2%, while an inconvenience to some miners, are not as high as previously expected. Mining Leaders

highly involved in PT politics; it is unlikely that he would have taken a vastly different course from that taken by Rousseff. Since Lula won the presidency in 2002 the world has changed and so has Brazil. The heterogeneous economic policy that worked from 2002 to 2010 was reliant on strong commodity prices and a one-off boost from increased employment and earnings from the poorer sectors of society. It was a spectacular success, but it has lost momentum. The 40 million Brazilians who have been lifted into the middle classes now have different demands and expectations of government. In the wake of the first round of protests Rousseff said, “Brazil has woken up a stronger country. The size of yesterday’s marches is evidence of the strength of our democracy.” Given the police reaction, the statement struck many as disingenuous, but it holds an element of truth. Unlike the contemporaneous protests in Istanbul, Sofia, and the Middle East, the Brazilian demonstrations of 2013 were middle-class protests with middle-class demands. It can be seen as progress that Brazilians have come to expect more return from the taxes they pay.

As the key year of 2014 approaches, Rousseff is left with some tough choices. The stalling economy is one thing, but the heavy-handed repression of protests by police in some major cities has also cost her significant political capital. Her approval ratings slumped from 65% in March to 30% in the wake of the riots. In response she has announced five “pacts” with the Brazilian citizen, including continued fiscal responsibility, a renewed clampdown on corruption, a $50 billion investment in transportation services, improvements in healthcare services, and a plebiscite on political reform. But aside from the rhetoric, the pacts seem self-contradictory and unrealistic. With the economy already struggling, greater investment in public services sits uneasily with a commitment to fiscal discipline. Many PT members involved in the Mensalão affair still sit in Congress and the president cannot afford to undermine her already-weak position by removing them. Meanwhile, a number of politicians have pointed out that the country’s constitution would make a plebiscite on political reform impossible within Dilma’s stated timeframe, that is, before the 2014 election. Senator Aécio Neves, likely to be the main opposition candidate next year, described the proposal as “stillborn.” Rousseff ’s falling popularity has prompted speculation that the perennially popular Lula da Silva could make a comeback as the PT’s candidate in the 2014 elections. Lula has denied the claims, but the discussion highlights the misunderstandings about the nature of the country’s problems. The ex-president has not taken a backseat after his terms in office and remains

$50 BILLION

INVESTMENT IN TRANSPORTATION

Brazilian politics remains in a state of flux. The PT retains significant popular support as a result of its track record over the last decade and its candidate will likely win the 2014 elections. However, as the middle class grows, so does the power of its interests in the election process. Public pressure should ensure that political reform remains an unavoidable task for the next government. The government may be forced to move toward economic orthodoxy and tackle the thorny pensions issue if it is to stimulate growth in the future. Two years of slow growth does not represent a crisis. The 2014 World Cup should ensure the country experiences a feel-good moment and boost the country’s tourism appeal for years to come. But if Brazil is to consolidate its position as one of the economic powerhouses of the future, something has to give.

q&a

Mister

Brightside

José Fernando Coura CEO IBRAM (Brazilian Mining Association)

With the proposed new mining code, the custo Brasil, tricky infrastructure, and a global downturn in commodities prices, miners doing business in Brazil have quite a lot on their minds these days. José Fernando Coura, head of the highly influential minerals-sector advocacy organization IBRAM, takes these worries in stride. His advice: What goes down must come up, so miners can now start looking forward to the upswing. Given time to reshape the proposed new mining code, how would you like to see the legislation redesigned? We are just beginning a lengthy discussion process which started in June 2013, when the president sent a bill of law to Congress. The proposed bill deals with three important issues at once: increasing royalties in Brazil; creating the National Council of Mining Policy and transforming the National Department of Mineral Producti on (DNPM) into an agency; and outlining the new mining code. We agree with some aspects of the bill, especially the notion of legal security that the new code aims to establish. All previous mineral rights are totally secure, which is a welcome development. We also appreciated that the president sent the proposal to Congress, as we had worried that she might issue a Provisional Law, a tool that goes into immedate effect and reduces stakeholder participation. Congress is the right organ to host this strategic discussion with Brazilian society and we are confident about the possibility of having a truly participatory process aimed at strengthening the proposal. We also agree with the proposed creation of the National Council of Mining Policy, linked to the president and the National Mining Agency and replacing the current DNPM. We believe both measures will reinforce the political status of the mining sector in Brazil. Brazil has better mine safety records than most Latin American countries yet the number remains high. How is IBRAM working to improve the safety culture in mines and reduce accidents? IBRAM has a specific program for that important issue, called MinerAÇÃO, a Special Program for Occupational Safety and Health in Mining. This a voluntary and pioneering initiative, developed and coordinated by IBRAM, to assist companies in the mining sector, regardless of their size, in reducing occupational accidents by encouraging sustainability. The program promotes the implementation of a series of initiatives—such as risk management systems, trainings, exchange of best practices, and a sectoral accidents database, among other actions—that mitigate the main health and safety risks in the mineral sector. The challenge we face now is to intensify the participation of small mining companies, exactly where we are still having lower indicators.

Besides energy, the custo Brasil from bureaucracy, high taxes, and expensive labor makes operating here more expensive than in most jurisdictions. How can the state reduce this cost? The government is considering a tax reform; however, this is a difficult agenda to get through Congress, with all the different interests to be aligned. In Brazil taxes are cascading and extremely onerous. Comparatively, the country is always among the three most costly in many minerals. IBRAM has been advocating that Congress adopt a technical criteria for the royalties calculation in Brazil. We have a particularly high tax burden for electro-intensive minerals, in addition to high cost of energy, the second most expensive in the world. We are running the risk of losing the aluminum industry in Brazil. The government has already noted this and we are expecting new positioning. Regions like the northeast and Amazonas are more difficult and expensive places to explore and operate minerals projects. What areas of the country offer the most prospective rewards? The northern region is very promising. Almost all majors and medium-tier companies in the country have settled in the north, and those who have not yet arrived definitely intend to build a portfolio there. The whole region, especially Pará, has fantastic mineral diversity, with reserves of gold, manganese, copper, iron ore, diamond, nickel, bauxite, limestone, kaolin, and many others. However, the region lacks both infrastructure (geological knowledge, energy, sanitation, logistics, etc.) and qualified manpower, which poses challenges for explorers. How will the global downturn in mining affect employment and development of rural areas within Brazil? We believe Brazil has already passed the worst of the crisis. Mining is a cyclical activity; now we are in a slowdown and thus some mines may close. This will lead to a restriction in supply, which will in turn cause prices to increase. And rural populations are migrating to small and medium-sized cities, which has been happening since 1970 and is not related to the slowdown. This migration is actually the driving force behind the warm-up in the mineral sector. Mining Leaders

feature interview

Mines

by Name,

Mines

by Nature Minas Gerais is Brazil's thirdlargest economy and second-largest exporter at the state level, largely due to its vast mining resources. Paulo Sérgio Machado Ribeiro, Secretary of State for Economic Development, explains the state government’s main objectives, namely, attracting and developing investment oppor tunities across the tourism, infra structure, and metals/mining industries. For 2013, the state is preparing for a new mining boom that it predicts will follow the impending update of Brazil’s mining code.

inas Gerais rich endowment of natural resources has left an indelible print on its history and identity; the name even translates as “General Mines.” As Brazil’s mining sector awaits a watershed moment, with the updated mining code expected later in 2013, the country’s premier mining state is preparing to deal with the likely increase in exploration and production activity.

Paulo Sérgio Machado Minas Gerais’ Secretary of Economic Development, that although the state

Ribeiro, State for explains already

accounts for 50% of Brazil’s mining GDP—double the contribution of neighboring Pará—investment will likely increase over the next year. Last year, the mining and metallurgy sector produced a total of $24 billion worth of exports, representing 73% of Minas Gerais’ total. “Brazil is often referred to as a country with vast mineral resources and that’s true,” says Ribeiro. “But Minas Gerais is the largest manufacturer of key commodities including steel, iron ore, gold, and niobium, amongst others.” Minas Gerais alone accounts for 29% of Brazil’s overall mineral production, including 50% of all gold,

and extracts an average of 160Mt of iron ore per year. It also part-owns a niobium plant—one of only three in the world—that accounts for 75% of global production. Furthermore, the increasingly important fertilizer trade is an area where Ribeiro expects substantial development to take place in the next five years. “Brazil has 2.4Bt of phosphate reserves, of which Minas Gerais state holds 1.5Bt. And we expect these reserve estimates to increase,” Ribeiro says. Factor in the country’s dependence on a strong agricultural sector, rising GDP per capita, a growing population, and decreasing amounts of arable land,

Paulo Sérgio Machado Ribeiro Evolution of Mineral Rights

and the phosphate sector looks like a sure bet for growth. And with federal government incentives promoting domestic fertilizer exploration, Minas Gerais is well-positioned to take advantage of any increased investor activity. One of Minas Gerais’ most impressive statistics also serves to illustrate a challenge faced by the majority of Brazil’s mining sector—geological mapping. Minas Gerais is the only state in Brazil that can claim to be 100% geologically mapped. From 2001 to 2012, the state government invested over $25 million to survey approximately 580,000 square kilo meters of land via airborne physics. Such investments have been crucial to the success of the 1,865 mines that now operate in Minas Gerais. Most of the major producers such as Vale, CSN, MMX, Anglo American, B&A Mineração, and Kinross operate in the state. Even those without operational facilities often have offices in Belo Horizonte, the state capital, to maintain a presence in Minas Gerais. Many mining corporations see the state as an essential strategic and geographic location to develop future business. And this in turn will generate employment within the state, with many mining corporations dependent on a highly skilled local workforce. During the boom periods of Brazilian mining, the country faced severe shortages of engineers, but Minas Gerais is one state looking toward minimizing the risks of such problems reoccurring, through investing in education. Recognizing the need for young and skilled engineers to support the state’s key industry, many of Minas Gerais’ universities excel in engineering disciplines and offer specialist degrees in mining, garnering respect throughout Brazil and the world. “We have 14 public universities, 5 of which are ranked in the top 10 in the country,” declares Ribeiro. It's evidence that the state is not only watching over the mining's sector's present, but also acting as a custodian for its future.

Research Petitions

Research Permits

Year Brazil

Minas Gerais

Brazil

Minas Gerais

1980

10,462

1,514

7,347

969

1990

8,483

2,030

2,282

626

2000

10,045

2,145

21,426

5,293

2002

14,245

3,133

9,309

2,249

2004

16,633

3,850

10,925

2,783

2006

4,988

1,314

16,880

5,089

2008

11,603

2,466

31,178

8,590

2010

14,560

1,707

52,093

12,923

2012

17,552

6,424

71,540

16, 270 Source: Exportaminas

The Minas Gerais government works closely with all stakeholders involved in mining. While major producers are important investors, junior explorers are also in constant dialogue with the state, especially when seeking information or advice on obtaining exploration licenses. “Minas Gerais has one of the most legitimate and transparent processes when it comes to awarding exploration licenses to prospective mining corporations,” states Ribeiro. There are two elements to the awarding of exploration rights, technical and political. On the political side, consultations are carried out with state and municipal representatives, civil organizations, and the mining corporation involved. Once all the political stakeholders agree to support a given project, the mining corporation must then pass the three-stage technical process, which involves obtainings seParáte pre-, installation, and operational licenses. Considering Brazil is well known for its bureaucratic and often unclear legislation surrounding mining titles, Minas Gerais is an example to other states. Indeed, less explored and developed mining states such as Pará and Amazonas often consult with the Minas Gerais state government over such issues. This type of collaboration between states over various mining

considerations, from awarding envi ron mental licenses to logistical challenges, means the country’s mining sector reaps the overall benefits. Speaking of logistics, President Rousseff continues to invest bil lions of dollars into the country’s infrastructure in preParátion for the upcoming football World Cup. Even so, Brazil, as the world’s sixth-largest economy, is often accused of lacking modern transport networks. However, Minas Gerais again leads the way when it comes to logistical prowess when compared to states with higher budgets such as São Paulo and Rio de Janeiro. Minas Gerais boasts the largest federal highway network and secondlargest railroad network in Brazil. The recently renovated Tancredo Neves International Airport is also among the five biggest in the country. Minas Gerais also counts five inland ports, to ensure that large-scale containers used for transporting many metals and mineral products can directly access ports in neighboring states. If one considers that the majority of senior executives in mining value modern logistics and access as much as mineral deposits’ reserve size and grades, it’s easy to see why Minas Gerais has become such an attractive destination for investors worldwide. Mining Leaders

leader insight David Leal Secretary of Industry, Commerce & Mining State Government of Pará

Brazil's northeastern state of Pará trails only Minas Gerais in mining exports and is home to Vale's Carajás, the largest iron ore project in the world. But with Vale's plans to double the state's iron out output when it launches production at its behemoth S11D (Serra Sul) project in 2016, the Secretary of the state government's mining authority predicts that Pará will become Brazil's leading minerals exporter in just half a decade. Below he offers his state's gratitude to miners for their remarkable contribution to local growth.

Race to the Top The strong commodities cycle experienced over the last decade has widely transformed Pará’s economy for the better. During the decade leading up to 2011, Pará’s mining industry saw annual growth of over 25.5%. Fueling this growth is the grand diversity of natural resources that our state hosts. Pará has one of the richest geologies in Brazil and today it’s the second-largest producer of minerals in the country. Today 15% of the state’s GDP and 85% of exports originate with mining; the industry makes up a very important contributor to the development across the various regions of the state. By far the most important industrial engine of the state would be the region of Carajás, which is considered the heartland of mining. Located in Pará’s southeast, Carajás is home to the municipality of Parauapebas, which accounts for 62% of the entire state’s mining production. Even in this phase of lower prices, we are continuing are seeing the state’s mining industry pushing ahead with existing plans to invest and build new mines. If our current predictions are correct, in If our current predictions are five years Pará will surpass Minas Gerais correct, in five years Pará to become the country’s number-one will surpass Minas Gerais to minerals-sector producer. According to IBRAM, in the five years to 2017, $41.3 billion of investment will be directed into Pará’s mining industry. Though Carajás is the largest mining municipality due to Vale’s presence, the state will see a radical change due to strategic investments. Vale is heavily focused on the Parauapebas region, where it is building its Serra Sul project, better known as S11D, which will become Vale’s largest mine. This project in the municipality of Canaã dos Carajás will greatly change the dynamic and accelerate growth in the state. The expected capex through 2018 should reach $19.67 billion and the resulting gains in output will catapult Pará to the top of the country’s mining rankings by

doubling our iron ore production. Vale currently produces about 90Mt of iron ore in Pará, but S11D will add another 90Mt to annual production by 2018. This single project has created a staggering 5,200 jobs during the construction phase, and once operational the mine will employ about 2,600 workers.

Vale attracts most of the spotlight for its investments in Pará yet many other local and foreign companies are active across the state. Canadian companies such as Belo Sun Mining, Colossus Minerals, and MBAC Fertilizer Corp are all developing projects in Pará. In the region of Xingu, Eldorado Gold is investing $330 million at its Tocantizinho gold become the country’s numberproject in order to begin production in one minerals-sector producer. 2016; while to its east, Belo Sun Mining is spending $922 million at its Volta Grande project. Brazilian producers of iron ore are also active throughout Pará. Votorantim, Mineração Rio do Norte, and Mineração Buritirama have mining and infrastructure projects in different regions due to the rich deposits and proximity to export ports. And Anglo American is making significant investment in nickel: its Jacaré project in Carajás will see just over $4 billion in investment before a production decision is reached. We have been grateful to the mining industry for its contributions to growth in Pará. In order to leverage this growth we are building Science and Technology Parks across the state. Having built parks in Tocantins and Tapajós, the state of Pará has also inaugurated a new Park in Guamá this year. The strategy behind the Parks is to provide the proper skilled workers and business incubation needed to multiply the potential of the mining industry beyond its current capacity. By investing in the people of Pará, we hope that entrepreneurs emerge to continue strengthening our mining industry.

map Main Mining Investments In The Pará State

IBRAM AD.

pará

2 8

1 2 3 4 5 6 7 8 9

Company Minera Rio Do Norte El Dorado Gold Belo Sun Mining Vale Vale Vale Vale Anglo American Votorantim Metais

Project Novas Minas Tocantinzinho Volta Grande Serra Leste S11D Carajás Onca Puma Jacaré Rondon

Production Bauxite Iron Gold Iron IRon Ore Iron Iron Nickel Alumina

Inversion $256 Mn $319.6 Mn $900.4 Mn $381.6 Mn $19.4 Bn $2.07 Bn $949 Mn $3.9 Bn $2.34 Bn

pará

Main mining investments in the Bahia State

4 10

3 9

bahia 6 1 2

7 1 2 3 4 5 6 7 8 9 10 11

Company Rio Tinto Alcan Bahia Mineração Yamana Gold Braziron Bahia Mineral Exploration

Largo Resources Sul Americana De Metais

Mirabela Itaoeste Lipari Cabral Resources

Project Jaguaquara Pindaí Santa Luz Xique-Xique Caetité Maracás Urandí Santa Rita Barreiras Braúna Brumado

Production Bauxite Iron Gold Iron IRon Vanadium Iron Nickel Thalium Diamonds Iron

Inversion $1.8 Bn $1.84 Bn $85.4 Mn $6.3 Mn $920.6 Mn $217.6 Mn $962.4 Bn $376.6Mn $41.8 Mn $60 Mn $1.63 Bn

IBRAM AD.

bahía

Mining Leaders

leader insight James Correia Secretary of Industry, Commerce & Mining State Government of Bahia

Bahia is today the fifth-largest mining state in Brazil, but as companies develop a series of recent discoveries, Bahia should reach third place in 2016. With mining investments having now topped $10 billion, the state is pleased to see the development that mining brings to the interior of the state. James Correia, the state's Secretary of Industry, Commerce, and Mining, describes the upcoming project pipeline and the new mines’ likely impact on Bahian development.

SOON TO BE #3 Over the years, we’ve built up our mining sector by inviting global investors while also promoting the growth of the local Brazilian companies. Our state offers many advantages for explorers. First, we have more minerals diversity than any other state, with deposits of over 50 different minerals, from rare earths to iron and even diamonds. Bahia is the largest producer of uranium, chromium, magnestite, and talc, to name a few. Second, thanks to the efforts of the state’s private exploration company CBPM, we’ve mapped 86% of the state’s subsoils. By the end of 2014, CBPM will have mapped the rest of the state. While there are many prospects and much exploration potential, our state is proudest of a series of projects that have recently come into operation or will be commissioned soon.

construction, aeronautical, and infrastructure industries. Largo has invested over $250 million in building the project, and foresees expanding production in 2015 to 7500 tons of vanadium. Bahia also hosts another rare metal besides vanadium: thallium. Today there are only two other known reserves in the world, in China and Kazakstan. Though the Bahia project is at an early stage, Itaoeste, the project developer, is evaluating an investment of around $50 million to further map the deposit and make Brazil the world’s third producer of thallium.

In 2009 Mirabela Nickel, the dual ASX-TSX–listed miner, began production at Santa Rita, which now holds the title of the second-largest open-pit nickel mine in the world. Each year Mirabela produces over 25,000 tons of the metal. Having invested over $500 million to build the mine, Mirabela has been Canadian gold miner Yamana Gold is also Itaoeste is evaluating an investexporting nickel concentrate to Norilsk’s commissioning a mine during 2013 in ment of around $50 million to Finnish subsidiary from the port of Ilhéus. Bahia. Its C1 Santa Luz project is expected to further map the deposit and Infrastructure is well established in Bahia, and begin operating later in 2013, with estimated make Brazil the world’s third the construction of the East-West Railroad production of 100,000 ounces in 2014. The producer of thallium. will further streamline exporting minerals for project is expected to fill the coffers of the Mirabela and the other miners. Santa Rita has local municipality of Santa Luz with about nickel reserves of over 120 Mt, creating a mine $1 million a month, a sum larger that its life of at least 20 years. Since 2003, Mirabela current annual revenues. With an expected has hugely benefited the community by mine life of 10 years, the municipality and its residents are very excited to have building infrastructure and creating highthe company operating there. paying jobs for locals. We are also excited to welcome Mineração Lipari, a consortium of investors from Hong Another foreign company that’s contributed Kong, Belgium, and Canada. Lipari has invested about $50 million at its Braúna diamond to Bahia’s development is Largo Resources. mine, with commercial production expected in 2015, and predicts annual production to Maracás, a city of about 25,000 people, has reach 225,000 carats for a mine life of seven years. The deposit is the first kimberlite diamond been completely transformed. It is now mine in South America; once production is underway, Bahia will rank amongst the world’s known as the city of flowers after the economy largest producers of diamonds, including Botswana, Russia, and South Africa. bloomed following Largo’s large vanadium discovery. The deposit has implications These are just a few of the projects that will be commissioned in Bahia shortly. The CBPM beyond Bahia: Brazil will now become a has a large database with prospects for more investors looking to build a mineral deposit in net exporter of this crucial component for Bahia. With strong infrastructure and the cheapest energy costs in Brazil, miners will find a building high-strength alloys to be used in the competitive cost regime and a government that welcomes miners.

company focus

Skadden, Arps, Slate, Meagher & Flom LLP Year founded 1948 Company Type

Law firm

Headquarters New York No. of employees

1,800

Skadden carries a unique mantle as the first law firm to defend a client from a hostile takeover in the M&A sector, and was involved in nearly every major M&A deal in the US throughout the 1970s and 1980s. The firm now advises clients across the globe in numerous industries— including construction, oil and gas, and mining—on corporate, dispute, and regulatory matters. Skadden's Latin America practice provides US legal services to the increasing number of Brazilian and Latin American companies in need of a global law firm to handle transactions—particularly in the areas of M&A, stock-for-stock mergers, private equity and international debt financings. In 2008, Skadden opened an office in São Paulo, its first in Brazil. This office deals primarily with capital markets and project finance transactions, as well as M&A and other corporate transactions. Just last year it headed the $1.95 billion IPO of Brazilian investment bank BTG Pactual, which was later awarded “Equity Deal of the Year” by several

skadden

the São Paulo team works closely with the London office and the New York headquarters, with most European financing raised on the London Stock Exchange and the majority of overall capital coming from the United States. “If you have a deal listed on the BOVESPA, it's likely that a third will be sold in Brazil, and the remainder will be sold outside, with the majority placed in the US,” says partner Richard Aldrich. Despite a slowdown in Brazil’s economic growth, the firm continues to attract interest from an average of four to six new investors per quarter seeking information on Brazil. Yet as international regulations prohibit multinational law firms from practicing Brazilian law, Skadden advises clients on international aspects of transactions.

In the1950s Skadden spearheaded the representation of clients in M&A transactions. The firm is now one of the world’s preeminent law firms. Richard Aldrich Partner Skadden

leading financial publications. The firm has significant experience advising mining-related companies, including past representation of Votorantim and CBMM. “We’ve done extensive work with both international and local clients looking to acquire mines in Brazil, although the past year has seen reduced activity due to the drop in global commodity prices,” states partner Paul Schnell. While many of Skadden’s Brazilian clients are listed on the BOVESPA, South-to-North M&A Deals (2011)

China ME & NA*

100

150

Brazil India Russia Other Asia

Mexico Sub-Saharan Africa Other

Other

By destination

By source

UEA Singapore

120

160

200

United States

Britain Canada Australia Italy Germany

Source: The Economist

While Skadden advises many international clients investing in Brazil, the firm has recently seen a marked uptick in Brazilian clients seeking legal services for outbound investments. Taking advantage of opportunities created by the European economic weakness, Brazilian investors and firms are picking up stakes in firms in rich countries, reinforcing an accelerating global trend in SouthNorth FDI flows. With its presence in Brazil added to its cadre of 22 other global offices, Skadden is well positioned to help clients navigate the legalities of foreign investment, whatever direction the capital will flow.

*Middle East and North Africa excluding UAE

Mining Leaders

article

A WELCOME PROPOSITION Brazil’s new mining bill was finally presented to Congress in June. While government royalties will likely increase, the legislation is far less demanding on mining firms than many had feared. While mining in Brazil may become a slightly more expensive enterprise in the future, the bill promises to offset this through clear and efficient regulation. When Brazil’s current mining code was drawn up, the Rolling Stones’ “Ruby Tuesday” was topping the US charts and England’s soccer team was the world champion. The world has changed since 1967, and after four years of deliberations, Brazil is finally on course to approve new legislation more suited to modern mining. The bill was presented to Congress on June 18, 2013, and is likely to be subject to changes in the coming months. However, despite the probability of an increased government take in the form of royalties, the proposed bill is less

onerous to mining firms than many had previously feared. It should also open the door to over $10 billion of mining investment that has been sidelined in recent years as details regarding the mining code reform remained vague. President Dilma Rousseff said, “We are creating the conditions necessary to transform the exploration, mining, and commercialization of mineral resources into a more efficient, profitable, and competitive activity.” With the fractured nature of Brazilian party politics, it’s common for major

Summary of Proposed Changes to the Mining Code Item

Current

Proposed

Base of CFEM calculation

Operating profits (Total revenue minus taxes, transport & insurance)

Gross revenue minus taxes

CFEM percentage charged

The law defines the percentage as varying between 0.2% and 3%

Up to 4% (percentage for each mineral will be established by decree)

Distribution of CFEM revenues

Municipalities: 65%, States: 23%, Federal government: 12%

No change

Surface-rights rates

50% of the CFEM

20% of the CFEM

Relation to taxed assets

No relation, but personnel costs and payment of dividends are prohibited

No change

Source: Annual Statistics of Latin America & Caribbean, Cepal

reforms to be introduced by the president as a “provisional measure”, which allows for immediate enactment prior to congressional approval within 60 days. However, following May’s heated debates over port reform, which led to splits in the governing coalition, the Rousseff administration decided to present the mining code as a “legislative measure”, meaning the terms will not come into force until it is voted into law by Congress. Meanwhile, the DNPM (National Department of Mineral Production) has continued its recent unorthodox policy of handing out mining titles, with the specific terms to be confirmed after the passing of pending legislation. The headline measure that has had the biggest impact on deterring invest ment over the last four years has been a change to the Brazilian mineral royalty system. Previously the Financial Compensation for Mineral Exploitation (CFEM) tax was charged on net revenue at varying rates of between 0.2% and 3%, depending on the mineral. The bill proposes a flat rate of 2% charged on total revenues, with the option of increasing the rate to up to 4% by presidential decree.

article

Brazil will establish a National Minerals Agency (ANM) to oversee the awarding of titles, regulation of royalty policies, and the promotion of the sector The change to charging CFEM on the basis of gross revenue will have major implications for iron ore producers, as it means that they will no longer be able to deduct their transportation charges. Vale CEO Murilo Ferreira estimates that the government take from Brazilian mining projects could jump from R$1.7 billion to R$4.2 billion as a result of the changes. There is also little indication of the conditions required whereby the presidential decree to raise royalty rates could be applied, although Minister of Mines and Energy Edison Lobão has suggested that the top rate of 4% is only likely to be applied to iron ore and gold. The increased government share from CFEM has had a knock-on effect on surface-rights rates. Previously standing at 50% of CFEM, the new rate has been dropped to 20%, so as not to inflict a double-whammy on firms. At present there are no proposed changes to how CFEM is distributed, with revenues split between the municipalities in which mining takes place (65%), the mining states (23%) and the federal government (12%). However, after the announcement of the bill, a number of states, including Maranhão—where mining is limited but through which many of infrastructure routes crossed— announced that they would challenge the current distribution policy. Given that the licensing of new mining titles has been under a moratorium since late 2012, reforms to change the administrative structure of the sector should be welcomed. In line with moves made by several other Latin American countries, Brazil will establish a National Minerals Agency (ANM) to oversee the awarding of titles, regulation of royalty policies, and the promotion of the sector. An additional task for

the new agency will be to organize and oversee the auctioning of over 2,000 areas highlighted as having mineral potential by the Brazilian Geological Service (CPRM). Copper and nickel blocks in Goiás, phosphate blocks in Pernambuco, and diamond targets in Bahia are expected to be among the first properties to go to the auction block. These are some of the areas with the most in-depth geological knowledge, and are expected to be won by companies offering the largest signing bonus. For areas with less detailed data and greater exploration risk, blocks are likely to be won by those firms offering the state the highest percentage of revenues. Meanwhile the CPRM has expanded its budget to R$460 million and announced plans to contract 200 geologists to work on the mapping of the country. Exploration licenses won at auction will automatically convert to mining licenses and have a 40-year lifespan, extendable by 20 years. In an attempt to prevent firms from speculating on titles, all of those awarded will have minimum work requirements. The updated mining code will also feature minimum requirements for local procurement of

drilling and mining services but these, like the minimum-work requirements, will be established on a case-by-case basis. The potentially arbitrary nature of these conditions is another area of considerable uncertainty for mining firms looking to invest in Brazil. Given that mining code reform has been a topic of debate and lobbying for over four years, the number of grey areas that remain is disappointing. Firms would like to have a far clearer idea of when and how royalty rates will increase and how local content clauses will be enforced. However, the bill in general was much less onerous than many firms had predicted. Brazil has garnered a reputation for a certain level of “state capitalism” in recent years and there had been speculation that mining reform would crowd out the private sector. In fact, Vale’s shares rose nearly 2.5% on the back of the bill’s release. Changes will undoubtedly be made during the bill’s passage through Congress, but its general tone is unlikely to change significantly. Mining in Brazil will become marginally more expensive in coming years, but miners can now hope they will be operating under a clearer and more efficient set of rules. Mining Leaders

company focus

Brazil-Canada Chamber of Commerce Year founded 1973 Company Type

Business advocacy organization

Headquarters Toronto EagleStar Minerals, MBAC Fertilizer, Rio Novo Gold, Rio Verde Minerals Development, Vale

Clients

Brazil-Canada

Chamber of Commerce

mining equipment from Canada. Brazil benefits through the development of its workforce, while Canada increases its exports and economic output. The two countries’ total mutual export value now stands at a low $6.5 billion, but through this initiative and others like it, the BCCC hopes to significantly boost bilateral trade and skills networks. “We are essentially matchmakers, facilitating new relationships between Canadian and Brazilian businesses,” said BCCC president Raul Papaleo.

The BCCC is also encouraging the Chamber’s mining, sustainability, and taxation committees to collaborate more closely in order to better assist investors. Brazil’s updated mining code will likely to focus heavily on social, environmental, and financial sustainability. Given the country’s complex and bureaucratic taxation system, Papaleo wants this improved synergy among the respective com mittees to provide investors in the mining sector with clearer information and advice.

Mining Revenues per country Gold

Coal

Silver

Nickel

5B 4B

Cooper

2B Cuba

Honduras

Panama

Bolivia

3B Nicaragua

Guatemala

Brazil

Argentina

Colombia

Zinc

Peru

As the mining industry accounts for 40% of the BCCC’s clientele, the program holds particular significance for the sector. For example, a Brazilian mining engineer will apply the knowledge and techniques from his education in Canada to his work in a Brazilian mine. The same mine will then import specialist

Raul Papaleo President BCCC

Besides bilateral trade, the BCCC also aims to stimulate domestic business growth in Brazil. With FDI destined for Brazil’s mining sector expected to reach $70 billion over the 2012–14 period, the Chamber has created an agenda of country-wide business-development events in 2013. The BCCC is now brainstorming ways to attract foreign investment to less-developed states like Bahia and Paraíba.

Chile

The initiative is just one of many the BCCC runs to foster and strengthen Brazilian and Canadian business rela tionships. The idea is that upon their return to Brazil, these students will be able to apply new ideas and knowledge to their respective sectors, contributing to the development of the Brazilian economy. In return, Canada will receive a preferential export policy to Brazilian companies or institutions in need of specialist machinery or equipment.

We are essentially matchmakers, facilitating new relationships between Canadian and Brazilian businesses.

Mexico

As part of its 2013 focus on science and technology, the Brazil Canada Chamber of Commerce (BCCC) is supporting the Brazilian government program called “Science without Borders.” The program will send 100,000 students outside Brazil to complete their education, mainly in technical sectors. The Brazilian government will pay all the expenses for 75,000 students, while private institutions are supporting the other 25,000. From the total number of students, 12,500 will study at Canadian universities and colleges, and also be available for internships in Canadian companies.

1B 0B

Source: Canadian International Development platform

LEADER INSIGHT Wilson Brumer Managing Director Vicenza Mineraçao

Wilson Brumer counts over 30 years experience in the Brazilian mining sector. The former CEO of Vale, Usiminas, and Acesita, Brumer also chaired BHP Billiton Brazil and worked as Secretary of Economic Development for Minas Gerais. As current director of explorer Vicenza Mineraçao, Brumer offers unparalleled insight into the current problems affecting the country’s mining sector. From confusing legislation and a lack of infrastructure to a fiscal war among states, Brumer gives his thoughts on the changes required to increase competitiveness.

STATE OF MATTER Brazil must seize this opportunity in updating the mining code to make clear and concise regulations that attract new investors. I don’t buy into the argument that the government needs to offer low royalty rates or financial incentives to support mineral exploration or production. The key is for current stakeholders and prospective investors to trust any new laws and regulations implemented. Such trust will only be earned through actions and we cannot afford to see a repeat of the government changing regulations midway through a project. The government rightly receives strong criticism for the long delays in implementing new legislation in the sector, but many projects also fail due to a lack of planning by private-sector firms.

the private sector to invest, it should. The transport sector is a case in point: private corporations could build modern roads quickly, and customers—including mining companies—could pay a toll. Unfortunately, the government refuses to relinquish control over this sector and we continue to suffer from a deficit in transport infrastructure. We continue to hear of delays to proposed projects due to inefficiencies of municipal states that continue to fight a fiscal war over who should take responsibility for paying costs and sharing tax revenues. The federal government needs take on a more prominent role and encourage publicprivate partnerships (PPPs), which offer a viable alternative. However, there’s too much talk suggesting the private sector should assume 100% of the risk on proposed PPPs, which defeats the point of sharing responsibilities.

Brazil contains vast metal and mineral resources, but turning these into reserves from which an economic benefit can be derived poses a totally different challenge. Today I see many ambitious projects developed with very low capex and opex budgets. The state should allow the priThese clearly underestimate major costs vate sector to invest. Private from an energy, drilling, or logistical companies building modern perspective. The latter in particular is essential to a successful project and, as roads could lead to users the government does not invest enough such as mining companies in this sector, private corporations must paying a toll. foot the responsibility, increasing their capex costs further. Major producers such as Vale, Anglo American, and CSN have the financial muscle to build their Partial or complete privatization of the transport sector will significantly own railroads and ports, but this is to reduce costs and increase efficiency for all industries, including mining. The the detriment of Brazilian mining as government should look at the success of the steel sector over the last two decades a whole. New investors or prospective as an indicator of what can be achieved through such policies. Once an inefficient explorers cannot realistically expect to and poorly managed sector, steel production in this country has never been stronger produce a viable project if they need to since its privatization in the 1990s as part of a $20-billion investment program. In invest millions of dollars in transport the iron ore sector, Vale—previously state-run—is now the largest private company networks. in Brazil, with a market capitalization of around $65 billion. Similarly, Petrobras was also 100% state-owned at one point, but today operates as a successful PPP. As Secretary of Economic Development Privatization would eliminate a common criticism among Brazilian citizens who for Minas Gerais, I spent much of my pay federal taxes without seeing any improvements in public transport. Roads or time looking at ways to improve logistical networks managed by private corporations would allow the federal government routes in and around the state. I believe to invest tax revenues elsewhere. Thus only users of new roads would be charged, that in any sector where the state can allow creating a much fairer system. Mining Leaders

leader insight Charles Tang Chairman Brazil-China Chamber of Commerce (CCIBC)

As chairman of the Brazil-Chinese Chamber of Commerce (CCIBC), Charles Tang heads up an outfit with over 540 members and representing nearly $5 billion worth of business in both China and Brazil. Manufacturing continues to be the main area of trade between the two countries, but Brazil’s mining sector has seen increased interest from Chinese investors. Tang explains how these key trading partners define their relationship to such an extent that Brazil’s economic trajectory follows that of China. If China grows, then so does Brazil.

Growing together In 1986, the year the CCIBC was founded, trade between Brazil and China was negligible. By 1999, trade figures stood at a paltry $1.54 billion, but in the 2000s Brazil and China established themselves as global economic powers. As the emergence of the BRICs became the talk of the financial markets around the world, the relationship between Brazil and China—from an economic and political perspective—took on even greater significance. Amid economic uncertainty in Europe and the United States, China remains the impetus behind global growth, with 2013 GDP forecasts expected to reach at least 7.5%. China continues to drive demand for imported goods across the world, which means trading partnerships with several countries have grown to unprecedented levels. Between 2009 and 2010, China emerged as the main export market for Brazilian products; it also became the largest contributor of FDI. In 2012, $75 billion worth of trade was recorded between China and Brazil. We forecast that trade for 2013 will surpass the $80 billion dollar mark, a 7% increase on the year before. Both We forecast that trading for economies are now so deeply intertwined 2013 will surpass the with each other that Brazil’s economic $80 billion dollar mark growth is almost dependent on Chinese —a 7% increase growth. And the CCIBC is keen to facilitate on the previous year. the creation of further networking and business-development opportunities among its members from both countries. The marked increase in trade between the countries is due to several factors. First, China’s acceptance into the World Trade Organization in 2001 enabled the country to enter previously inaccessible markets. Second, rapid expansion of the Chinese middle class acted as a catalyst for both construction and automotive industries, requiring record amounts of steel. Although China contains iron ore deposits, commercial viability is problematic due to its poor grade and by 2005 domestic resources were exhausted. In search of new suppliers, China discovered high-grade and abundant deposits in Brazil.

And consequently, the trade relationship was founded on the export of iron ore. China’s imports from Brazil also include large quantities of soybeans, leather, petroleum, and wood pulp. All arrive as raw materials. China has promoted its domestic crushing and refinery industries by levying high taxes on refined imports compared to those in their natural form. Via this policy, China’s industrial and manufacturing goods industry grew to contribute 38.5% ($3.229 trillion) of the economy by 2012. Moreover, as Brazil continues to export 90% of its iron ore and most of its minerals such as nickel and gold, Brazilian producers look to China for low-cost heavy machinery. Brazil now imports more from China than any other nation. And while Chinese products were viewed as economical but of poor quality, modern state-of-the-art technologies are increasingly incorporated to ensure competitiveness.

Many Brazilian companies are also investing in China. One of our members, operating in the automotive engine component sector, is weighing up a $400 million factory in China. It’s a reactionary trend, as several years ago many Brazilian companies lost European and American clients to Chinese competitors who offered far cheaper prices. However, China aside, most multinationals with operations overseas recognize that Brazilian subsidiaries often record far higher revenues and profits than the company headquarters. Brazil remains an attractive destination, particularly in the mineral-rich states such as Minas Gerais, Pará, and Amazonas. We are attracting Chinese mining companies and real estate groups keen to invest—mostly in iron ore. SANY Group and JAC motors already run manufacturing operations in Brazil and XCMG Group is actively looking to do the same. Trade can also count on increased government support this year. Both national governments just announced a $30 billion currency swap deal, both to make business transactions cheaper and to improve an ever-strengthening political relationship.

q&a

Brazil

Dundee

Kym Fullgrabe Senior Trade Commissioner Austrade

Australian METS companies have long had an eye on the Brazilian market, despite the obvious challenges of doing business in Brazil. Kym Fullgrabe, Senior Ttrade Commissioner at Austrade, provides recommendations to Australian firms looking to set up shop in the South American giant and highlights the major areas for potential growth for Australian companies in the run-up to the 2014 World Cup and 2016 Olympic Games. After one year in the job, what are the main initiatives you’ve planned? Before arriving in Brazil as Senior Trade Ccommissioner, I’d had the chance to learn about the market from the private-sector perspective. When I started this job I had main two goals for my tenure. One was broadening the base of our sectorial focus beyond the traditional areas of mining, education, and sport areas into new priority areas including oil & gas, infrastructure, and tropical products. The other was to raise awareness between Brazil and Australia, particularly in the boardrooms of each country. Which Australian companies are particularly interested in Brazil? The METS industry likes Brazil because it can work with clients like Vale, which is such a huge global player that it creates a market itself. These companies know how important it is to register with Vale’s procurement program. Many Australian companies look at securing a LATAM foothold in Chile before heading north to Peru and Colombia or east to Brazil. So we have a mix of Australian suppliers with an interest in Brazil – some are already in LATAM and others are Australian-based looking for new markets. The Trans-Pacific Partnership (TPP) is the big buzzword globally. Given that Brazil is excluded, will it be less competitive once the TPP is negotiated? Quite a few trade partnerships are forming now, and I don’t think Brazil will be affected at all. Latin America really has three markets: Mexico, Brazil, and the Andean economies. Each of these is very different and each has its strengths. I don’t think there will be a big impact on Brazil-Australia trade compared to the other South American countries involved in the TPP negotiations. Brazil perennially ranks as a difficult country to do business in. How can Austrade help Australian companies find a local partner? One of the most important things is in trying to make Australian companies aware of the local requirements and the more general activities involved in doing business locally. I’ve seen companies spend 90% of their resources trying to find a customer, yet when they find a

buyer they need urgent legal advice, as they haven’t considered their operating model or found a local partner. The basic step is to raise awareness that there are models of business engagement that must be evaluated from the very beginning. We offer specific companies a service to help them find a range of local partners across many industries. Brazil and Australia are often considered rivals in the race to sell iron ore to China. Would a surplus in this market make Brazil less competitive? The hypothesis that Brazil and Australia are competing is common and very interesting. But it needs to be reframed as BHP Billiton, Rio Tinto, and Vale sparring for the Chinese market. Once you go beyond the senior iron ore producers, very few elements of competition exist. About 20 years ago there was competition in agriculture because countries couldn’t sell everything they grew, but today all the wheat, soy, and beef are sold without wool-piles, wine-lakes, or whatever terminology you want to use. The two countries have a lot more in common that they do as competitors. Brazil is hosting the World Cup in 2014 and the Olympics in 2016. Can Australian companies leverage their experience gained in the 2000 Sydney games? Since the Games in Sydney, Australia has developed interesting and innovative capabilities around major sporting events. The cauldron that housed the Olympic Flame during the London Olympics, for example, was built by an Australian company. Many countries are saying that part of the return on investment from major sporting events is to develop an innovative industrial capacity to be competitive and successful in securing contracts for future games. We’re working closely with Australian companies to maximize the benefits in Brazil, particularly for the Olympic Games in 2016. The Brazilian sports authorities understand the legacies that hosting an Olympics bring in the “major sports industry.” Where you have big sport, you have big business. And so as you see with the Tennis Grand Slams or Formula 1 racing, there are opportunities for networking and getting company executives together and talking business. Mining Leaders

IRON ORE

lead article

competitive

spir it A

fter a brief stall in 2012 and 2013, the Brazilian iron ore sector can look forward to a strong 2014 with improved market conditions, a clearer regulatory framework, and improving competitiveness through infrastructure investments. Brazil remains the world’s second-biggest iron ore exporter, after Australia, but in 2012 weaker prices meant that the industry missed the Brazilian government’s export target of $264 billion, clocking in at just $242.5 billion. Production has also declined, with total output reaching 153Mt in the first seven months of 2013, compared to 161Mt during the same period in 2012. Given its position as Brazil’s most important mineral commodity by far, the iron ore industry was naturally hit hard by the moratorium on new mining licenses and the uncertainty caused by the drafting of a mining code over two years in the making. Of the $10 billion in invesment money that IBRAM estimated stood on the sidelines during this period, the vast majority was destined for major iron ore projects. The institute’s figures anticipate that such projects will draw $46 billion in new investment between 2012 and 2016, nearly twice the amount of all other mineral projects combined.

Photo: Vale

With the new mining code now being fast-tracked through Congress, iron ore miners should be able to run the numbers on their projects Mining Leaders

lead article

Photo: Vale

Brazil's iron ore royalty will increase pressure on producers to improve competitiveness in processing and shipping

by the end of the year to make final investment decisions. The proposed new mining code subjects iron ore, along with gold, to a 2% royalty tax, extendable to up to 5% by presidential decree. Importantly, the royalty applies to total revenues rather than operating profits, meaning major costs such as freight will not be deductible. After the propsoed bill’s announcement, Vale’s CEO Murilo Ferreira estimated that it would raise the government’s take in the industry to BR$4.2 billion from BR$1.7 billion. Nevertheless, Vale’s stock rose 2% on the news, suggesting that investors found the new code—which did not end up including a windfall tax—less onerous than expected. When compared to iron ore royalty rates in Australia, Brazil’s main competitor in the Chinese steelmaking market, the increase is modest. And with ore prices rallying to $140 per ton by August 2013, the onus now falls on Brazilian producers to increase their competitiveness. The decline in the Brazilian real has helped reduce costs, but improving productivity and transportation remains a key focus for most firms. Vale, the world’s second-largest mining firm, is leading this trend: its mamouth S11D project in the Carajás region, will be the country’s first truckless iron ore mine when it comes online in 2016. Although the firm retains significant investments in Africa and elsewhere in Latin America, a change in executive management in 2012 coincided with a renewed focus on

domestic projects. Minas Gerais has long been the center of the company’s operation and, along with several other major Brazilian firms, Vale has a major stake in the Iron Ore Quadrilateral (IOQ), a 7,200–square kilometer region south of Belo Horizonte that forms the historic center of the country’s iron ore industry. The regional focus is changing, however, and the state of Pará will become the country’s number-one producer when S11D is commissioned. The $20 billion investment will be the largest iron-ore mine in the world, doubling Vale’s current Pará-based production of 90Mt per year. S11D will be the largest expansion of the Carajás mining complex, producer of the highest-grade iron ore in the world, since it began operations in 1985.

Other local firms are investing in modern processing technology to improve value-added. Mineração Usi minas, the mining arm of the country’s second-largest steelmaker, has invested in new processing facilities at its Friable project in Minas Gerais. There are also acquisition opportunities for larger firms with cash to spend. The downturn in the global mining industry in 2012 and 2013 has led to major firms looking to sell off marginal properties. Eike Batista, one of the world’s ten richest men as recently as 2010, has seen his huge bet on the Brazilian commodities sector turn sour. Falling prices in coal, gold, and iron ore, combined with technical problems at his oil firm OGX, have slashed his wealth to an estimated $200 million. With creditors at the door, there has been speculation that Batista could sell off MMX, his iron ore firm, with Vale and Usiminas listed as potential suitors, although both have denied interest in such a purchase. Anglo American has also trimmed its Brazilian portfolio, selling off a 70% stake in the Amapá iron ore mine to private British firm Zamin Ferrous in January 2013. With the new royalty being applied to gross revenues, the need to make Brazilian iron ore production more competitive is paramount. The biggest area of potential savings will come from the renovation of the transport system. More than half of Vale’s $20 billion investment in S11D will be spent on improving logistics. The project will involve the addition of a 500-kilometer Brazilian Iron Ore Production (Mt)

500

400

300 212.52

236.96

263.77 262.03

278.14

350

351

2007

2008

317

372

390

2010

2011

331

214.56

200

100

2000

2001

2002

2003

2004

2005

2006

2009

Source: USGS 2012

lead article Top Buyers of Brazilian Ore Others 21.93%

50.000 China 45.78%

89.000

Estimated Production of Iron Ore 2012 2015 2016

40.000

10.000

spur to the Carajás railroad, the remodeling of some 226 kilometers of existing track, and the expansion of the Ponta da Madeira port in neighbouring Maranhão state. The government in Brasília has also committed itself to improving the national network. Rousseff has promised to invest $42 billion in a dozen railroad projects, constructing 11,000 kilometers of new track and opening access to privately owned lines. The government estimates that this could cut shipping costs by up to 30% for iron ore and agricultural firms. The tender process for the new lines could begin as early as October 2013, with low-cost financing available for up to 80% of project costs and government guarantee to purchase 100% of capacity. Such investments will also ease the strain on the country’s strained road network, which currently handles over half of export freight. However, historically, the country has a poor record of delivering major transportation proj ects on time and under budget. The government will have to devise a new approach to ensure that past mistakes are not repeated. Despite the development of new rail lines, Vale’s dominance of the Brazilian iron ore industry has previously made it difficult for foreign firms to enter the market. As well as having a massive land package in the most attractive zones, the firm controls the rail lines out of the IOQ and Carajás. The only publicly listed foreign firm now producing iron ore in Brazil is ASX-listed South American Ferro Metals. The firm’s Ponto Verde mine in the heart of the IOQ has

a targeted annual production of 8Mt by the end of 2015 and open mineralization to the north and west, allowing for exploration upside. Centaurus Metals also has projects in the IOQ including the 11.9Mt Candonga project, which boasts a grade of 43% iron. Added to the resources defined at its Jambreiro and Canaival projects, this gives Centaurus a total resource of 219Mt. To avoid depending on Vale’s export infrastructure, Centaurus has focused on supplying local steel mills, which have been a source of increased demand as infrastructure spending rises.

$42 billion

brazil's investment in new rail track Attractive properties are increasingly rare, however, in the most established iron ore districts in the country, meaning that most junior players have turned their attention to less-explored regions, with Bahia the destination for many. This northeastern state has significant hematite and itabirite deposits near key infrastructure lines and, importantly, a local government prepared to invest in infrastructure and promote the mining industry as a source of muchneeded jobs. Australian firms are at

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South Korea 4.97% Netherlands 4.56% Italy Argentina 4.09% Germany 2.95% Oman 2.95% 3.06%

20.000

the forefront. Centaurus’s only exportorientated project, Serra de Lontra, is located here. Cabral Resources has identified high-grade hermatite resources at its Sincorá property, which may have the potential to produce 1Mt–2M annually to provide cash flow for a long-term project. In August 2013, BrazIron released a 440Mt JORCcompliant resource estimate at its Xique Xique project in Bahia. The state is already home to one of the biggest iron ore developments in the country, Bahia Mineração’s Pedra de Ferro project, which is expected to produce 20Mt annually starting in 2014. Several other local firms, including Bemisa and World Mineral Resources, also hold projects in Bahia, and the state has rapidly risen to become the third most important minerals producer, after Minas Gerais and Pará. As Brazil works to increase supply, the question of future demand is pressing. After a drop in March 2013, the price per ton of iron ore reached $140 in August after stronger-than-anticipated Chinese demand and the decline of India’s domestic production. José Carlos Martins, Vale’s executive director of ferrous minerals and strategy, expects Chinese demand to peak at 1Bt per year in 2025. The challenge in the interim comes from the expansion of supply in Australia and Asia, as major projects from the likes of BHP Billiton and Rio Tinto come online. If Brazil— on the other side of the world from the its key market—hopes to compete, improvements to competitiveness can’t come soon enough. Mining Leaders

Source: IBRAM estimativas - 2012

30.000 Japan 9.71%

q&a

National

Murilo Ferreira CEO Vale

Treasure

Vale was founded during WWII by the Brazilian government. Since then it has become the world’s largest producer of iron ore and second-largest of nickel, and has also diversified into areas like coal and fertilizers. CEO Murilo Ferreira has overseen much of this growth and is now planning large investments aimed at reducing costs through technology. Here, he explains the impact of these investments on the development of Brazil's North. In the last decade mining companies diversified to create “mega miners” like BHP Billiton, Anglo American, and Vale. What trends and consolidation do you expect in the mining industry over the next 10 years? The global economic environment is now much more challenging. The world economy is expected to grow more slowly in the new period we are living in; the mining industry will no longer see the exuberant growth of the past. The key message now is to keep focus, with investments in low-cost, high-quality projects, and stay on the path of capital management discipline and cost reductions. That’s what we are doing with projects like S11D. Vale has been operating in Carajás since the 1980s. How has the company transformed both the region and the state economically over the decades? Vale has contributed much to the development of Brazil’s North, investing heavily to boost its mining potential. Throughout the years, our activities have helped to improve the lives of the region’s people, create jobs, and generate income and opportunities for local suppliers. Carajás has also represented a step change for the economy of southeast Pará. Parauapebas—home to the Carajás mineral province—has become the top exporting municipality in Brazil, enjoying growing tax revenues from mining-related economic activities. In 2012, according to official statistics, Parauapebas exported $8.798 billion in goods, almost half of Brazil’s $19.438 billion trade surplus during that year. As of mid-2013, 44% of physical progress had been completed at Vale’s flagship S11D. When will construction begin? The engineering is almost fully completed, and the equipment and services packages for thewhole program (S11D and CLN S11D) are 23% contracted and 45% to be hired with firm proposals. As of the end of June 2013, S11D was 45% completed in the mine and processing plant as a result of our strategy to build modules outside the construction site. The CLN S11D was at 8% of physical completion. Startup of the project is slated for the second half of 2016 and we expect to deliver full-

capacity production in 2018. Apart from the construction, we achieved an important milestone in July with the granting of the installation license for Carajás S11D. Vale’s Board of Directors then approved the CLN S11D project that provides for the expansion of the existing logistics infrastructure to support the increase in annual capacity to 90Mt that will be delivered by S11D. This expansion will increase our logistics capacity to 230Mt per annum and involves the construction of a rail spur, new railway sections with dual tracks, rail terminals, and onshore and offshore port infrastructure. S11D’s sustainable mining system will use 93% less water and 77% less fuel while reducing greenhouse gas emissions by 50%. Besides the lower costs, where did the vision for sustainable mining originate? Contrary to what many people think, mining can contribute to environmental protection. This is what our presence in southeast Pará demonstrates. Since we began mining iron ore in the region in 1985, we have been helping to preserve 400,000 hectares of native jungle in Carajás National Forest and other areas of the Amazon biome, in partnership with the Chico Mendes Institute for Biodiversity Conservation (ICMBio). Our operations occupy just 3% of Carajás National Forest’s area, and over the years, we have developed technologies and management systems that have led to lower-impact operations. The experience we have gained over the past three decades is incorporated into the S11D project, which has been carefully planned to achieve operational excellence. In addition, we protect approximately 13,700 square kilometers (including conservation units protected in partnership with local governments), an area around nine times larger than the city of São Paulo. The total protected area is nearly three times larger than the total area of the company’s operational units (4,700 square kilometers), including timber plantations, and 7.5 times larger when these are not considered. In 2012, we invested approximately $69.3 million in protected areas and the recovery of degraded areas.

93%

murilo ferreira

Reduction in water usage due to innovative plant design at S11d

While S11D is considered to be at technological vanguard of mining, what will be the main technologies on site? Developing to the point where Vale is now—with cutting-edge technology to produce ore with the highest concentration of iron in the world, as well as other minerals essential to our everyday lives—has required heavy investment in innovation and research. Besides more competitive production, this technological innovation guarantees a lower impact on the environment and surrounding communities.

Photo: Vale

Espíritu Santo state's Port of Tuburão was recently expanded to accommodate Valemax ships

month, rather than the nearly 1.7 million cubic meters that would be used each month in a conventional plant.

While S11D remains the headline project, what are the other focuses for the company "Throughout the years, in Brazil and abroad? our activities have helped One of the distinctive features of S11D, for We are very focused on projects that have a to improve the lives of example, is its replacement of off-highway large potential to create value over the next trucks, commonly used in mining, for a system the region’s people, few years, being new platforms of shareholder composed of excavators and mobile crushers. returns. One of them is Conceição Itabiritos, create jobs, and generate Accordingly, the ore will be transported along which adds 12 Mt per year of iron ore capacity income and opportunities mobile rubber conveyor belts extending up to and contributes to extending mine life and for local suppliers." nine kilometers between the extraction site improving quality. It includes the construction and the processing plant. Using this inventive of a concentration plant in Minas Gerais, and solution, we will reduce our diesel consumption by 77% and it is estimated to start in the second semester of 2013. Another reduce annual CO2 emissions from 146,300 to 33,700 metric important project in the country is called, simply, Carajás tons—again, a 77% decline. This reduction is equivalent to the Additional 40Mpty, which, as its name suggests, will increase emissions of 75,000 small cars. dry iron ore processing capacity at Carajás by 40Mt per year. It includes the building of an iron ore dry processing plant and its Another important innovation is the use of conveyor belts. They launch is estimated for the second half of 2013. will enable the processing plant to be built on pasturage outside the forest where the mine is located, reducing the deforestation Abroad, we are focused on the Moatize II project in Mozambique. impact. We designed a special new processing plant for S11D that The project will increase Moatize’s total nominal capacity to cuts water consumption by 93%, the equivalent volume used by 22Mt per annum, mostly comprised of coking coal. It involves a city of 400,000 inhabitants. By processing the ore using its own a new pit and duplication of the Moatize, as well as all related natural moisture, as already happens at the N4 and N5 mines infrastructure. The project is estimated to begin in the second in Carajás, water consumption will be 110,000 cubic meters per half of 2015. Mining Leaders

q&a

Infrastructure

Michael Bogue CEO Cabral Resources

First

Michael Bogue, CEO of ASX-listed iron ore explorer Cabral Resources, explains the importance of an infrastructure-led development strategy for Brazilian operators. Cabral is exploring for high-grade hematite direct shipping ore (DSO) on its 100%-owned, 1,195–square kilometer Sincorá Area in Bahia. Its exploration team was also instrumental in exploring and developing the neighboring 1Bt Pedra de Ferro iron ore project. Your main assets lie in Bahia. What is the history of mineral exploration and development in that region? Exploration in the region is very limited despite the geology’s high prospectivity. One of Bahia’s most significant producers is Magnesita Refratários, a company producing magnesite, talc, and several other minerals. Magnesita has been operating for around 70 years in Brumado, where our exploration offices are located. The minerals travel south to Belo Horizonte, or through the Ferrovia CentroAtlântica-Aratu logistics corridor, to serve the alloy industries. Various other companies are in developmental stages, the most advanced being Eurasian Natural Resources Corporation (ENRC), which operates Pedra de Ferro, a large undeveloped iron ore project. The firm has spent over $1 billion to acquire the project and bring it to its current status. They have in the order of $2 billion in development capex to spend, but are waiting on rail and port development. Key members of the ENRC exploration team, who took the Pedra de Ferro site from grassroots exploration to a bankable feasibility, now work for Cabral, including our head of exploration, Paulo Ribeiro. Can you elaborate on the infrastructural opportunities Bahia offers, and their importance to your project? We’re fortunate to have dual infrastructure options. The Ferrovia Centro-Atlântica (FCA) railway is already operational and runs from Salvador, in Bahia, to Belo Horizonte, in Minas Gerais. The Ferrovia da Integração Oeste-Leste (FIOL) line, or East-West Rail Line, is a government initiative and will have a 52Mt per year initial capacity, with 45Mt allocated to iron ore. Of the latter figure, we have a 15Mt allocation pursuant to a signed Protocol of Intentions with the Bahia state government. The line will run over 537 kilometers inland from the Porto Sul in Ilhéus. Construction is underway and should be ready by the time we enter production. The port is slightly behind schedule due to delays with licences and recent federal changes to port laws in Brazil. With regard to the advantages of Bahia, we ended up here because, first, the geology is vastly underexplored with huge potential. And second, Bahia’s port and rail solutions offer a unique opportunity. We've approached bulk commodities

development from a completely different angle from many of our peers. Most juniors peg a patch of ground in the middle of nowhere, raise capital, and prove up a drill-compliant resource. But without logistics the project is stranded and, in most cases, uneconomic. Existing infrastructure can make even marginal mines economic. We don’t get much credit for that in the market, but we have a strong exploration team with a decent budget, so we'll catch up quickly with drilling and resource definition at the Sincorá Area. The Sincorá Area, with significant high-grade DSO occurrences, is the focus of your exploration. What do you know about the zone’s geology? Our exploration team has been in Bahia for over two years. We started with a package of magnetite tenements that didn’t come up to scratch in exploration, so we’ve halted work on those and begun to refocus and expand. After extensive reconnaissance fieldwork showed widespread hematite resources on vacant land, we pegged it directly from the government in March 2013. So far we've done surface sampling; there is a great deal of subcrop and float comprised of very high-grade, low-contaminant hematite. We believe it is a sub-horizontal ore-body. The Sincorá Area currently comprises 68 tenement applications. The revisions to the mining code in June 2013 slowed the rate of tenement granting. However, we have consulted intensively with both the state and federal governments and anticipate receiving the licenses in the near future. We’ll then apply for environmental licensing—this should take a further four to six months, after which drilling will commence. Your exploration team is completely Brazilian. What are the benefits of having a local team? A Brazilian team is critical. When we first went over we had an expatriate team, but now we wouldn’t recommend it. Brazil has a completely different business culture, different geology, and the language is a huge barrier. We made the necessary changes: our new team knows the geology and doesn’t get charged foreign prices. Our operations are much more cost-efficient.

Cabral has an established network of Chinese contacts. How has the company secured Chinese investor confidence? We’ve been working on those contacts for years. Unfortunately, some Australian companies “mine the market” by dressing up assets simply to sell on, whether or not they believe in them. Regrettably, the investment history of Chinese companies in Australia and offshore in the mining sector is fairly disappointing, as we think even the Chinese would admit. We have worked closely with our Chinese partners for many years to seek the right investments and structure them correctly. We believe we have substantial goodwill in China, not just with China Railway Materials Commercial Corporation, our joint venture partner, but across many state-owned enterprises, policy banks, and sections of central government itself. What is your outlook on Chinese demand for iron ore, particularly in light of lower growth forecasts? We’re optimistic for two reasons. First, analysts overestimate supply, presuming high future production deriving from Africa. But there’s simply too much capex investment required in Africa to make all these projects realistic. On the demand side, the Chinese can create policy and introduce monetary stimulus instantaneously. And they recognize they have a lot of work to do internally to improve their economy and increase household living standards generally. The new government will want to make its mark on the economy and is certainly headed in the right direction with its aspirations for its people. How would you describe Australian understanding of Brazilian projects? I'd say that it’s pretty poor, but it’s just a matter of educating the market. The likes of Cabral need to get out there and increase the knowledge base. For some reason the Australian market has gravitated toward Africa, but I think that will be corrected in due course. There hasn't yet been a story where an Australian company has generated significant profits. Many are on the way, though, and we will all be re-rated when it happens. And who knows, perhaps Cabral can lead the way on that. Mining Leaders

company focus

ArcelorMittal Mineracão Brasil Ticker

NYSE:MT

Projects

Serra Azul & Andrade

Development 2013

Production: Capacity 7.1Mtpa

ArcelorMittal Mineração Brasil As the largest global producer of steel, ArcelorMittal depends on iron ore production. With new stadia and infrastructure projects springing up across Brazil in preparation for the 2014 World Cup, demand for steel is soaring, and ArcelorMittal has provided over half of the reinforced metal needed for the projects. Since 2008, the firm’s mining division has made a concerted push to become selfsufficient in key raw materials, resulting in 2012 production of 55.9Mt of iron ore and 8.2Mt of coking coal. The firm has targeted 100Mt of annual iron ore production in 2015. Brazil plays a vital role in the firm’s mining strategy and under the leadership of CEO Sebastião Costa Filho, ArcelorMittal Mineração Brasil looks set to become an increasingly important player in the Brazilian iron ore sector. The firm’s two existing mines, Serra Azul and Andrade, lie in the Iron Ore Quadrilateral, the highly developed mining district near Belo Horizonte, the capital of Minas Gerais. In 2012, the two mines contributed 4.3Mt of iron ore, in lump and fines, to the firm’s global production, and a current $125 million investment plan aims to boost this figure to 7.1Mt in 2013. Production from the mines fuels the firm’s own steel mills and those of Usiminas, a local giant of the steel industry. The relationship has also led to discussions of a joint bid for a concession

In Brazil, we produce iron ore lump and fines through the Serra Azul and Andrade mines. 2013 production capacity is 7.1Mt of ore, a 65% increase on last year's 4.3 Mt. Sebastião Costa Filho CEO ArcelorMittal Mineração

at the Area do Meio port in Itaguaí, Rio de Janeiro, as legislation introduced in May 2013 opens up opportunities for private sector investment in port infrastructure. With most iron ore– exporting ports now controlled by Vale and CSN, the opportunity to develop an integrated logistics network is attractive for a firm looking to export in the near future. “Poor logistics remains the biggest challenge to Brazil’s mining sector and

there is little access for independents. Investment in a nearby and modern port allows us to export directly around the world”, says Costa Filho. Befitting its status as the world’s fourthlargest producer of iron ore, ArcelorMittal Mineração Brasil brings international standards of health, safety, and community relations to Brazil. It was the first steel company to receive the Brazilian As so ciation for Technical Standards’ environmental certification for sustainable practices, and its Fundacão ArcelorMittal Brasil is one of the country’s best-known charities, helping 400,000 people per year through social development programs. “The secret is establishing rapport at the federal, state, and municipal levels,” says Costa Filho. “Good community relations are crucial for our growth strategy; with our steel mills demanding ever greater volumes of iron ore, ArcelorMittal will continue to grow in Brazil and overseas.”

2012