The risks that could slow mining investment in Brazil’s indigenous areas

A bill to approve mining on indigenous lands is one of the main issues today in Brazil’s mining sector as it would open up new business opportunities.

However, even if approved by congress the opportunity may not be seized right away by large mining firms due to legal risk as well as risks related to environmental, social and governance (ESG) issues.

"A congressional approval will not trigger a rush by the major miners to explore these areas,” Clovis Torres, a mining-focused lawyer at the Souza, Mello e Torres law firm and former sustainability director at Brazilian mining giant Vale, told BNamericas.

“The first moves will be made by smaller companies, which will explore precious metals, such as diamond and gold, which do not need the creation of large logistical structures for transportation," he said.

"The big companies are likely to only look at these areas with more interest in a second phase, when all the legal risks and aspects related to ESG are very clear," added Torres.

The week saw a lower house committee approve a proposal to change the rules for the demarcation of indigenous lands, representing a step forward towards approval of the bill allowing mining in indigenous areas.

Indigenous lands account for around 12% of Brazil’s territory, equivalent to an area larger than Colombia.

The lands are mostly located in or around the Amazon rainforest and the bill has generate strong domestic and international criticism due to the issue of deforestation.

Besides the reputation risk that major mining firms face when dealing with environmental issues, there is now also a legal risk to consider as Brazilian prosecutors have said that mining on indigenous lands is unconstitutional.

"Mining and hydroelectric development works on indigenous lands received special consideration in the 1988 constitution precisely because of the potential damage and threat to the lives and culture of indigenous peoples," the prosecutor’s office said in a Thursday statement.

The prosecutors’ stance could make banks and investors more reluctant to provide financing for mining projects in indigenous areas. 

"If the regulation is approved by congress, the government will have to work on very clear guidelines regarding environmental licensing in these areas because project financiers tend to look at projects in such areas with extreme caution," said Torres. 

Large-scale mining on indigenous lands would also face a major logistical challenge as the construction of infrastructure to transport the metals would be subject to a rigorous environmental licensing process.