Latin america remains a land of opportunity

Mining activity is still the driving force in several Latin American countries. Despite the short-sighted concerns regarding a potential decline in Chinese demand for commodities and a situation of non-payment of European sovereign debt that could hamper the recovery of this region, long-term fundamentals for the mining sector look as good as ever. In terms of supplying the growing demand for copper in the world, Latin America is well positioned as the first producer of the metal, and is the main destination for investment in exploration.

According to a report by Infomine, mining companies listed on the Toronto Stock Exchange had 1,010 projects in South America in 2009. This year, there are 1,029 projects in South America, not including Mexico, which totaled 1,613 projects (see chart). In other words, these figures show an increasing presence of mining projects in the region. Last year, Canada also accounted for 19 percent of global mining exploration spending, which totaled $13.2 billion. Gold, silver, copper and nickel are among the minerals the industry scours the globe for.

But which are the more appealing countries in terms of attracting investment? Certainly, there are many cases. Colombia, for example, is an interesting country; its mining is booming thanks to its mineral potential and a pro-mining government that has been very active in promoting the industry over the last decade. But not everyone in Colombia is convinced that mining should be the main economic activity nationwide, and various governmental entities that have some role in mining projects often do not act in unison. However, experts believe that Colombia has an opportunity to build a responsible mining industry, with widespread support, that must be taken up.

Peru is another interesting case. The country is rich enough in minerals to compete with any nation. It is number one in terms of production in silver in the world, second in copper and zinc, and sixth in gold production. Mining is not a new activity in Peru, but has changed significantly over the last few years in terms of regulation, tax controls, environmental and investment profile. However, with a portfolio of US$ 35,000 million, Peru suffers serious cases of disagreement. The policies of the pro-mineral national government clash with views of some people living in close proximity to mining projects, who fear that their lives and customs are going to be affected by mining projects. It is true that mining can have harmful effects on the environment and many may not receive benefits of economic significance by their presence. While the country has numerous mechanisms to ensure that this does not happen, convincing the locals is not always an easy task. The mining companies often fall short with their communication strategies. A number of NGOs with different agendas add confusion to the debate. The lack of an effective institutional mechanism to steer the dialog is one explanation for these problems that affect the process of social license. Of course, every case is different and some of the mining companies operating in Peru have been enjoying success at making the local population climb on the bandwagon of their projects. But the majority of experts agree that this country of 29 million people, where almost 36 percent of the population lives in poverty, needs to reflect seriously about the role of the mining in future and to achieve a forward agenda.

In Chile, there is also good news for the mining sector. The country’s mining projects portfolio for 2010-15 is expected to increase copper output to 7.29 Mt by 2020, a 35% increase over 2009, says the state copper commission Cochilco in its most recent report on mining investments. Including projects currently under construction and those expected to start their development between this year and 2015, investment in copper and gold initiatives in Chile is expected to total close to US$ 50B, the largest figure ever invested in the country’s history, according to Cochilcos research and public policies director Ana Isabel Zuiga.

A Case Study

But what happens with Canadian junior companies working in some countries in Latin America? Great Panther offers its own view. The company is based in Vancouver, and is one of the fastest-growing primary silver producers in Mexico, with strong leverage to future rises in the price of silver. The firm owns two operating mines in Mexico, and employs almost 800 people. “At present, our operations are exclusively in Mexico, which remains a relatively low-cost environment, but we are also looking elsewhere in Latin America. Mexico has relatively stable economics and politics, but safety (due to drug-related violence) is an increasing concern in some areas,” said Robert Archer, President and CEO of Great Panther.

Despite positive signs, Canadians mining companies operating in Mexico, as well as other Latin American countries, express increasing concerns related to the discussion of the role of the state in organizing mineral extraction, such as the tension between the development priorities of workers and communities on the one hand, and mining investors on the other; as well as the means by which civil society actors throughout the Americas might assert greater influence over decisions relating to regional mining investment. Regarding these issues, Archer said, they have tried to be as assertive and proactive as possible in identifying any areas of potential concern or conflict before they become a problem. “In Mexico, we have a unique situation at Guanajuato, where we are mining in and under a city that is a UNESCO World Heritage Site. Even if the reason that it holds this distinction is directly related to its mining heritage, our operations are obviously in the spotlight, which increases our responsibility to ‘do the right thing’ from a social and environmental standpoint. To this end, we are enrolled in a voluntary environmental audit program with the Mexican authorities, and we are very active in the local community. We intend to have our CSR certificate by early 2011, and we are very proud of our accomplishments in, and contributions to, Guanajuato,” pointed out Archer.

Concerning the role of the State, Great Panthers CEO said that they found more pros than cons in working in Latin America. “Governments at the federal and state levels are typically supportive of mining, and provide a solid and supportive legal framework in which to operate. Local governments and social issues can be problematic anywhere in the world, and it is up to the companies operating in contentious areas to be proactive in dealing with local issues. The quality of equipment operated by local contractors can be an issue and we have had to resort to buying our own equipment in many cases,” said Archer.

Finally, the million-dollar-question: are business opportunities better now than in the last year? On this point, Archers answer is very positive: “Opportunities existed a year ago, but most companies our size could not take advantage of them due to the uncertainties of the times. Producing companies are much more stable now, and so are more able to take advantage of the remaining opportunities. In that sense, I think the current outlook is better that last year, and I am very optimistic about the future.”