The Commodity Investor: Brazil’s Mining Sector Offers Solid Investment Opportunities

By Amine Bouchentouf – Exclusive to Resource Investing News

Columnist Amine Bouchentouf is a partner at Parador Capital LLC, an institutional advisory firm focused on commodities and emerging markets. He is the author of the bestselling Commodities For Dummies, published by Wiley. Amine is also the founder of Commodities Investors LLC, an advisory firm dedicated to providing insightful information on all things commodities. 

Brazil recently surpassed the United Kingdom as the world’s fifth largest economy. To Brazilians who grew up in the 1980s and 1990s with monthly double digit inflation, stifling bureaucratic measures and a weak currency, this new economic reality seems almost surreal. But the country is going through a transformational and undeniable phase that is very real and which has catapulted this Latin American country into the top global economic echelon.

One of the main drivers behind Brazil’s spectacular growth is its massive endowment of natural resources. Brazil is the top producer and exporter of soft commodities such as coffee, sugar and soybeans as well as being a leading producer of beef and poultry.

Brazil has also recently become a powerhouse in the energy sector with recent discoveries of large offshore oil deposits off the coast of Rio de Janeiro. These new discoveries propelled Brazil into the Top 5 oil reserves globally. In fact, some experts believe that Brazil’s discoveries may be as large as Saudi Arabia, although the recovery process is much more difficult due to the depth of the deposits.

An investment opportunity

Brazil is also a global leader in mining; a sector where investors can create large upside. With many companies directly involved in Brazil’s mining industry, investors need to be selective in choosing the right one. In today’s column I’d like to present some investment opportunities in Brazil’s mining sector that could provide some interesting returns for the discerning investor.

Brazil has a very rich and diverse mining industry, spanning many key commodities such as iron ore, copper, gold, silver and even platinum. If you want broad exposure to Brazil’s mining industry then you can’t go wrong by including Vale (NYSE:VALE) in your portfolio.

Vale is a giant in the mining industry globally, and the undisputed mining champion locally. Vale controls over 75 percent of iron ore mining reserves in Brazil and has operations in dozens of countries, including in key emerging markets such as Africa. With revenues in excess of $60 billion and net profit margins of over 35 percent, this is a company that belongs in any discerning investor’s portfolio.

Brazil is an undisputed global leader in the iron ore market; it also has a rich and diverse history of gold mining. At one point in the 1980s and early 1990s Brazil was one of the Top 10 producers of gold globally. While Brazil’s production has decreased it’s still an important gold producer. More importantly, Brazil is in the process of reinvigorating its gold mining industry, and this should provide some interesting upside down the road.

One company that’s in the middle of this transformation is Colossus Minerals Inc. (TSX:CSI). Colossus is a Canadian-based mining company that is in the process of restarting mining operations at Serra Pelada, Brazil’s former largest-producing gold mine. The Serra Pelada mine, located in the state of Para in northern Brazil, was shut down due to environmental concerns and safety reasons.

Colossus is actively engaged in the exploration of gold at Serra Pelada where previous exploration from Vale yielded positive results for gold, platinum and palladium. In addition to the traditional producing area at Serra Pelada, Collosus is also undertaking a series of geological, geochemical and three-dimensional mapping of the surrounding area which may yield additional reserves. Currently, trading at $6/share, the stock price may even double once the reserves are proven and production begins.

For investors looking to get exposure to Brazil’s mining industry you now have two stocks to choose from, one that provides you with stable returns while the other one can offer large upside.

Securities Disclosure: I, Amine Bouchentouf do not have any investment interest in the companies mentioned in this article.