US in talks with Brazil on critical minerals, US diplomat says at signing of Goias state deal

By Lisandra Paraguassu and Oliver Griffin

SAO PAULO, March 18 (Reuters) - The United States is in talks with Brazil to reach a deal on critical mineral supply chains, U.S. Chargé d'Affaires Gabriel Escobar said on Wednesday, amid diplomatic tensions with the Brazilian federal government, which pulled out of the U.S. embassy-sponsored forum on critical minerals last week.

"We have a proposal for a deal at the federal level. We are discussing it, we had some preliminary discussions, but we're still waiting," Escobar said after signing a separate agreement with the state of Goias in a ceremony before the event.

Representatives for the government of Brazil's President Luiz Inacio Lula da Silva could not attend the Brazil-U.S. Forum on Critical Minerals in Sao Paulo due to a clash with a prior engagement, a spokesperson said.

The U.S. embassy-sponsored event, held at the American Chamber of Commerce in Sao Paulo, aimed to encourage networking between American investors and Brazilian firms looking to produce critical minerals. Citi and Anglo American were among the firms in attendance.

The U.S. has been scrambling to get access to critical mineral reserves, especially rare earth supply chains currently dominated by Chinese players.

Washington sees Brazil as a potential target for billions of dollars in investments, a U.S. embassy spokesperson said, adding that $600 million has already been invested by the Development Finance Corporation and the EXIM bank.

DIPLOMATIC FRICTION

However, diplomatic tensions between Washington and Brasilia have cast a shadow over the embassy event.

Officials from Brasilia pulled out as bilateral relations soured after a hard-right U.S. official last week asked to visit ex-President Jair Bolsonaro in prison, which Brasilia saw as an attempt to meddle in domestic affairs. Brazil barred the envoy's entrance, citing "falsification" of reasons for the visit.

Brazilian authorities received a proposal for a memorandum of understanding in February, three sources told Reuters. But it appeared to be a copy of a proposal sent to another country, including the wrong country's name, a source told Reuters. The mistake was later corrected.

Negotiations are underway with the office of the U.S. Trade Representative, the sources said, and as part of a possible visit by Lula to Washington.

However, a meeting between Lula and President Donald Trump that was expected to take place in Washington this month, has been postponed amid the U.S.-Israel conflict with Iran and diplomatic friction between Brazil and the United States.

LOCAL PROCESSING

Brazilian federal officials vented frustration in private at the U.S. decision to sign the agreement with Goias Governor Ronaldo Caiado, Lula's political opponent. The move was seen as an attempt to bypass the federal government, said one Brazilian official following the matter.

The deal establishes cooperation between the U.S. and Goias across several areas, such as mapping mineral potential, connecting local miners with U.S. technology and improving regulations, the state government said in a statement.

Goias has reserves of lithium, niobium and is the home of the only firm commercially producing rare earths in Brazil, U.S.-backed Serra Verde.

The state government said the agreement aims to promote "value-added processing and manufacturing capabilities, including rare earth separation" in Goias.

Making strides in domestic processing is a priority for Lula, according to a Brazilian foreign trade ministry official, who requested anonymity to discuss ongoing talks.

U.S. officials see potential for billions of dollars in investment and have identified more than 50 mining projects in Brazil that could bolster international efforts to diversify supply, easing China's dominance in critical minerals.