WASHINGTON/CANBERRA -- The result of Brazil's presidential runoff on Sunday will not only decide the country's next leader but also impact how -- and how quickly -- the country develops its massive, largely untapped reserves of rare earths.

Interest in alternative sources of these materials has grown sharply as China leverages its dominance of the rare-earth supply chain in disputes with trading partners, including the U.S., Japan and the European Union. China controls roughly 70% of mining and over 90% of refining of the materials that underpin much of modern technology.

Brazil, which sits on the world's second-largest rare-earth deposits after China, yet ranks only 12th globally by production volume according to the Brazil Mining Association, is shaping up to be a hot spot. More than 86% of 2,727 applications to explore for rare earths on file with Brazil's National Mining Agency were filed in the past three years, including 268 in the first half of this year, according to the Amvest Terraden Critical Materials Fund. Australian companies lead the pack, with 695 applications. Brazilian ambitions extend beyond merely extracting the resources.

Leaders of Latin America's largest economy aim to move up the value chain and process them into metals, alloys and eventually finished products, such as permanent magnets used in everything from electric vehicle motors to advanced weapons.

But the two presidential candidates who advanced to the final round of voting -- incumbent Luiz Inacio Lula da Silva and Sen. Flavio Bolsonaro, son of former President Jair Bolsonaro -- differ on how best to tap Brazil's rare earths.

Lula's Workers' Party has floated ideas of state ownership, spooking some in the sector, though the more extreme proposals are no longer on the table, industry people say. In May, after meeting U.S. President Donald Trump at the White House, Lula told reporters that his country was open to any country investing in its critical minerals.

Bolsonaro, a right-wing lawmaker seen as aligned with the Trump administration, has supporters hoping for free-market reforms they believe would accelerate critical minerals projects if he wins. In the first round of voting held earlier this month, Bolsonaro exceeded expectations, beating Lula by almost 2 points, though recent opinion polls indicate the race has tightened.

A strategic memorandum for the Bolsonaro campaign, first reported by Brazilian local news site Amado Mundo, outlined his vision for Brazil becoming a "key node in U.S.-aligned supply chains," as well as a "trusted supplier in Western defense chains." Andrew Reid, managing director of Brazilian Critical Minerals, an Australian-listed miner developing a rare-earth project in the Brazilian state of Amazonas, said the challenger's policy "perfectly suited" his company's ambitions to supply the U.S.

"The Bolsonaro government is certainly going to be more favorably viewed in the U.S., and investors are certainly going to be more interested in projects in Brazil if Bolsonaro is in power," he said. "The U.S. is a big financial market," he added, "and that certainly will help us be able to raise the capital and get up and running as quick as possible." Tomasz Nadrowski, portfolio manager at Amvest, argued that should Bolsonaro win, "Brazil might get stuck for a little longer as a feedstock provider," without the top-down "push" from Lula's center-left party.

The president's administration in September passed legislation creating a national policy for critical minerals, offering tax incentives and support for projects, while encouraging companies to add value in Brazil.

For the U.S., the issue is particularly pressing, as Beijing was able to wield the country's dominance in rare earths as an effective counter to Trump's "liberation day" tariffs unleashed in early 2025. Furthermore, under new federal regulations, defense contractors supplying the U.S. military will not be allowed to source molybdenum, tantalum, tungsten or rare-earth magnets from China, starting Jan. 1, 2027.

Brazilian presidential candidate Flavio Bolsonaro attends the Conservative Political Action Conference in the U.S. state of Texas on March 28. He is seen as closely aligned with U.S. President Donald Trump.

Washington has made its interest in Brazil clear. The U.S. International Development Finance Corp., the government's development finance institution, last year provided a $565 million loan to Brazilian mining group Serra Verde, which in turn said in August it had finalized a 15-year offtake agreement for mixed rare-earth carbonate with the U.S. government. In September, government-backed USA Rare Earth announced it had completed its takeover of Serra Verde.

The company's operation in Goias, which started producing an intermediate rare-earth product in 2024, has faced production challenges, according to Bloomberg.

When it comes to picking sides in the rare-earths race, Brazil's next leader will have to consider the country's relationship with China. While no Chinese companies had a rare-earths exploration license as of June, the country is Brazil's biggest trading partner. In 2025, Brazil was also the most popular destination for Chinese foreign direct investment, at $6.1 billion, according to the Brazil-China Business Council.

Nadrowski said that as rare-earth supply chains increasingly bifurcate, Lula's efforts to balance Chinese interests and Western moves to secure access to critical minerals would be challenging.

"You cannot sit on the fence," he said. "You don't have that luxury if someone controls over 90% of the production." However, even if he wins the presidency, Bolsonaro is unlikely to cut off China.

"This sector requires strategic positioning, and I think Bolsonaro will recognize that the opportunity, the commercial opportunity, is on the Western side -- whether it means Europe or Japan or the U.S. is almost a secondary or tertiary issue." Indeed, Washington is not the only government that sees opportunity in Brazil. The European Union is pursuing an agreement to tap the country's mineral resources, with the bloc arguing that its long-term approach to investment is aligned with the Brazilian government's own aims. The Australian Trade and Investment Commission, meanwhile, said in May that "Brazil is entering a new phase of its mining investment cycle," creating opportunities.

Australian miner Lynas this month announced plans to acquire Meteoric Resources, which is developing a rare-earth deposit in Brazil, in an all-share deal valued at around $672 million Last December, Australian mining companies Viridis Mining and Meteoric received preliminary licenses for rare-earth projects in Brazil with a combined investment of $655 million.

A sample is shown at a rare-earth research and processing center of Australian mining company Viridis Mining and Minerals in Pocos de Caldas, Brazil, in June.

While both the Lula and Bolsonaro camps want to see Brazil become more than a raw materials provider, industry experts say building up the downstream components of a rare-earth supply chain would be a yearslong endeavor at best.

An industry veteran, with knowledge of thinking within Brazil's political camps, said the recent Lula administration strategy avoided some of the "batshit crazy" proposals around heavy state involvement. He called the result a "rational" approach of starting with mining and progressing over years to refining and then magnets, specifically with a focus on educating the necessary workforce. "You have to learn to walk before you run," the person said.

Whoever ends up winning on Sunday, miners will still face on-the-ground hurdles, including opposition from environmental and community groups, along with environmental standards developed over the years in response to a history of mining accidents and dam collapses in Brazil.

Aclara CEO Ramon Barua Costa is confident the groundwork his company has already built leaves it in a strong position regardless of the election result.

"Federal elections and regulations will certainly influence the industry," Costa told Nikkei Asia. "But we feel we have a strong position because we're developing relationships with customers in Japan, Europe and the U.S., have support at the state level and are working closely with the community of Nova Roma." There, in the Brazilian state of Goias, the company is building a heavy rare-earths mining and processing facility. The company aims to build a sustainable mines-to-magnet supply chain spanning Brazil, Chile and the U.S.

"For a long-term venture to succeed, local residents need to see tangible benefits beyond what's strictly required by law or regulation," Costa added. "There will be challenges along the way, but we're positioning Aclara as a long-term supplier of sustainable and reliable rare earths to Western markets."

Nadrowski sees the bigger challenge as establishing a price floor that makes setting up an alternative supply chain to China economically feasible for companies, "which is very difficult to figure out, because someone has to pay for this price floor."

"It's extremely difficult to do it across multiple jurisdictions," he said. "But Brazil could be in the driving seat because of this massive underground potential."