VANCOUVER (miningweekly.com) – Miners in North and South America will remain focused on improving operational performance over the coming years, while divergent regulatory policies will either improve or worsen the industry’s welfare, according to recent analysis by market intelligence firm BMI Research.

The think tank noted that stabilising, albeit muted, mineral prices will create a buyer's market for mining assets in the Americas, as overleveraged firms shed core mines.

Miners in both continents will maintain austere strategies, focused on cost-cutting and divestment, to better withstand mineral price volatility and improve balance sheets.

“We expect metal prices to remain supported over the coming quarters, registering a moderate uptick in 2017 as markets gradually tighten, with upside risks stemming from additional Chinese infrastructure investment,” analysts affiliated with the Fitch Group stated.

Prime asset sales will attract investment over the coming quarters, particularly in countries with competitive operating costs and established mining industries.

BMI pointed out that, as at the end of September, year-to-date mining investment, merger and acquisition activity in North America increased by 15.8% year-on-year to $13.1-billion. In Latin America, it rose by 7.6% over 2015, to $2.2-billion.

Key deals included Freeport McMoRan's $1-billion sale of a minority stake in the US-based Morenci copper mine to Japanese firm Sumitomo Metal Mining in February; Chinese firm Zhongwang's $2.4-billion acquisition of US aluminium producer Aleris in August; and Anglo American's $1.5-billion divestment of the niobium and phosphate business, in Brazil, to China Molybdenum in April.

MACROECONOMIC REFORM
BMI forecast that varying approaches to macroeconomic reform will either improve or exacerbate key operational and regulatory challenges facing miners in the regions.

Miners in Latin America will contend with several important political and operational risks as the region gradually recovers from the commodity price bust over the coming years.

BMI expects Chile, Mexico and Colombia will remain least exposed to challenges owing to relatively stronger existing infrastructure, established mining industries and little likelihood of government intervention.

Analysts highlighted Peru and Argentina as countries moving in this direction, as they are supported by new leadership focused on conventional macroeconomic policies and encourage foreign investment.

Conversely, the Venezuelan government's quick move to nationalise mining concessions, in response to escalating violence during mining protests on September 1, underscores the country's poor trade and investment outlook and could create significant legal challenges for the few foreign companies operating there.

LITHIUM RISING
BMI also highlighted Latin America's 'Lithium Triangle' as a regional mining bright spot, as rising lithium prices encourage investment in and development of a robust project pipeline over the coming years.

According to the research, important lithium sectors in Latin America will experience solid investment and production growth, supported by increasingly open economic policies and a tightening global lithium market, pushing prices up over the coming years.

“We expect lithium prices to continue on a solid upward trajectory, as rising global demand growth outpaces that of production,” BMI stated, pointing out that the US Geological Survey in 2015 estimated that world lithium mine output increased by about 5% to 32 500 t and spot lithium carbonate prices increased between 10% and 15%.

Specifically, an improving business environment in Argentina and a stable business environment in Chile will increasingly attract foreign investment in those respective lithium sectors, while complex regulations, underdeveloped infrastructure and resource nationalism will deter investment in Bolivia, the third country of the 'Lithium Triangle'.

BMI cites, for example, that on September 26, Chinese firm Tianqi Lithium bought a 2.6% stake in Chile-based Sociedad Quimica y Minera de Chile (SQM) for $209-million and will reportedly seek further shares of the largest lithium producer. In Argentina, lithium will continue to drive mining investment, accounting for nearly all of the country's $44.2-million year-to-date mining investments, as of September 28.

In March, SQM invested $25-million in junior lithium firm Minera Exar for a 50% stake in the Cauchari-Olaroz project.

WATER WORRIES
Meanwhile, BMI expects miners to increasingly come under social and political pressure over water use and contamination in the face of shortages and droughts.

Freshwater shortages and droughts will fuel tension between local communities and miners over the coming years, leading to added environmental regulations and significant investment. For example, in August, Kinross Gold suspended operations at the Maricunga gold mine, after Chile's environmental regulators shut down the mine's water system in March, making costs untenable. Chile's environmental regulatory authority cited environmental damage as the reason behind the water shut-off, although Kinross points to an ongoing drought in the Atacama region resulting in a decline in groundwater levels unrelated to the mine.

On September 15, the provincial San Juan government, in Argentina, temporarily suspended operations at Barrick Gold's Veladero mine to inspect the heap leach area and evaluate nearby water channels for contamination, following a spill.

“Miners will face elevated costs and tightening environmental regulations due to concern over water use and contamination. We previously highlighted the large investment in desalination plants facing copper miners in Chile as the industry shifts from freshwater to seawater to reconcile ongoing droughts with an increasing need for water amid declining ore grades,” BMI noted.

Following the deadly Samarco dam tailings burst in November 2015, top Brazilian iron-ore miner Vale will phase out wet-processing, reducing both the use of dams and the number of tailings created by 700-million tonnes by 2025. The firm will also increase the use of dry ore processing at mines from 40% to 70% and introduce separation of tailings where wet-processing is required, to improve stability.