A regional perspective for mining companies

Latin America has been one of the most popular “destinations” for exploration and mining activities in the world for some time now. According to Metals Economics Group, Latin America currently attracts 25% of the global spending on mining exploration, with six countries leading the way in the region – Mexico, Chile, Peru, Brazil, Colombia and Argentina.

In particular, Canadian-based mining companies are increasingly attracted to locate their mining projects in Latin America. As of June 2012, mining companies listed with TSX and TSX-V with mining projects in Latin America accounted for 18% of the total listed mining companies, which makes Latin America the second region for location of their mining projects, solely surpassed by Canada.

The jurisdictions within Latin America vary widely in terms of the investment climate for mining projects. Some jurisdictions within the region, such as Mexico, Argentina, Chile and Brazil, are typical investment destinations for Canada-based mining companies. Other jurisdictions, such as Peru and Colombia, have been steadily growing in recent years as hot destinations for them. 

Canadian-based mining companies should monitor and assess the effects of the ever-evolving legal and investment environment in the region on their existing or envisioned mining projects.

Key issues for Canadian companies

One of the issues companies typically face when investing in the region is the need for prior consultation with native or indigenous communities. This is a particularly hot topic for mining investments in certain Latin American jurisdictions. In Peru, greater-than-ever social protests over environmental concerns led the Peruvian government to issue new legislation explicitly regulating a non-binding prior consultation process with those communities in respect of legislative or administrative measures that might affect them. Other jurisdictions, such as Mexico, have been discussing for some time now the enactment of similar legislation or even adopting the Peruvian model as the framework for the Mexican legislation.

Companies might also be affected by the collateral damage that illegal mining can bring upon the responsible mining sector. In some jurisdictions this is an isolated or immaterial issue, but in others it is a very delicate one. The consequences of illegal mining, particularly on the environment and habitat, have led some communities to accuse legitimate mining projects as being the reason for the negative effects. This has unfortunately occurred in Peru and Colombia. To deal with this issue, the Peruvian government has recently enacted detailed legislation to control and punish illegal mining. In fact, Peruvian legislation explicitly and directly deems illegal mining a crime under the Criminal Code.

A practical concern that has recently arisen in some Latin American jurisdictions is the timely granting of mining titles. This has originated from the greater investment in the region. In Colombia, this became a major issue based on the massive increase in the number of requests for mining titles—and the limited and dispersed resources of competent mining regulators to cope with the demand in a timely manner. This helped push the Colombian government to adjust the organization of the mining authorities, most notably by creating the National Mining Agency in late 2011 as the new and more effective authority for the granting of mining titles.

A final issue, which shouldn’t be overlooked by Canadian mining investors, is the need for investment protection planning before they get involved in Latin America—particularly against a risk of expropriation, nationalization or confiscation. There are some jurisdictions where this sort of planning might not seem relevant at first sight, because the government and legislation currently favorable to mining investors. But there are certain Latin American jurisdictions that were not expropriating ones a couple of decades ago, and now are. Canadian-based mining companies who are currently facing these situations are in a far better position to defend their investments, or to claim fair indemnification for their projects, with proper and prior investment protection planning.

The benefits still far outweigh the risks

With sound strategy and planning however, these issues can be overcome by Canadian companies and the great benefits of mining in Latin America can be enjoyed. The region continues to enjoy great interest from mining companies and investors, due to its tremendous opportunities and potential still to be tapped.