NEGOTIATION PATH IN THE BRAZILIAN MINING, ETHANOL & BIOFUEL MARKETS

In order to ensure a good workflow for the negotiations between Foreign buyers and Brazilian owners, I would like to explain in detail how negotiation in Brazil usually goes on.

A. First of all, one should know that the Brazilian Ethanol, Mining and Biofuel markets are very heated nowadays. Opportunities on those areas do not last long and probably most of them are alredy under negotiation, what gives the owners a good leverage.

In other words, they are not desperate for pleasing investors and are not very patient. In their view, if they wait for one specific investor they are losing many others. That is why they do not grant exclusive purchase rights until negotiations are very advanced (e.g. when investors are already doing extensive surveys at the site).

B. Another important information is that there are very important logistics problems in Brazil. Therefore, any mining deposits that are far from a port or railroad will demand the construction of a special pipeline or a private railroad (more details about that on my article about railroads in Brazil)

C. Due to the market’s conditions, any investor has to be really interested on traveling to Brazil.

First, to know the areas that are being negotiated and acquire a good perception of any logistics limitation.

Second, because e-mail and telephone negotiation normally do not go further. Big companies are pouring engineers and traders in Brazil, and the land owners feel inclined to deal with those who are already here.

D. The relationship between investors and sellers is usually not direct at the beginning. Owners prefer to have real state brokers attracting investors. Owners do not take part on initial negotiations and both owners and brokers disclose only superficial information in the early stages.

E. In order to have access to the seller personally and to receive full information about the opportunities, brokers usually demand a Letter of Intent (LOI0 for each specific opportunity and may request the physical presence of the investor in Brazil.

If the investor cannot come to Brazil, he shall appoint someone here with powers to negotiate in his behalf.

F. Once the meeting starts, information will be disclosed by the owner.

G. After deep discussion, investors shall decide if they want to proceed with visits and surveys. This normally requires a lump sum payment to the owner, in order to secure the business. Exclusivity rights to trade or purchase are usually granted at this stage.

H. After surveys, but before buying, investors would need a detailed Due Diligence of the Seller’s business. (That is, by the way, one of my specialties. Please send an email to adlermartins@gmail.com for more information about Due Diligence in Brazil).

I. After approval by investor’s lawyers, the site can finally be purchased.

If the investor follows the steps above, the contacts will certainly be more effective. Trust me, I know.