Brazil has one of the largest mining markets of the world, but there is very strong local competition

from subsidiaries of multinational companies that have local factories, as well as from many Brazilian companies that manufacture all sorts of mining equipment and components. Brazil is the worlds fifth largest mineral producer and has one of the worlds largest mining equipment markets. In 2009, Brazilian output of most minerals fell by more than 10% due to the downturn in the international market. However, during the last two years it has consistently increased, and the production volume for most minerals are back near the record year of 2008. As prices for most mineral commodities exported by Brazil also recovered in 2011, most local mining companies had a very good year. This recovery depends basically on the international demand for raw materials. China has played a very important role for Brazilian mining companies in the last years, as it has become the largest importer of Brazils minerals, especially iron ore, which is Brazils most important mineral. Most of the new projects developed in Brazil in the last years are for supplying China with iron ore, and for this reason the Brazilian mining sector has become very dependent on Chinas economy. The exclusive reasons behind choosing this industry are The Brazilian mineral potential still has not been fully surveyed, and significant discoveries of mineral deposits are still expected in the future. Most of Brazils mines are open pit, so the underground mining equipment market is relatively small; though more underground mines are expected to open in the next 3 to 7 years. Brazils largest installed mining operations are for iron ore, with 2010 output at 372 million metric tons/year (Mt/y), representing nearly 17% of the worlds total. Brazil is the top most country in bio-fuel production Other many industries are dependent on the end product of this mining industry. Brazil is the global player for Niobium (1st), Iron ore (2nd), Manganese (2nd), Tantalite (2nd), Bauxite (2nd). Despite significant investments in production/extraction, Brazil still invests little in mineral exploration. In 2009 and 2010 the country received only 3% of the worlds total private investment in exploration, and ranks well behind smaller countries.

USD millions Total market size

2010 4450

2011 4670

2012 4750

The U.S. has always been one of the largest exporting countries to the Brazilian mining market, with a share of 20% to 30% of Brazilian imports. Official statistics show that the U.S. has exported hundreds of types of components for mining machinery to Brazil. Other very strong exporters and competitors have been Germany, Sweden, Canada, China, France, Italy, Finland, and Japan.

5.5 PRODUCT: MINING EQUIPMENT 5.5.1 THEME 1: SEGME NTATION, TARGETING AND POSITIONING.

Segmentation: Mining equipment export or selling business is a B2B business and the segmentation consists of the companies that are engaged in mining industries. Important participants of this segments are VALE, Brazils largest, and worlds second largest mining company. Other key segment participants are Anglo American, Anglo Gold ashanti, MMX, Usiminas, CSN, Arcelomittal. Targeting and positioning: Mining equipment need well positioning and targeting in Brazilian market because the market is already competitive, but this market offers a great potential for expansion which can lead to more demand for mining equipment. So the target group of for equipment will be those companies who are already seeking to expand their operation in Brazil. Brazil has, as mentioned above abundance of natural resources and they need more exploration. So the companies who are looking for new places from where they can extract those natural resources, they will be needing equipment. Most large multinational manufacturers have factories in Brazil, where they manufacture for domestic market and frequently also export from Brazil to many other countries. There are many Brazilian companies that have developed their own technologies. The largest ones are Randon, Villares, Bardella, Dedini, Jaragu,and Isomonte. There are also hundreds of medium-sized Brazilian companies that specialize in manufacturing all types of parts and components for the suppliers equipment, which is why opportunities for Companies to export machinery are fairly limited. Companies

manufacturing in Brazil have the natural advantage of the proximity to their end-users. Foreign manufacturers on the other hand, in addition to language and cultural barriers, have to cope with high import taxes and long import procedures, which often make their products too expensive for the local end-users. Companies that are seeking to enter this competitive market needs to include following issues in their targeting and positioning strategies 1. They maintain product parity in terms of quality. 2. They will follows the price set by the dominating participants in the market 3. Product offering should include innovation that will help the buyers explore more efficiently. For instance, most Brazilian mines are open pit, and existing suppliers offers products for open pit exploration of mines. However, since buyers are considering for underground exploration of mines, new types of products will be needed and that is where new comers may gain a competitive advantage.

5.5.2 THEME 2: MARKET ENTRY

In order to have good relations with the local mining companies, it is absolutely necessary for foreign manufacturers of equipment to have some degree of a local presence in Brazil. Most multinational manufacturers of mining equipment already have factories in Brazil, as explained above. So, to remain in the competition it is imperative to replicate the successful strategy of other companies, by establishing factories new entrants may reduce different barriers and drive down costs. Smaller companies that cannot afford to establish a local subsidiary must at least have a good Brazilian representative that can supply or subcontract technical maintenance and some degree of local assembling. The mining companies, even the very large ones, prefer to contact the Brazilian representative and do all the import procedures through them, instead of contacting the foreign suppliers directly. This is especially due to the language barrier and to the long bureaucratic import procedures. Price and just-in-time delivery for components are the key factors for most importers. Some large mining companies have their own bonded warehouses, where they keep imported

products in Brazil, locked under customs agreement. These products will go through customs and duties will be paid only when they really need to be used. Labor is relatively cheap in Brazil, compared to the U.S., so that equipment that replaces large numbers of employees are not necessarily financially attractive to Brazilian companies. Market Issues & Obstacles: Import tariffs in Brazil are very high when compared to other international markets. Import duty on mining equipment is normally between 5 to 12%, calculated based on the CIF (cost, insurance and freight) price. These import duties are adopted as a single tariff structure for the Mercosur free trade area, which also includes Argentina, Paraguay, Uruguay, Chile and Bolivia. There are also the following taxes: - IPI Industrialized Products Tax: federal tax calculated on top of the CIF price plus Import Tax,it is 5% to 8% for most products ICMS Merchandise and Services Circulation Tax: state government, value-added tax

calculated based on the CIF price plus import duty plus IPI tax. It is 18% for most states and products - PIS/COFINS, Social Integration and Social Security Financing Contributions: 9.25%, but can represent up to 12.63% of the CIF price due to complex calculation formulas Additional Miscellaneous Taxes and Fees: Warehousing, handling charges at port,

transportation, etc.