FULL REPORT: Brazil – Court backing will strengthen fight against illegal mining in coming months but deforestation challenges will persist

 Torchlight Predictions

• Pressure on foreign governments and companies that import gold from Brazil will intensify in coming months as government calls for support to stop illegal sales
• New regulatory framework to prevent sale of illegally mined gold will be introduced within next 90 days
• Violent attacks by illegal miners on indigenous communities will increase in next 6-12 months

  

Developments

• A Supreme Court judge prohibits buyers from accepting the origin of gold based on paper declarations of “good faith” by the seller. The judge gives the government 90 days to formulate new legislation. (5 March)

Insights

President Luiz Inácio Lula da Silva’s administration will exert additional pressure on foreign governments and companies that import gold from Brazil in the next couple of months. According to the sustainability NGO, Instituto Escolhas, more than half the 97 tonnes of estimated gold production in 2021 showed evidence of links to illegal activities. The government will urge Canada, the UK, India, Switzerland, and the UAE – the top destinations for Brazilian gold – to enact stricter measures to regulate the gold entering their countries. Lula will likely ask companies to disclose their suppliers and implement processes to trace the original source.

The government will introduce a new regulatory framework to stop the sale of illegally mined gold within the next 90 days. This will likely include new legislation requiring electronic tax receipts for buying and selling the metal. Currently, gold is sold with paper receipts based on the “good faith” of the seller, making it difficult to trace its origin. The law will likely receive support from the Brazilian miner lobby group Ibram, which represents multinational and large domestic mining firms operating in Brazil. This will help boost the chances of getting this legislation passed through an opposition-led Congress. 

Big firms will most likely comply with the new regulation, but irregular miners are less likely to adhere to the new measures. Thus, violent attacks by illegal miners on indigenous communities will increase in the next 6-12 months, despite recent military deployment to affected regions and the latest court decision. A deadly attack by gunmen in Tembé indigenous territory in Pará state on 18 April highlights that challenges will remain despite Lula’s efforts to reduce illegal mining and deforestation in the Amazon. As efforts to remove miners and land grabbers from the state of Roraima rise, attacks are likely to increase in nearby regions such as Amazonas, Pará, Acre, and Rondonia. 

Implications for Business

Reputational risk: Minister of Indigenous Peoples Sonia Guajajara is likely to lead efforts to pressure foreign companies to assist in the identification of illegal gold being purchased from Brazil. She will have the backing of Lula, local and international environmental agencies, and the World Gold Council, a trade body for large-scale gold mining which also supports stricter measures to combat illegal gold mining. This renewed effort and political commitment will put extractive companies such as Serabi Gold and others under intense scrutiny in the coming months.

The government will also pressure companies in downstream and upstream processes related to gold mining. Activist groups are also likely to target multinational firms and the governments affiliated with them, staging sporadic demonstrations at factory sites and embassies. For example, activists staged a small protest outside a Hyundai factory in Rio de Janeiro following reports that the firm supplied 76 excavators to miners in the Amazon. While most demonstrations are likely to be medium sized and peaceful, there is a moderate risk that some radical activists will target operation sites, seeking to sabotage equipment and infrastructure.

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