Brazil: Critical Minerals Foreign Acquisition Law Mandates Deal Approval

• Brazil has enacted a new law granting its government significant power to review foreign acquisitions and international contracts involving strategic minerals.
• A new council, housed within the presidency, will approve transactions like corporate control changes and mining rights transfers, which cannot proceed without its consent.
• The legislation defines critical and strategic minerals and will update this list every four years, allowing for value-addition requirements on exports.
• Financial incentives include up to 5 billion reais in tax credits for domestic processing and manufacturing, and a 2 billion reais guaranteed fund to reduce investment risks.
• The law was signed shortly after USA Rare Earth's $2.8 billion acquisition of Serra Verde, Brazil's only commercial rare earths producer, whose output is committed for 15 years to a foreign-backed buyer.

The new Brazil critical minerals foreign acquisition law clearly delineates what constitutes 'critical' and 'strategic' minerals, guiding the council's regulatory focus.

Brazil's President Luiz Inácio Lula da Silva recently enacted a new law designed to strengthen governmental oversight of foreign acquisitions and international contracts within the nation's strategic mineral sector. Signed on a Wednesday, this legislative action also introduces a suite of incentives aimed at fostering the expansion of domestic processing capabilities for these vital resources. The move underscores a significant shift in the country's approach to its vast mineral wealth, particularly its substantial rare earth reserves.

Central to this new framework is the establishment of a national policy for critical and strategic minerals, alongside a dedicated council operating under the direct purview of the presidency. This newly formed council is vested with considerable authority, requiring its explicit approval for a range of transactions, including changes in corporate control, transfers of mining rights, and specific international agreements and partnerships. Without this mandatory approval, such deals cannot proceed, signaling a more assertive posture by the Brazilian government in managing its natural resources.

The new Brazil critical minerals foreign acquisition law clearly delineates what constitutes 'critical' and 'strategic' minerals, guiding the council's regulatory focus. Critical minerals are identified as those susceptible to supply disruptions and indispensable for key economic sectors. Strategic minerals, conversely, are defined as those for which Brazil possesses significant reserves, playing a crucial role in the country's trade balance, technological advancement, or efforts toward emissions reduction. The government has committed to updating this official list of minerals every four years to reflect evolving global and domestic priorities.

President Lula da Silva emphasized the transformative nature of this legislation, stating that Brazil is now proposing a new global agenda for the future of mining. The law also grants the government the power to impose value-addition requirements on mineral exports, although it stops short of prohibiting the shipment of unprocessed ore. The specific details regarding these requirements are slated to be outlined in subsequent regulations, providing a flexible mechanism for the state to encourage domestic processing without outright bans.

Recognizing that Brazil's primary challenge extends beyond mere extraction, the new policy introduces substantial financial incentives to cultivate a robust domestic processing and manufacturing industry. Rafaela Guedes, a senior fellow at the Brazilian Center for International Relations who contributed to a study on rare earths, highlighted that Brazil currently possesses virtually no capacity to separate or refine rare earths or produce magnets. This legislative push aims to address that gap.

The law allocates up to 5 billion reais, approximately $1 billion, in tax credits available from 2030 through 2034. These credits are specifically earmarked for mineral processing, manufacturing, and recycling projects. Companies can claim credits covering up to 20% of eligible expenses, with higher rates offered for projects that advance further up the value chain. Furthermore, a guaranteed fund, backed by up to 2 billion reais in federal contributions, is authorized to mitigate financing risks for these ventures. Priority projects may also benefit from issuing tax-advantaged bonds and receiving expedited review from government agencies, fostering Brazil rare earth mining investment and broader mineral development.

The enactment of this Brazil strategic minerals control legislation comes less than two weeks after USA Rare Earth finalized its approximately $2.8 billion acquisition of Serra Verde, which stands as Brazil’s sole commercial rare earths producer. This acquisition highlights the immediate relevance of the new regulatory environment. Notably, Serra Verde's entire initial output is already committed for a 15-year period to a buyer supported by U.S. government agencies and private investors. This agreement specifically covers four rare earth elements essential for permanent magnets and includes guaranteed minimum prices.

This context underscores a key concern articulated by Guedes: the risk that valuable ore leaves Brazil with demand already secured, while the downstream value creation is captured abroad. President Lula da Silva echoed this sentiment, drawing a historical parallel to Brazil's colonial gold boom. He remarked, "Gold left Brazil with holes, Portugal with palaces and England with factories," adding a resolute declaration: "We will not repeat history." While the law introduces significant oversight, it does not include provisions for price floors or purchase guarantees, and it maintains the existing division of mining, environmental, and radiological licensing among separate agencies, leaving some aspects of the regulatory landscape unchanged despite the new Brazil National Policy for Critical and Strategic Minerals.

Lawyers advising clients on foreign investment, M&A, or international contracts within Brazil's critical and strategic minerals sector must now account for mandatory government review and approval by the newly established council. Compliance officers should prepare for increased regulatory scrutiny on transactions involving corporate control changes and mining rights, while also exploring new tax credits and financing incentives for domestic mineral processing and manufacturing.

Source: Original reporting via Courthouse News