A new era of gold in the making

Despite its gold-rich soil Brazil was never capable of
exploring the country’s gold reserves at its fullest. From discovery in
1500 up to 1882, the year of the Brazilian independence, official gold
production was at a mere 2.69 tons per year. Between 1822 and 1889, the
imperial period, this number improved slightly to 2.99. Production exploded
in 1995 with 75 tons but the better is still to come.

Hélio Shimada

Brazil is now experiencing a new gold rush. Many important world-class
mining companies are disputing exploration areas in its territory. Brazilian
mining companies owning legal rights to explore potential areas (exploration
claims) are being aggressively asked to sell them or to accept partnerships.
Some local mining specialists consider the situation the beginning of a
new era in which Brazil will finally develop all of its potential for gold
production. Experts believe that there still is a huge potential of undiscovered
gold to be tapped. All that optimism, however, should be tempered with
some less upbeat reality.

Brazil has been a gold producer since the 1500’s when gold-bearing veins
were discovered by the Portuguese close to the Jaraguá Peak, a proterozoic
quartzite mountain at the outskirts of São Paulo, now the biggest
city in South America. During the colonization, the search for gold in
the newly discovered lands was stimulated by the Portuguese Crown, as Portugal,
highly dependent on imports from England, had to equilibrate its trade
balance.

Adventurers known as bandeirantes, leading the bandeiras (literally,
flags), expeditions for gold exploration, were responsible for many
important discoveries, mainly in the states of Minas Gerais, Goiás
and Mato Grosso. The majority of the new gold discoveries were shallow
deposits, mineable by primitive methods. The bandeirantes also hunted
Indians to sell them as slaves and contributed to define the present Brazilian
western border, formerly limited by the Tordesillas Treatise, signed between
Portugal and Spain. The bandeirantes pushed the border thousands
of miles to the west.

Immediately after the first discoveries, Portugal reserved to itself
all the rights over the “gold veins and any other metal.” In
1603, it was established the Regimento das Terras Mineiras do Brasil
(Statute of Brazil’s Mining Lands), the first mining code in the Americas.
According to that rule, metal mining was allowed to all interested people
as long as they paid one fifth of the production to the government. Mining
land could also belong to the miner through the payment of taxes.

THE FIRST GOLD RUSH

In 1690, an important gold district was discovered in Minas Gerais and
it was founded the village of Vila Rica, presently a historical town named
Ouro Preto. This discovery resulted in intense human migration for many
years, increasing the colony’s population as a whole. That was the first
gold rush in the country. After 1764, gold production experienced a decline.
The causes were the exhaustion of easily mineable deposits and the lack
of mining techniques and financial resources to invest in profitable mining
of deep veins. The total registered gold production of the colonial period
(1500 to 1822), was about 866 tons, mainly produced between 1735 and 1754,
giving an average of only 2.69 tons per year.

After the independence from Portugal, in 1822, the gold production continued
its decline. Then, starting in 1824, the Imperial Government, convinced
of the necessity of stronger financial and technological resources to save
the mining industry, allowed foreign companies to mine gold. Among several
companies installed in Brazil, mainly of English origin, only two were
successful: the Imperial Brazilian Mining Association, operating the Congo
Soco Mine, and the St. John del Rey Mining Co., operating the Morro Velho
Mine. Those two mines produced more than the half of the gold mined in
Brazil between 1820 and 1860. The total amount of gold produced during
the imperial period (1822 to 1889) was about 200 tons or an annual average
of about 2.99 tons.

The production between 1889 and 1977 was mainly represented by mines
in the Minas Gerais state, as Morro Velho, Passagem and smaller ones like
Raposos, Faria, Bicalho and Bela Fama. The total of this period was about
363 tons, with a still low average of 4 tons per year. This estimate did
not consider the production of newly discovered garimpo areas in
the southwestern state of Pará. Garimpos are gold or precious-stone-producing
areas mined by private diggers, known as garimpeiros.

Those garimpos were characterized by shallow and very rich gold
bearing placer deposits associated to flood plains in the Tapajós
river basin, mainly along its tributaries Jamanxim, Novo, Cuiú-Cuiú
and Crepori rivers. Although hundreds of garimpeiros were working
there, their production only began to appear in the statistics after 1977,
when it became important.

A SECOND GOLD RUSH

Since 1967, mining is ruled by the Código de Mineração
(Mining Code). During the 1970s, the Brazilian government invested heavily
in basic geological survey over almost all of the country. The result was
the discovery of promising geological environments for gold and many other
mineral resources. Typical gold-bearing units, the so-called greenstone
belts, an association of basic-ultrabasic igneous rocks and metamorphic
rocks of Archean age (older than 2.5 billion years) were identified in
many regions.

Exploration projects carried out in some of those areas resulted in
now important gold mines such as Jacobina and Fazenda Brasileiro (Bahia
state), Crixás (Goiás state), São Bento (Minas Gerais
state) and Igarapé Bahia (Pará state) among others. Gold
mineralizations related to younger geological environments as some Proterozoic
units (2.5 billion to 570 million years old) were also found. Such was
the case of Novo Astro (Amapá state) and Morro do Ouro (Minas Gerais
state). At the same time, the production from garimpos of the Tapajós
region quickly increased after 1978, pushed by the elevation of gold prices
that went up to $800 a troy ounce. It was like an explosion that brought
out the second gold rush.

In the early 1980s, three new garimpo areas in the Eastern state of
Pará started to produce gold: Cumaru, Tucumã and the world-famous
Serra Pelada. Serra Pelada was in Vale do Rio Doce Company’s claim, a state-owned
property and the Government then made a serious mistake, illegally allowing
the garimpeiros to keep the area and to make a predatory mining.
As a consequence, the garimpeiros, greatly influenced by some politicians
and illegal entrepreneurs, felt in the right to violently invade any gold
claim, mainly in the Amazon region. Serious conflicts have been common
in the area and, unfortunately, there are now very few official guarantees
against this situation. Garimpos, where hundreds of tons of mercury
were dumped into stream without any control, also represent an environmental
disaster to the country.

Between 1978 and 1990, about 781 tons of registered gold were produced
and the garimpeiros were responsible for 86% of that amount. The
average jumped up to more than 65 tons per year. It is believed, however,
that the real production was greater than the registered one, as smuggling
and tax fraud were common. Some of the hidden gold was probably used to
clean money from drug trafficking.

NO TO FOREIGN COMPANIES

In 1988, a new Federal Constitution was written by Congress adopting
an extremely nationalist position regarding the mineral resources. The
new Constitution only allows mining to Brazilian companies, owned by Brazilian
citizens, or by foreign citizens living in Brazil. Foreign mining companies
were simply prohibited from mining in the country, except in the case of
minority interest in Brazilian companies. This restriction, allied to the
world recession, causing the reduction in the consumption of mineral products,
had an almost catastrophic effect on the Brazilian mining sector.

Until 1988, the sector had annual investments of about $200 million,
mainly from multinational companies. In 1993, that investment had dwindled
to a mere $40 million. Despite the good geological potential of the country,
many well-prepared mining professionals as geologists, mining engineers
and technicians lost their jobs, and some mining equipment industries and
mineral analysis laboratories had to close their doors. At the same time,
the garimpos have experienced an accelerated decline due to the
exhaustion of shallow and rich placer deposits and also to the reduction
in gold prices. Even the once famous Serra Pelada became a flooded pit
in the jungle. The gold production profile has also changed since 1992.
The organized mines were responsible for 49% of the 377 tons produced in
the last four years (1992-1995) and their participation continues to increase.

THE THIRD GOLD RUSH

More recently, some politicians started to realize their mistake. In
1995, an ammendment to the Constitution has once again allowed the mining
by foreign companies. This fact, allied to the recent economical and political
stability, was the origin of the third gold rush. Many important foreign
companies such as TVX, Barrick Gold, RTZ, Anglo American and Noranda are
now investing in Brazil. Some of them were already installed in partnerships
with local companies. There is also the presence of several junior companies,
mainly from Canada, searching for promising gold targets aiming for future
partnerships with bigger companies.

Airborne geophysical companies are flooded by contracts with target
searching companies and mining professionals are being contacted for jobs.
Gold production in 1995 was 75 tons, the seventh largest in the world.
However, there is a potential to produce about 200 tons at the beginning
of the next century if the investments are kept at an annual average of
$200 to $250 million.

Despite all the euphoria related to a new gold rush, there are still
many structural problems in the country embarrassing the development of
the mining industry. One of these hurdles is the question of garimpeiros
invasions, yet unsolved due to the lack of the Union’s political will.
Another obstacle is the complexity of the Brazilian taxation system which
is something hard for foreigners to understand. The government is trying
to change that system as a whole, but things are going in a tortoise pace.
The Código de Mineração is now being revised by Congress
in order to adapt it to the absence of distinction between national and
foreign capital, but it is also being conducted very slowly. Over all,
there are many political interests and even blindness. Considering the
recent and typical past of a so-called banana republic, there is also the
fear of sudden changes in the economical, political and legal rules. We
sincerely hope such fear is baseless.

Hélio Shimada is a geologist at the Intituto Geológico
in São Paulo, Brazil. You can E-mail him at
hshimada@igeologico.sp.gov.br


FOR MORE INFORMATION

Borges, L. F. — “Why mining in Brazil ?” Brazil Mineral,
São Paulo, April 1996, Special Issue, p. 19-27.

“Brazil, the fifth largest mineral producer of the Western World”.
Brazil Mineral
, São Paulo, April 1996, Special Issue, p. 6-15.

DNPM — Departamento Nacional da Produção Mineral. Sumário
Mineral 1994
, Brasília, 109 p.

Eschwege, W. I. Von — Pluto Braziliensis. Belo Horizonte, Ed.
Itatiaia, 1979, v.1-2, 527 p. (first ed. Berlin, 1833).

Gonçalves, A. C. — “How to invest in Brazil and how to
send money back”. Brazil Mineral, São Paulo, April 1996,
Special Issue, p. 34-36.

Hermann, H. — “The rules of mining in Brazil”. Brazil
Mineral
, São Paulo, April 1996, Special Issue, p. 44-49.

Lestra, A. D. & Nardi, J. I. S. — O Ouro da Amazônia Ocidental:
O Mito e a Realidade
. Belém, Grafisa, 2nd ed., 1984, 395 p.

Paredes, S. & Novotny, R. — “Taxation of mining activity in
Brazil.” Brazil Mineral, São Paulo, April 1996, Special
Issue, p. 37-41.

Santos, B. A. — Amazônia: Potencial Mineral e Perpectivas
de Desenvolvimento
. São Paulo, T.A. Queiroz Editor : Editora
da Universidade de São Paulo, 1981, 256 p.

Santos, B. A. — “O grande potencial de ouro do Brazil”. Brazil
Mineral
, São Paulo, Sept. 1995, nr. 134, p. 11-17.

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