Showing posts with label Latin America. Show all posts
Showing posts with label Latin America. Show all posts

Sunday, November 25, 2012

Latam miners urged to 'future-proof' operations

Latin America’s ability to attract mining investment remains robust despite current global economic pressure. Even from an exploratory point of view, the region’s potential is vast and its rewards tantalising; great swathes of territory have yet to be subjected to modern exploration.
But while Latin America’s allure remains bright, companies either seeking to invest or already well-established in the region often fail to appreciate regional risk and how to mitigate it. Sadly this can ultimately lead to the loss of a project that has taken years of investment and labour to develop.

“Most of the people you talk to at an early stage of a mining project will tell you how much homework they’ve done. They’ll talk about the tax regime, how stable the country is or how great the regulations are. They might discuss 20- or 30-year scenarios. But they should be doing a lot more on the local side,” Control Risks’ VP global services South America Daniel Linsker told delegates at the Mine Latin America conference on November 7.

“Locally you can have everything from licencing trouble to community trouble,” he said. “And always bear in mind that what a national government says and promises might not necessarily translate into help at the local level.”

“Another major issue revolves around illegal or informal miners. They often let a company prospect an area to discover the high-grade ore and then oppose the operation until the company packs up and leaves, allowing them to mine the ore for themselves,” he said. “Remember too that many social movements, NGOs and unions have members who build their political careers simply by opposing mining.”

Deep-rooted problems may even develop during early-stage prior consultation. “Most counties in the region have instituted or are instituting a format for prior consultation. Unfortunately [the process] is being morphed into a sort of local referendum. This poses all sorts of challenges,” he warned. “If it becomes a local referendum you have to careful of how it is organised, what the campaigning rules are and who gets the right to vote.”

One vital solution was to empower communities by involving them directly with the project. “[Companies should] empower communities rather than simply giving money or building projects. Show them what their rights are and involve them from the onset. Enable them to enforce their own rights; this seems the most effective way,” he said.


Arguments about operational risk in Latin America were expanded on by Norton Rose’s managing partner in Colombia, Glenn Faass and Norton Rose’s co-head for Venezuela mining practice, Rubén Eduardo Luján, in a joint interview with Mining Weekly Online. They stressed the importance of engaging in prior consultation, with Luján highlighting Peruvian legislation and how this might become a framework for Mexico.

On the issue of illegal miners and enforcing company rights both Luján and Faass argued that while the laws to protect mining companies are in place, many of the problems stemmed from ensuring their enforcement.

“The question is not the law itself in any of these jurisdictions, but the enforcement of the law,” Faass said. “For example, in Colombia you will ultimately get the right legal result if you are willing to spend time and money on it. But you then have to make sure it is applied and that can be difficult. Often the authorities that enforce legal rights tend to be part of the community in which the enforcement occurs and they may have more sympathy for the illegal miners rather than the legal miner.”

Clear and specific legislation can be key remedy for this, Luján said. “Peru offers the example of pro-active legislation. The government has stepped in providing specific legislation opposed to generic legislation that governs illegal mining. In some instances illegal mining is penalised through the criminal code.”

In discussing expropriation and nationalisation, both Faass and Luján stressed that there were well-established mechanisms for redress. Often the fact that expropriation is alleged can lead to a resolution. “The simple fact that expropriation is being alleged is a powerful public relations tool that is relevant to all of the countries in the region, because almost all are keen to attract foreign investment,” Faass said.

“The second avenue for a company is to seek arbitration if their investment was made under commercial agreements that have arbitration clauses within them. This may permit or require international or domestic arbitration, with many of the regions jurisdictions credible for dispute resolution,” he added.

“Finally, their rights could extend to international arbitration claims through an international treaty if the country in question is a signatory. When a company has such a claim, it’s often the case that a result will be achieved and for this to be respected by the national government. Sometimes this is because a national government will have assets outside a country that are liable to be seized in satisfaction of the arbitration award.”


Faass and Luján added that companies should think long and hard about future-proofing their operations against risk at local and national levels.

“Mining companies should make protection planning before they get involved in their investments. There might be jurisdictions where this might not be relevant in the immediate future, but there are some others where you might need to plan in case there are future issues with a government,” Luján said.

While Colombia has no history of expropriation or nationalisation, Norton Rose still advises those operating in or seeking to operate in the country to put precautionary measures in place, Faass said. “Remember a country that might not be an expropriating jurisdiction today could become one during a project’s 20 to 30 year timeline,” he added.

Faass and Luján also underlined the critical importance of engaging with local communities as the best means for mitigating risk and threats against a mining operation. “The important thing for companies operating in Colombia and the wider region is to develop community relations that makes them part of the community and allows people to recognise their economic contribution. Then you will generally find these things become easier,” Faass said.

Edited by: Henry Lazenby

Friday, November 9, 2012

Scotiabank sees 2013 revival on China stimulus and political change

By: Simon Rees

Scotiabank believes 2013 will mark a measured revival across metals commodities, with Chinese stimulus and economic performance pushing global direction, Scotiabank’s VP economics and commodity market specialist Patricia Mohr told delegates at the Mine Latin America conference on November 7.

“Between April 2011 and July of this year there has been a 19% drop in overall commodity prices,” Mohr said. “But I’m glad to say that in August-September there was a nice rebound on several supply developments. [And] I’m pleased to say that China’s Purchasing Manager Index has started to move up again,” she said.

Mohr explained why the outlook was now brighter. “The most recent indicators show that things will pick up again. I think China’s gross domestic product (GDP), which had slowed through Q3 to about 7.4% year-on-year, will edge up in the fourth quarter,” she said. “We see things then picking up in 2013 to about 8% and, for 2014, about 8.3%.”

“We’ve also noticed that China’s central government would like to wean the country away from central planning. They’ve left the economy to make its own adjustments this year, which is why they’ve not been as aggressive in kick starting the economy after the slowdown,” she said.

Of particular importance to China’s future economic development is the change in political leadership, with Xi Jinping and Li Keqiang set to take over the leadership mantle. “I view this as equally important to the mining industry as the outcome of the US election was. We won’t know for a while what effects the political changeover will have for the Chinese economy, although we know from past experience that new leadership heralds enormous change.”

“In the short-term, we think there will be a considerable degree of policy continuity with the five-year plan that was unveiled in March 2011 that will be in place until 2015,” Mohr later told Mining Weekly Online. “[But] there will be various reform policies put in place. Probably they will emphasise the development of China’s financial industry and various service sectors, such as insurance. There’ll also be social objectives, such as improved medical care and pensions,” she added.

New infrastructure projects will continue to spur Chinese growth. “In September, a new infrastructure development programme for China was announced. About $160-billion will be spent on subways, roads, ports and navigation channels etc. This will boost GDP by about 2% over the next four years. We’re already beginning to see the effects of this in the steel and cement sectors,” Mohr said in her speech.

But Mohr sounded a note of caution about local government debt levels. “Back in November 2008, when China implemented a massive infrastructure spending programme, much of this was financed by local government, which now has less room to manoeuvre [because of debt incurred],” she later told Mining Weekly Online. “This debt has come down over the past year, but it remains quite high … so while many local governments have announced huge potential infrastructure projects, we’re not sure the financial resources are available to go through with a lot of them.”

Mohr’s speech then moved away from China by discussing the US. She outlined slowing growth into 2013. “We see the US economy picking up a little to 2.1% in 2012, but then slowing again into 2013 as attempts are made to tackle the fiscal situation and the high levels of government debt. We will then see, perhaps, a slow pick-up in the second half of 2013 going into 2014,” she said.

Mohr also highlighted some support signs, underlining the importance of autos. “There’s been a nice recovery in vehicle production in the USA, Canada and Mexico. In fact, the auto assembly figure for North America is up 20% in volume terms. This is good for metal demand and we expect things to improve next year, although more modestly.”

Turning her attention to specific industrial metals, Mohr highlighted the copper’s robustness. “Copper will remain exceptionally strong; stronger than many of us would have thought even a few months ago … In late 2012, copper remains in a supply-side deficit. Although some new mine expansion will come on stream next year, there’s a lot of scepticism around the world about how big that new supply will be. Also several projects in the Democratic Republic of Congo might not come on stream quite as quickly as expected.”

“Zinc has also been a surprising story this year. Refined zinc has shifted from a surplus into a deficit. But the reason has not been a positive one; it’s because Chinese zinc smelters have recently shuttered a lot of capacity on low treatment charges and poor profitability,” she said. “Miners will probably have to accept higher treatment charges for moving their concentrates into China. But in the second half of this decade, I suspect zinc will be a winner because of global mine depletion.”

Iron-ore’s run may face greater pressure as more competitive operations come on stream and increased supply weighs on prices. “Iron-ore has had quite a run in recent years. It’s going to be a more competitive environment over the next five years because of a lot of new mine supply is coming on stream. So I think they’ll be a modest drop in the coming years for iron-ore prices,” she said.

On gold, Mohr was fairly bullish, highlighting several support factors for the yellow metal, including various stimulus measures, such as the US Fed’s third phase of quantitative easing and the potential for liquidity injection in Europe. “For 2013, I have a conservative forecast for gold at $1 700. But you could quite easily see $1 800,” she said.

“It’s also noteworthy that when the Basel III banking regulations come into force in January 2013 that gold will be again reclassified as tier-one capital for bank holdings. That means it will return to being a full-fledged financial asset,” she added.

Edited by: Henry Lazenby

Sunday, November 4, 2012

Picking Latin American gold plays - Ecclestone

Hallgarten & Co mining strategist Chris Ecclestone looks at the potential and the pitfalls facing gold investors interested in the region

The Gold Report: The Hallgarten website says, "Over the years, the team has successfully picked trends using our macroeconomic underpinnings to guide investors through the treacherous waters of the markets." Could you give us a couple of trends that retail investors could take advantage of?

Chris Ecclestone: The chief trend I see is a change in the nature of this gold market recovery. Production is going to be king. In 2009, cash was king after the economic crash. Now it's production. If a company doesn't have a preliminary economic assessment (PEA), it is going to wallow for a fair while. The main focus is going to be if these companies can become real miners or if they are just going to be forever out there with their project generator models.

There are a lot more companies on the "For Sale" side than there are companies out there to buy them. A lot of them are going to be left standing alone at the wall. The only companies that are going to get the attention of majors are those that are along the continuum between PEA and production.

If they're not, who's really interested in exploration at the moment? There's no shortage of producers that have been pretty well proved up so that we don't need to have yet another 80,000 ounce (oz) resource in the mountains of Peru.

TGR: The price of gold got very close to $1,800/oz early in October, but has slipped to the low $1,700/oz range since then. Is the effect of quantitative easing (QE) wearing off?

CE: QE didn't produce the inflation that it was supposed to. QE2 was nearly three years ago and there's only a little bit of inflation out there. I don't believe the official numbers, but it's certainly not the amount of inflation that the goldbugs would require to push the gold price to $3,000/oz. QE2 didn't do it, why should QE3 do it?

TGR: Usually gold shows some strength in the fourth quarter regardless if there's QE or not. Why is it showing weakness in a traditionally strong quarter even with QE?

CE: Part of the problem is that Europe has not blown up on schedule. A lot of goldbugs were looking for the perfect storm if QE3 happened at the same time that one or more European countries went over Niagara Falls, but it just hasn't happened. Even now, the Greek stock market is up 65% off its lows. Quite clearly people are more positive about what's likely to happen there. If it can pull through, then it looks less likely that we're going to be having the chaotic collapse that goldbugs have been looking for.

TGR: Your thesis sounds very intriguing: Since there are few majors and a lot of projects, only the prettiest girls are going to the dance, so to speak. With literally hundreds of projects between PEA and production, how do you narrow that field down?

CE: That's up to the investor. They have to assess which areas they are most comfortable with. There was recently a coup in Mali. Peru's government is considering reforms after anti-mining protests. The Democratic Republic of Congo (DRC) increased taxes under its mining code. Yet, there are great companies and great new zones. It's up to investors to know what they personally feel most comfortable with. Some of these countries are in the dog house, but these things can happen anywhere and investors have to assess their own tolerance for complications. Any miner in Venezuela can unexpectedly be run out of the country. It can be a total bust. You never know.

TGR: For example, things can vary drastically depending on which province you're in inside Argentina.

CE: Each province in Argentina has its own mining code. There's not a national mining policy. Yet, even provinces that seem to be anti-mining, like La Rioja, can end up on the other side being very pro-mining. The provinces in Argentina that have been consistently pro-mining for a few decades now are really the areas that investors are concentrating on. The biggest deals in Argentina largely have been done in the Santa Cruz province, which is pro-mining.

TGR: What are the provinces that investors should avoid?

CE: Mining has had problems in Mendoza province. There was a lot of protesting about what seemed like the environmental impact of mining, but in fact it was more about the Argentine wine trade not wanting competition for cheap labor. Mines were offering all-year employment to the type of people that the growers were only hiring on a seasonal basis to pick grapes.

You have to look at the real reasons behind things happening in certain countries rather than the ostensible reason, which might be some sort of environmental complaint. If they came out and said, "Well, we don't want to have your mine because it's going to be paying better wages and paying more consistently," they wouldn't get much attraction. They've got to come out and make up some sort of plausible argument. One of the mines that was being proposed was miles away from anywhere so it wasn't likely to contaminate any water, but it was potentially going to draw away labor.

TGR: Certain jurisdictions, like Latin America, can be drastically changed by different forms of resource nationalism. Do you start to develop other specialties or is your knowledge of Latin America still useful?

CE: It's absolutely still useful because the more one wanders through these emerging markets, and frankly that's what they all are, the more one sees the same problems repeated. It is a challenge to cover emerging markets and then go look at a jurisdiction where everything is written in stone, like Canada or Australia, where there are fewer surprises. In jurisdictions like Canada, there's not as much latitude for willfulness on the part of politicians, approving one project and then denying another next door. That tends to not happen as much in the developed mining jurisdictions.

TGR: I think most investors are unfamiliar with Morocco as a mining jurisdiction. It would be completely off the radar for most investors, in fact. What sort of risk profile should an investor expect in Morocco?

CE: Nobody's had a bad experience in Morocco that I've heard of, but there hasn't been enough time for any problems to develop yet. It's a little bit like Turkey was 15 years ago. For a long time there was a state-owned mining company that did everything and there were no private operators. Only recently have private operators been able to acquire assets from the state mining company through the privatization process.

TGR: Do you have any parting thoughts on this space and on precious metals in general?

CE: There's a finite amount of money in the market and most of it is going to financings. The companies doing financings are getting all the money. The vast bulk of companies need to have someone buying their shares, but buying their shares outside of a financing. Instead all the insiders and the big players are getting into the next hot financing. Where is the new money there?

TGR: Thanks for your time.

Christopher Ecclestone is a principal and mining strategist at Hallgarten & Company in New York. He is also a director of Mediterranean Resources, a gold mining company listed on the Toronto Stock Exchange, with properties in Turkey. Prior to founding Hallgarten & Company in 2003, he was the head of research at an economic think tank in New Jersey, which he had joined in 2001. Before moving to the U.S., he was the founder and head of research at the esteemed Argentine equity research firm, Buenos Aires Trust Company, from 1991 until 2001. Prior to his arrival in Argentina, he worked in London beginning in 1985 as a corporate finance and equities analyst and as a freelance consultant on the restructuring of the securities industry. He graduated in 1981 from the Royal Melbourne Institute of Technology.

Sunday, October 14, 2012

USGS - Minerals Yearbook - Latin America

Listed below are chapters from the Minerals Yearbook (Volume III. -- Area Reports: International). These annual reviews are designed to provide timely statistical data on mineral commodities in various countries. Each report includes sections on government policies and programs, environmental issues, trade and production data, industry structure and ownership, commodity sector developments, infrastructure, and a summary outlook.

Read Reports:

The Mineral Industries of Latin America and Canada – 2010




Central America




French Guiana








Source: U.S. Geological Survey - USGS

Friday, July 13, 2012

In Latin America, nationalism stumps Canadian mining companies

Bolivian President Evo Morales has revoked the mining rights of Vancouver-based South American Silver Corp., the latest blow to foreign miners operating in Latin America amid a growing wave of resource nationalism.

The decision to expropriate the Canadian company’s Malku Khota silver mine was the second for Bolivia in a month, highlighting the increasing risks to developing mining and energy assets in the mineral-rich region.

From expropriations in Venezuela, Bolivia and Argentina to violent opposition in traditionally mining-friendly jurisdictions such as Peru and Chile, the rising political tensions pose a risk to a decade-long bonanza mining companies have enjoyed.

“Resource nationalism is not just about expropriation,” said Alan Hutchison, an expert in mining and energy securities and corporate law at Fraser Milner Casgrain LLP who specializes in Latin American matters.

“It is the role and the stake that the government is going to take in any resource project and I think you are seeing that on the rise with the continued high commodity prices.”

Mr. Morales has been a champion of his country’s natural resources since he became Bolivia’s first indigenous president in a landslide victory in 2006, when he promptly nationalized the key natural gas industry. Backed by the nation’s indigenous majority, he has since taken control of several utility companies as well Bolivia’s largest smelter and its top telecommunications firm.

South American Silver says it took extra care to develop good community relations since it discovered the silver deposit and started explorations aimed at bringing it to development starting in 2007. But it couldn’t stop a fight with local artisanal miners from escalating.

“The situation just escalated very quickly,” said South American Silver president and chief executive Greg Johnson. “It suddenly appeared to go to a national political level and the company was not involved and really shocked to see it take the path it did in such a rapid succession.”

The expropriation by Supreme Decree came not even a month after Mr. Morales nationalized the Colquiri tin and zinc mine, owned by global mining giant Glencore International PLC.

“Companies are pitting brothers against cousins, neighbours,” Mr. Morales told the state information agency ABI on Wednesday as he accused South American Silver of creating a conflict between pro- and anti-mining communities around the silver-indium-gallium project in the southwestern province of Potosi.

Last week, deadly clashes left five people dead in Peru – three of them from gunshot wounds suffered as demonstrators clashed with police in protests against the $4.8-billion Conga gold project that promises to be the biggest mining project in Peruvian history and is owned by Newmont Mining Corp.

The government has implemented a state of emergency to suspend the right to protest in the so-called Cajamarca region, although opponents say they will not retreat from demands to have the project halted, saying it will hurt local water supplies.

“The people simply do not want Conga,” Gregorio Santos, the president of the region of Cajamarca, said by telephone following meetings this week with Catholic Church representatives attempting to mediate the conflict.

Peru is one of Latin America’s friendliest mining jurisdictions, with mineral exports accounting for about 60 per cent of exports and helping to make the Andean country one of the fastest growing in the southern hemisphere. It is second-largest producer of copper after neighbouring Chile and produces much of the world’s silver, zinc and gold.

The Peruvian and Bolivian conflicts have different catalysts. The former is about communities protecting their environment, while the latter is about communities claiming the right to exploit their own resources.

Similarly, the Peruvian example is different from Venezuela, whose firebrand president Hugo Chavez moved four years ago to take over the giant Las Cristinas gold project from Canadian operator Crystallex International Corp., or from Guatemala, where the government is reforming mining laws to allow it to take stakes of up to 40 per cent in new mining projects.

“The Bolivian situation is completely different,” said Carlos Monge, an academic with Peru’s Center for Development Studies, predicting Newmont could be in for a drawn out resolution at Conga, which has nevertheless become highly emblematic and political.

“But even if Conga fails, I don’t think it will mean that other mines will fail,” he said, pointing at $56-billion in planned mining investments in Peru.

In the face of protests over recent months, Newmont slowed investment at Conga, and the project won’t likely be built before 2017, two years later than previous forecasts. Omar Jabara, a Newmont spokesman, said construction on the project will continue only if it can be done safely, and with risk-adjusted returns that justify future investment.

Miners started pulling back from Argentina in April, when President Cristina Fernandez ordered the expropriation of partially state-owned energy company YPF SA from Spain’s Repsol YPF. Outright nationalizations are not expected in the mining industry there, but miners are still spooked by government moves to tweak the economy to stem capital outflows and bolster the market.


Wednesday, June 6, 2012

Miners unlikely to realize planned US$140bn capex in 2012 - PwC

The world's top 40 publicly listed mining companies plan to invest a combined US$140bn in capital spending in 2012, which would represent a 43% leap from the US$98bn they spent in 2011, according to a new report from PricewaterhouseCoopers (PwC).

But projects face numerous hurdles to execution, not least of which is investor pressure to give cash back and exercise discipline in capital allocation, and the actual spend will likely be smaller.

"With these new demands from shareholders, it is very likely that that sum is not going to materialize. It is very likely that projects will be questioned, or some projects will be delayed," PwC lead partner for mining, Latin America Colin Becker said Wednesday at the Santiago, Chile launch of the report Mine 2012.

The report highlights a disconnect between the mining industry and investors, an environment fueled by the market's doubts that miners will be able to continue to deliver profits and fear of the massive capital requirements of mining projects in the face of general economic uncertainty.

In other words, investors do not believe that investing in mining development projects will provide the returns they want, and have been turning away from mining stocks in favor of holding metal through ETFs or physical investment.

The result is a 25% fall in combined market cap among the top 40 listed mining companies from US$1.6tn at end-2010 to US$1.2tn at end-2011 despite miners' historically high cash flows and continued profit growth.

In a bid to keep shareholders on board, companies are heeding their call. "For the first time we are seeing interest from the companies in returning more money to their shareholders via larger dividends and share buybacks," said Becker.

In 2011 almost 30% of cash allocation was attributable to returns to shareholders. While so far the growing returns are coming mostly at the expense of net debt repayment, the longer term effect of larger cash returns would be less cash into organic growth and less supply coming online.

Becker said that the price-over-earnings ratio of the top 40 miners was just 9 at end-2011, lower than in 2008 during the global financial crisis.

"Again the market is saying it is worried about whether profitability levels can be maintained in the future. The market foresees an important fall in mining industry profits and margins," he said.

Roughly one-third of the US$98bn global capital expenditure of the top 40 miners in 2011 went to projects in South America. Brazilian giant Vale (NYSE: VALE) accounted for more than 50% of the total figure, which excludes investments by Chilean state-owned Codelco.

Wednesday, May 23, 2012

Australia, Latin America should strengthen links – Carr

Australia’s Foreign Affairs Minister Bob Carr has called for a closer business relationship between Australia and Latin America, saying that more could be done to build on the strong foundation that mining had left.

Speaking at the Latin America Down Under conference, in Sydney, Carr noted that while both continents were sharing their expertise and experience in the mining sector, there was still room to build on the personal, government and business links.

“There is much more that we can do together, on the international financial system, in multilateral efforts, in trade and in security. And for the global environment,” Carr told delegates.

The Minister noted that the presence of Australian miners in Latin American countries had grown over the last two decades, with more than 80 Australian mining and exploration companies now active in the region.

In the mining equipment, technology and services sector, there were only three or four companies in Latin America some 15 years ago. Today, there were over 80 companies in Chile alone, and dozens of others across the region, said Carr.

“Mining makes up about 8% of our gross domestic product, and more than half of our export revenue,” said Carr.

“Last year, our mining exports were worth A$176-billion, and are forecast to break the A$200-billion-a-year mark in the near future. Our miners are a great domestic industry but, unsurprisingly, given their international markets, they have led the way in developing projects overseas.”

Carr also called for a greater working relationship on environmental reform and standards, saying that climate change and the health of the oceans were two of the most difficult global challenges faced in this century.

“But we need an environmental awareness to permeate through every level of what we do.

“Latin America and Australia are both regions with strong environmental importance – just look at our extraordinary biodiversity. We both have rich resource endowments, which we have to extract in a way that does not damage our local environments or alienate local communities.”

Carr noted that when done properly, mining could be a catalyst for sustainable socioeconomic development.

“Transparency is critical, as is sound financial and environmental management. We strongly support developing economies endowed with resources adopting sound mining practices.”

Carr told delegates that through the Department of Resources, Energy and Tourism, and an aid programme, Australia would be running sustainable mining workshops in Mexico and Peru later in 2012.

“This will be an area on which we can continue to collaborate in coming decades, a place in which we can learn from each other,” he said.

Wednesday, May 16, 2012

Latin American mining investment boom continues unabated

Over the past decade, mining investment in Latin America has more than doubled, even after experiencing a sharp drop in 2009. According to a report by the Metals Economic Group, Latin America is now the primary destination for mining exploration investment in the world, with 25% of total investment going to Chile, Peru, Brazil, Colombia, Mexico and Argentina.

In 2003, hardly 10% of global mining investment was headed towards Latin America, but today big announcements abound.

London-based Hochschild Mining, which operates throughout Latin America, recently said it will invest another LIMA$425 million in two silver projects near its Arcata and Pallanca mines in southern Peru over the next two years.

Unveiled earlier this week at the International Gold Symposium in Lima by Hochschild’s executive chairman, Eduardo Hochschild, this is the latest mining investment announced for Peru, and for Latin American mining in general, which continues to experience an investment boom.

Other recent announcements have included a combined $1.3 billion investment into Colombia’s coal mining industry by the Drummond Company Inc., Cerrejon Mineria Responsable and Glencore International’s Prodeco Coal; as well as South African miner Gold Fields’ increased investment for its Peruvian Chucapaca project to $1.2 billion, from an earlier US$750 million.

Over the next five to 10 years, more than $425 billion in investments have already been announced, again, with a focus on Chile, Peru and Colombia, from such companies as BHP Billiton, Xstrata and Rio Tinto, among others.

Monday, May 14, 2012

China's growth a double-edged sword for Latin America

China will be able to grow its economy at around 8% per year for the next 20 years, the World Bank's chief economist Justin Lin said at a seminar in the Chilean capital Santiago, organized by the UN's Economic Commission for Latin America and the Caribbean (Eclac).

This growth will represent both opportunities and challenges for Latin America and the Caribbean (LAC), said Lin, who is also a senior VP at the World Bank.

Since 1979, the Chinese economy has expanded at an average annual rate of 9.9%, while its trade has increased at an average annual rate of 16.3% in the same period, Lin said, a trend never before seen in the world economy.

LAC has benefitted considerably from China's economic rise as the country has had - and continues to have - a huge appetite for natural resources, he said.

Although China will likely continue with strong demand for natural resources in the years to come, demand may not be as strong as in the past because the country's economy will become increasingly more sophisticated and less resource-intensive, the economist said.

Lin also said that China's emergence as the "world's factory" has negatively impacted some countries in LAC, especially those with light manufacturing industries, like Mexico.

But rising wages in China could represent an opportunity for some Latin American countries to re-industrialize in the coming years, if such efforts are supported by governments through pro-active and targeted industrial policies, Lin said.

Friday, May 11, 2012

China's strong economic rise has produced mixed results for Latin America - Fitch

The spectacular economic rise of China during the last several years has generally had a positive impact on Latin America, but it has also produced negative effects for some countries, ratings agency Fitch said in a special report on the this issue.

China's transformation into an economic powerhouse has benefitted the region in terms of increased bilateral trade, more foreign direct investment and deeper financial ties, Fitch said.

The country's voracious appetite for natural resources has also pushed up prices on many of the commodities that Latin American countries export, which in turn has contributed to higher economic growth and stronger public finances.

In the region, Brazil, Chile and Peru have reached the highest degree of integration with China, and this has had a positive effect on their sovereign ratings, Fitch said, adding that Bolivia and Colombia have also benefitted in the same way, but to a lesser degree.


The main negative impact from China's economic rise has been on countries that import commodities and produce manufactured goods. Mexico is one such example, as well as Central America and the Caribbean, Fitch said.

The agency also noted that even commodities-exporting countries benefitting from China's strong demand have generally failed to translate this into productivity gains, institutional reforms and greater diversification of their economies.

Thursday, May 3, 2012

Mining Investments Boom In Latin America

Regionally, Latin America (led by Mexico, Peru, Chile, Brazil and Argentina) is still the leading destination for mining exploration, a position it has held for the last two decades according to the 2011 report of the Metals Economics Group (MEG).

“Canada was the most important country overall” in terms of exploration, which estimates that the total worldwide budget for exploration, carried out by 2,089 companies, reached US$10.6 billion that year, representing 95% of the worldwide nonferrous exploration budgets.

Latin American countries received 27% (some US$2.884 billion) of the investment mentioned by MEG and 83% of that figure (around US$2.394 billion) was destined for exploration in Mexico, Brazil, Argentina, Chile and Peru. Gold was the main object of exploration in Argentina and Mexico.

The figures show that mining companies increased their exploration budgets by 45% compared with 2009, which, according to the analysts consulted, is in response “to rising metal prices and more stable markets”. Gold was the leading target of the explorations, “attracting more than half the global exploration budget total, with copper a distant second”.

For the Executive Director of Cesco (Center for Copper and Mining Studies) in Chile, Juan Carlos Guajardo, “the boom in the emerging countries is establishing a greater demand for commodities, (for which reason), in the current phase of high demand for raw materials, Latin America has great opportunities compared to other parts of the world such as Africa and Asia”.

However, Guajardo warns that there is much “diversity among the countries of the region as regards their disposition and capacity to take advantage of this opportunity”, and therefore the countries must strike a balance between their geological potential, institutional stability and the conditions for mining operations.

In the principal mining countries of Latin America, the mining projects of the next two years that are currently underway will require investments of around US$37 billion, according to sources consulted by Minería Pan Americana.

Chile and Peru are by far the two top mining powers of Latin America. Investments in mining projects in Chile exceed US$17 billion and those in Peru exceed US$10 billion. The combined investment for both countries is more than half of all the projected investments for Latin America (not including Brazil).

Copper Is King

According to the experts consulted, you cannot speak of noteable mining projects without referring to Chile as well as copper.

In Chile, copper mining is shared among private and state-owned companies. CODELCO Chile (the National Copper Corporation) is an autonomous state-owned company, the largest copper mining company in the country and the biggest copper producer in the world. The main products sold by Chile are copper cathodes and concentrates.

2011 is a very important year for Chile’s mining industry. There are two large projects in the final stages of preparatory works and in the early stages of exploration in the Atacama region alone. These are Cerro Casale, belonging to Barrick Chile, with an investment of US$2,300 million, and Pan Pacific Copper’s Caserones project, with an investment of US$2 billion.

Wednesday, March 14, 2012

Risks challenging Latin American miners

Mining companies face risks in Latin America, from nationalization to skilled labor shortages.

The Gold Report sat down with several mining executives whose companies stand out among south-of-the-border silver producers. Sharing their thoughts in our “virtual roundtable” are Ross Beaty, chairman of Pan American Silver Corp.; Mike Callahan, president of Silvermex Resources Ltd.; Jorge Alberto Ganoza Durant, president and CEO of Fortuna Silver Mines Inc.; and Lenic Rodriguez, president and CEO of Aurcana Corporation.

“I’m not concerned about nationalization in Mexico,” Mike Callahan says, “but nationalization and increasing royalties are certainly concerns in other countries. There’s continued talk of putting royalties in Chile and nationalization in other places. And, that’s 3–4% right off the top.


In Jorge Ganoza’s opinion, “Argentina is not a mining country; it’s not a mining jurisdiction. At federal, state and local levels and municipalities, the governments have little understanding of the industry, so there are bigger risks. If you take bigger risks, you need bigger rewards.” Noting that “the cost structure in Argentina is much higher than in Peru,” Ganoza says that Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) would “really need a compelling reason to go to Argentina.”

Argentina, which has hamstrung Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ) in its efforts to capitalize on the Navidad property it acquired from Aquiline Resources in 2010, isn’t alone among Latin American countries exposing miners to jurisdictional risk. How about Peru?

Last June, the Peruvian government pulled the rug out from under Bear Creek Mining Corp. (BCM:TSX.V), canceling the concession it had been granted for its Santa Ana operation. The Santa Ana mine was slated to produce about 47 million ounces (Moz) silver over an 11-year mine life starting this year. Bear Creek has two other projects in Peru. Corani, a silver-lead-zinc deposit that’s nine times larger than Santa Ana but located in a jurisdiction where mining is less contentious, is expected to produce more than 13 Moz silver annually starting in 2014 for the first five years of a 20-year mine life. Bear Creek’s flagship project, Corani, represents 80% of the company’s value on a pure silver basis. Corani is proceeding toward permitting and construction.

According to Ganoza, a fourth-generation miner from a Peruvian family that has owned and operated several underground gold, silver, and base metal mines, “Peru has been, is and will continue to be a mining jurisdiction. But that is a generalization,” he admits. “Parts of Peru are very friendly and amenable to new mine developments. Others aren’t, and Santa Ana is in one such location. Bear Creek knew early on that it would face challenges and took a measured risk. We know what happened. I think the government is committed to a resolution of that problem—that is what it has been communicating consistently—but it will take time.”

Fortuna has been operating its Caylloma mine profitably in Peru since 2007, Ganoza says, having purchased it and related concessions in 2005. After a significant upgrading and modernization of the ore processing plant, the company returned the mine to production and the facilities are operating at a rate of more than 1,000 tons per day (tpd).

Commercial operations at Fortuna’s larger San Jose mine, located in Oaxaca, Mexico, achieved commercial production in September 2011 at a rate of 1,000 tpd. The mine produced 491,000 ounces (491 Koz) silver and 4.6 Koz gold in 2011; for 2012, those figures are expected grow to 1.7 Moz silver and 15 Koz gold. When planned mine expansion and processing plant capacity to 1,500 tpd are complete, annual production is estimated at approximately 3.2 Moz silver and 25 Koz gold. By 2014, Fortuna expects consolidated production to reach 6 Moz silver equivalent per year plus base metal credits.

Did jurisdictional risk in Peru or a desire for asset diversification lead Fortuna to the San Jose operation? “Going to Mexico was not driven by asset diversification or jurisdictional risk at all,” Ganoza says. “Mexico and Peru are established, good bases of operation for us. We went to Mexico not to diversify our Peruvian risk but rather because we thought there were good opportunities in Mexico and we had to be there if we wanted to be a world leader in silver production. So we have two anchor assets in these two great mining jurisdictions as a platform for growth moving forward.

“We’re not here to become the leading silver miner in Latin America,” Ganoza stresses, but “a force in world silver production. It is strategic in this stage of our evolution to focus on Latin America. Early on, we said, ‘If we want to be a world force in silver, where are the largest silver-producing countries in the world? Peru and Mexico. So we’ll try to establish ourselves as producers in those countries.’ We’ve been successful at that. So we’re executing a plan we laid out seven years ago. We differentiate ourselves from the pack based on the fact that we have quality assets that operate at low costs.”

Do any of the other executives see jurisdictional risks in Mexico?


Lenic Rodriguez, who became a Canadian citizen but remains a Mexican citizen as well, says, “I can tell you that Mexico’s political stability is wonderful. I don’t see any resource grab coming from the government. Foreign mining companies operating in Mexico in general are very conscious of their social responsibilities.” He talks about Aurcana Corporation’s (AUN:TSX.V) La Negra mine, purchased from Industriales Peñoles, the largest silver producer in the world. “Industriales Peñoles thought there were no more resources there and was not interested in copper, just silver,” Rodriguez says. “But copper comes associated with silver and we’re having wonderful results at La Negra. It still has a very long mine life, and on March 31 we’ll begin the second consecutive year of expansion of La Negra.

“As we inaugurate that expansion,” he continues, “we’ll be donating space for a clinic for the town of Macon, and we’ll be showing people how to build their own permanent housing. We have proprietary technology using concrete blocks whereby they can build houses very inexpensively, maybe $2,000 each.”

Considering the foreign investment mining brings to the country, the jobs it creates and the community support it demonstrates, Rodriguez says, “a politician would have to be quite crazy to do something against the mining industry.”

The highly publicized incidents of violence related to drug cartels and trafficking have presented no problems whatsoever to Aurcana or its people. “We have not had one incident,” Rodriguez says. “I go very often to Mexico, maybe six times a year, and I’ve never experienced any problems. Not me, nor any of our people, visitors, guests, analysts, people who have gone there. Quite the contrary. They find the people of Mexico very friendly and welcoming.”


Ross Beaty agrees heartily. “Mexico is an absolutely wonderful mining country. The drug-related violence is real but has nothing whatsoever to do with Mexico’s strength as a mining jurisdiction. It’s a wonderful country period. I love Mexico.”

But jurisdictional risk isn’t the only peril that these executives and their peers face.

What if financing dries up? “It’s a bit of a struggle to continue raising money to try to move something forward,” Callahan supposes. “If you have a project worthy of the financing, I think you can get it. People are betting on your management team and on the fact that you have a decent asset. If you have those I think financing is available.”

He considers it “a blessing that Silvermex Resources Inc. (SLX:TSX; GGCRF:OTC) probably has more financing available than it needs, and money in the bank.” Furthermore, he indicates that its $25 million (M) in gross revenue is enough to fund Silvermex’s development and exploration plans. We’re generating cash flow so we don’t need an infusion of capital investment now.

“We may or may not have to go back to the market,” he continues, “if we find an asset or a deposit that we want to put into production, but it depends on its scale and size, how far they are from the mine, and so forth. If they use the existing mill and/or tailings facility, we’d have to expand those.”

If Silvermex does find itself wanting to seek outside financing, he isn’t worried. “We have a tremendous amount of support in the equity markets,” Callahan says. “We have people looking to try and invest in Silvermex. We’ve been putting them at bay, saying we’ve got $60M in the bank. The markets are certainly available and open to us. We would just need that leap to the next production level to justify going to the markets.”

Ganoza considers the question of capital availability “a bigger risk for the explorers that don’t have established projects and are just pursuing ideas here and there and looking for seed capital to fund ideas. I think that’s where the main risk resides.” He’s not concerned about Fortuna’s dependence on the capital markets because “we have a low-cost operation and healthy cash flow. If we find an acquisition of sufficient merit, we will be able to fund that acquisition. We are not at a stage where we’re funding high-risk ideas.”

What if oil hits $150 a barrel? According to Callahan, that would be a particular concern in Mexico, “where most things are driven by diesel. That could drive costs up 30–40% for some producers. Thank God, we have electric power at our operations so that isn’t as big as a concern for us.”

What if you can’t find top talent? This is a biggie in Ganoza’s view, particularly as a company grows. “All of a sudden you find out how difficult it is to operate 20 mines, especially when they are small. It’s as if you’re a pilot who flies one of the larger planes and someone asks you to fly a small Cessna on a regional route. That’s not a career upgrade for either a young professional or a seasoned veteran with gray hair. It’s a career downgrade. It’s the same with mines. I hunt all the time for talented professionals, and it’s difficult to attract them to a small asset.”

The top talent “all want a technical challenge, size,” Ganoza states. “Bigger mines mean better mine conditions, more resources to run business and more intellectual capital. At the smaller mines, everything is more humble, more limited, fewer resources. You cannot run a business atomizing your property portfolio in this environment especially, because there are no people.”

Ganoza calls the people issue “a challenge we are clearly facing every day. Human resources (HR) management and organizational development are very crude in the mining industry. Other industries are much more sophisticated. At least among the midsize emerging producers, HR management doesn’t exist.”

To address the challenge, Fortuna hired a vice president of HR and organizational development. Ganoza made it clear to the headhunter that he wasn’t interested in a recruit from the mining industry to handle payroll. He wanted “truly to establish processes that come from industries such as services, banking, insurance, where HR is an established system that adds value to the business. We want to be able to attract good people.”

Ganoza considers the people issue a far bigger concern for the industry than jurisdictional risk. “You manage jurisdiction risk with people and money. There is no shortage of money these days, but there is a shortage of people.

“All of our team is seasoned, not only in mining but also mining in Latin America,” he continues. “They have been doing extensive work. I just hired as a chief project manager for a new project, a guy who has been working in Latin America for 15 years for Gold Fields Ltd. (GFI:NYSE) of South Africa. He’s one of the leading explorers in my experience, a truly tremendous guy, a true discover, excellent with geology, good technical skills, discovery driven.

“We are trying to get the talent that is residing in the bigger companies,” Ganoza says. “And we’re telling them, ‘With us you’ll be able to move quicker with not so much bureaucracy. We’ll give you the funding because we have money and we’ll let you run with your ideas. We will back you. Let’s go pursue those opportunities that you have in your head and couldn’t do.’”

Despite the perils, the opportunities appear boundless. As Beaty notes, “Silver’s gone from $5 to $40 per ounce in the last number of years. I don’t think we have to invent too many things to explain why that’s happening and express the likelihood that it’s likely to continue.”

The Gold Report Publisher Sally Lowder, in some cases joined by Brian Sylvester, conducted the interviews on which this article is based during the 2012 PDAC International Convention, Trade Show & Investors Exchange, held March 4–7 at the Metro Toronto Convention Center. The annual event, sponsored by the Prospectors and Developers Association of Canada, drew nearly 28,000 attendees from 120 countries last year.

Geologist and Entrepreneur Ross J. Beaty, loved by investors for whom he’s created more $4 billion in shareholder value over the years, currently serves as executive chairman of Alterra Power Corp. and chairman of Pan American Silver Corp.—but he’s founded, developed and divested a number of other public mineral resource companies over the course of 38 years in the international minerals industry. Born in Vancouver, Beaty has a degree from the Royal School of Mines, a Master of Science with Distinction in mineral exploration from the University of London, and bachelor’s degree in geology and a law degree from the University of British Columbia. Working in 50-plus different countries over the years, he speaks English, French and Spanish, as well as some Russian, German and Italian. Beaty is a past president of the Silver Institute in Washington, D.C., a fellow of the Geological Association of Canada and the Canadian Institute of Mining, a recipient of the Institute’s Past President’s Memorial Medal and a founder of the Pacific Mineral Museum in British Columbia.

Michael H. (Mike) Callahan has been the president of Silvermex Resources Inc. since November 2010, and began serving as a director a year earlier. Prior to Silvermex, Callahan spent 20 years with Hecla Mining Co. He joined the company in 1989; served as a senior financial analyst, financial manager of its Silver Valley operations in northern Idaho and director of accounting and information services. While serving as president of Minera Hecla Venezolana and leading Hecla’s Venezuelan operations, he also assumed duties as Hecla’s vice president of corporate development, after which he returned to Idaho as vice president of Silver Valley operations.

Jorge A. Ganoza Durant, whose work has earned him a spot among “Casey’s NexTen”—an exclusive collection of the “top 10 rising stars in the natural resource sector,” is president and CEO of Fortuna Silver Mines Inc. since January 2006, and a director of the company since December 2004. Ganoza holds of Bachelor of Science in engineering from the New Mexico Institute of Mining. A fourth-generation miner from a Peruvian family that has owned and operated several underground gold, silver, and base metal mines, he’s a geological engineer who has amassed more than 16 years of experience in exploration, mining and business development throughout Latin America, working for a number of private and public Canadian junior mining companies in Panama, Guatemala, Nicaragua, Honduras, Mexico, Dominican Republic, Haiti, Peru and Colombia.

Lenic M. Rodriguez, a Mexican businessman residing in Vancouver, has been the CEO and president of Aurcana Corporation since May 2009 and has been a director of Aurcana since 2006. He has over 15 years of experience in top management with one of Mexico’s 10 largest corporations. He has also served as a director of Alberta Star Development Corp. Rodriquez is a magna cum laude honors business graduate from one of Mexico’s top Universities, Universidad IberoAmericana. He holds a Master of Science and a Bachelor of Arts in business administration.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

Source: Sally Lowder and Brian Sylvester

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Wednesday, March 7, 2012

South American mining boom is now in the rearview mirror: Citigroup

In Latin America the decade-long bull run for mining and hydrocarbons is mostly behind us, according to Jason Press, a regional specialist analyzing equities for Citigroup.

He made the comments to Bloomberg Surveillance on Tuesday. (Audio link is here.)

In Latin America, Press believes that the financial and consumer sectors will have stronger growth. Mining, he says, is mostly neutral with a few modest gains.

Growth for the region will accelerate toward the ends of the year due to easing monetary policies and should be set at 3.7 percent later this year, accelerating to 4.4% in 2013. Leaders will be Colombia, Peru and Brazil.

Colombia is a leader because of the improving security picture.

“We love Colombia for the long term,” says Press.

Regarding Peru, Press believes the political risk in the country is overplayed and likes the current president and how he is managing the country.

“It has amazing growth potential at above five percent, and they are pursuing orthodox monetary policy,” says Press.

Brazil is preferred because the country has more resilient earnings and more diversified economy, compared to other countries in the region that are more closely tied to commodities.

Tuesday, March 6, 2012

Latin America leads global mining exploration spending again

Latin America remained the most popular exploration destination, attracting 25% of global explorations spending in 2011, said to the Halifax-based Metals Economics Group’s World Exploration Trends report released on Sunday.

Issued at the opening to PDAC’s convention in Toronto, Canada, the global industry’s largest annual event, “World Explorations Trends 2012” shows that Latin America continues to attract large spending in mining exploration, a position it has held since 1994.

Mexico is the region’s most popular country, receiving 6% of global spending, followed by Chile (5%), Peru (4%), Brazil (3%), and Argentina and Colombia (2% each).

As a result of strong growth in gold exploration in Colombia, Guyana, Brazil and Mexico, the share of allocations targeting gold in Latin America increased in 2011, while base metals slipped to its smallest share in more than a decade, says the report.

Globally, nonferrous exploration spending jumped 50% to a record US$18.2bn in 2011 from US$12.1bn in the prior year due to the continued strength of metals prices.

“Despite periods of weakness and volatility, metals prices – the primary driver of exploration spending – have improved significantly since bottoming in early 2009, and have remained well above their long-term trends through 2010-11,” the report said.

“Almost all companies have responded by increasing their exploration budgets over the past two years. As a result, the industry’s aggregate exploration total jumped 44% in 2010 and a further 50% in 2011, more than doubling from 2009′s recent low of US$8.4bn to the new all-time high of US$18.2bn in 2011,” MEG said.

Growing risk-takers

Whilst most geographies benefited from the sharp increase in exploration spending, miners appeared to have a much bigger risk appetite in 2011, as expenditure in countries generally viewed as risky jurisdictions rose to 23% of aggregate spending from 15% in 2010.

Over the last two years as metal prices have improved, a number of emerging economies, as well as some established mining jurisdictions such as Australia and Chile, have looked to raise taxes and royalties. That has increased mining costs and put the viability of some projects into question.

“The potential reward of working in higher-risk areas often increases the industry’s appetite for risk during periods of increased exploration spending, but exploration in high-risk countries, particularly early-stage work, is usually the first to be cut when risk levels or uncertainty increase,” says the report.

MEG’s exploration estimate is based on information collected from approximately 3,500 mining and exploration companies worldwide, of which more than 2,400 had exploration budgets reported in the group’s Corporate Exploration Strategies study.

“The companies (each budgeting at least US$100,000) together allocated US$17.25bn for nonferrous exploration, which we estimate covers about 95% of worldwide commercially oriented nonferrous exploration spending. Adding our estimates of budgets that we could not obtain, the 2011 worldwide exploration total reached US$18.2bn.”


Friday, February 24, 2012

Mitsubishi to acquire 34% of largest wind power project in Latin America

Japanese Mitsubishi Corp. announced on Friday it would buy a 34% percent stake in Mareña Renovable, a $1 billion Mexican wind power project with a total capacity of 396 megawatts, reports America Economia magazine.The project, located south-eastern region of the State of Oaxaca, will install 132 wind mills and is expected to start operations are set to start in July 2013.
Mitsubishi will work in Mexico with partners Dutch pension fund service provider PGGM and Macquarie Mexican Infrastructure Fundand, as announced the latest firm today