Brazil and Latin America's Mining Frontier

With Peru, Chile and Mexico making life tough for miners it is time to look elsewhere in the region. We investigate what Brazil, Argentina, Guatemala and Ecuador have to offer mining investors...

As the world bounces back from the pandemic the global economy is heating up. China posted record GDP growth of 18.3% in the first quarter, while the US economy is expected to expand at 7% this year. As factories and construction sites from Asia to North America swing into action, they are sucking in immense amounts of raw materials and energy. With vaccine programmes struggling, the recovery in Latin America is much more sluggish. Yet the demand from the world’s industrial superpowers is impacting life in the remotest corners of Latin America.

Prices of key base metals, such as copper and iron ore, are at record highs and that’s encouraging investors to pour capital into the mining industry. Those miners, flush with cash, are now looking for new projects - and Latin America is the top target. Chile has the world's largest reserves of both copper and lithium and the seventh-largest silver stocks. Peru has the world's largest silver, third-largest copper, third-largest zinc, fourth-largest nickel and fifth-largest gold reserves. Mexico is fourth, fifth and sixth in zinc, lead and copper reserves respectively; it is also a top-ten gold producer. Finally, Brazil has the world's second-largest stores of iron ore. Beyond the established powerhouses, you also have world-class metal deposits scattered around the region. So, for example, the Dominican Republic has the world's third-biggest gold mine, while Guatemala has its second-largest silver mine. Finally, Argentina and Bolivia form part of the "lithium triangle" with Chile that together holds around 54% of global resources.

Anti-mining policies

There is just one problem. Governments in three of the region’s top mining jurisdictions, are becoming less welcoming to international mining firms. First you have Chile where Congress has just proposed a bill that would see tax on miners go up to 70% from 40% today. That law may be modified by the right-of-centre government in the Senate, yet elections in November look certain to bring a more radical, left-wing administration to power in the world’s largest copper miner. Recent local and constitutional elections in Chile have shown that country is clearly swinging left to a new model that will tax mining more heavily.

"Prices of key base metals, such as copper and iron ore, are at record highs and that’s encouraging investors to pour capital into the mining industry…"

In Peru, the planet’s second-largest copper producer, the recent election of socialist Pedro Castillo as president also bodes ill for the industry. In his campaign he promised to renegotiate contracts with existing miners, which will act as a disincentive for future investment in new projects and exploration. Mexico hasn’t issued a single new mining concession since Andres Manuel Lopez Obrador became president in December 2018. Uncertainty reigns with ad-hoc comments from the president – for example a recent diatribe against open pit mining – becoming unofficial law.

Brazil and the frontiers

These political problems mean miners need to look elsewhere in Latin America. One tried and trusted option is Brazil, the world’s second-largest iron ore producer. In addition to iron, Brazil also has the third-largest nickel reserves, fourth largest of tin and plenty of gold. The country has centuries of mining tradition with the well-organised institutions and regulations to go with it. It also has an 80% renewable energy grid that allows mines to mitigate their environmental impact, which is increasingly important for attracting investment.

"Ecuador and Argentina stand out as Andean anomalies…"

Latin America also has several frontier mining jurisdictions. Places with exciting geology but little experience of large-scale mining and weak institutions or regulations to govern the industry. In the south of the region, Ecuador and Argentina stand out as Andean anomalies. They share vast stretches of the mineral-rich mountain range, yet unlike their neighbours, they haven’t developed significant mining industries. Many geologists believe they could hold just as much copper as Chile or Peru but until now mining companies have been unwilling to take the risk. The same applies to Guatemala, where a combination of corruption, incompetence and communities have prevented projects from being developed. However, now higher prices and increased political problems elsewhere are encouraging miners to develop projects in Latin America’s mining frontier. In this report we speak to mining companies from Central America to the Southern Cone to find new opportunities for investors.