JOHANNESBURG (miningweekly.com) – South America: home of the greatest, most alluring, most deadly of mining legends – the myth of El Dorado, the golden one. Over the past 500 years, the con-tinent’s mineral riches, real and imagined, have stimulated amazing feats of courage, daring and endurance, conquest, looting, terrible atrocities and appalling oppression.
From the Victorian era on, mining also resulted in what are still breath-taking engineering feats, such as railways through the mighty Andes mountains, complete with chasm-spanning bridges and impressive tunnels. Mining has helped promote at least some economic and infrastructural development in a number of countries, although this has tended to be uneven.
The continent of South America is the fourth largest continent but is composed of just 12 countries (plus the French territory of Guiana on the mainland and the UK self- governing dependency of the Falklands Islands in the South Atlantic). These countries are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela.
As a result, the continent possesses some of the geographically largest countries in the world, including the fifth biggest (Brazil), the eighth (Argentina), the 20th (Peru) and the 26th (Colombia) – South Africa ranks 25th. Bolivia, which looks quite small on a map of South America, is actually the 28th-largest country in the world.
South America must not be confused with Latin America – the former is a continent, the latter a cultural region. Guyana and Suriname are not Latin countries, while most of the countries of Central America (Anglophone Belize is the exception), some of the Caribbean islands and Mexico (which is part of North America) form part of Latin America. Brazil speaks Portuguese, Guyana and the Falkland Islands English, Suriname Dutch, Guiana French and the rest Spanish.
But in Bolivia and Peru the indigenous Aymara and Quechua languages also have official status, as does Guarani in Paraguay – a fact foreign miners should be aware of and responsive to. Despite the generalisations that follow, it must always be remembered that there are significant cultural differences between all these countries, even among those that, from a distance, seem most similar, such as Argentina, Chile and Uruguay. One result is that popular attitudes to the mining industry and its legacy vary enormously from country to country.
In its most recent publication which includes the continent as a whole (2010 Minerals Yearbook: Latin America and Canada), the US Geological Survey noted that in 2010 “Brazil was the world’s leading producer of niobium and tantalum, the third-ranked producer of iron-ore (gross weight) and the regional leader in the production of bauxite and crude steel”.
Chile was the world’s leading producer of copper (mine output and refined metal), iodine and lithium; the second-ranked producer of arsenic; and the third-ranked producer of boron. Argentina, Bolivia and Peru were also among the world’s leading producers of base and precious metals and industrial minerals. Argentina was the world’s second-ranked producer of boron and Bolivia was the second-ranked producer of antimony. Peru was the world’s leading producer of silver, the second-ranked producer of bismuth and copper, the fourth-ranked producer of lead and the region’s leading producer of tin (mine and metal production).
Citing 2009 figures, The Economist’s Pocket World in Figures 2012 ranked Chile first and Peru second in world copper production (with outputs of 5 390 000 t and 1 275 000 t respectively). Peru ranked sixth in the production of gold (182.4 t). Regarding lead, Peru was fourth (302 000 t) and Bolivia sixth (85 000 t). With nickel, Colombia held ninth place (51 800 t) and Brazil tenth (36 200 t). In silver production, Peru came second (3 637 t), Chile fifth (1 276 t) and Bolivia sixth (1 259 t). In coal, Colombia ranked tenth, with 48 300 000 t (oil equivalent).
According to the International Council on Mining & Metals October 2012 report ‘The Role of Mining in National Economies’, in 2010 mining production amounted to 14.7% of Chile’s gross domestic product (GDP) and 12% of Peru’s GDP. (For highly industrialised Brazil, the contribution of mining to GDP was much lower: only 2.3%). In terms of trade, also in 2010, mining accounted for 4.8% of Argentina’s exports, 34.6% of Bolivia’s exports and 19% of Brazil’s, 65.9% of Chile’s, 7.2% of Colombia’s, 1.5% of Ecuador’s, 46.6% of Guyana’s, 0.8% of Paraguay’s, 62.7% of Peru’s, 75.4% of Suriname’s, 1.8% of Uruguay’s and 3.7% of Venezuela’s exports. (These percentages cover mining only and so exclude the contributions of oil and gas production.)
South America has also been at the centre of the recent rebirth of resources nationalism. In many ways, the late Venezuelan President, Hugo Chávez (who died of cancer in early March), was the instigator and international promoter of this latest wave of resources nationalism. During his time in office, he nationalised a number of mining operations (and many other nonmining companies), an example that has been followed by current Bolivian President Evo Morales.
Since he came to power in 2006, Morales has nationalised almost 20 companies in the cement, electricity, hydrocarbons, mining and telecommunications sectors. In addition, Argentina’s President Cristina Fernández de Kirchner renationalised the YPF oil company.
In Ecuador, President Rafael Correa has threatened to nationalise oil companies and, late last year, banks. But he has proven much less radical in his practice than in his rhetoric or than the leaders of Argentina and especially Bolivia and Venezuela have been. Indeed, when it comes to mining, the Correa administration is seeking to encourage foreign direct investment. The aim is to diversify the economy away from its overwhelming dependence on the hydrocarbons sector (which accounts for 20% of Ecuador’s GDP). In fact, Correa has publicly stated that mining will be a priority for his current (third) term in office. Last month, the President sent a new mining law to the national Congress to make mining investment easier and reform the country’s mining taxes. Under the new tax code, a 70% windfall tax could only be imposed after a mining company had recovered its investment and royalties (imposed on sales) on copper, gold and silver could not exceed 8%. However, international miners have cautioned that this would still reduce their profit margins to a minimum.
Ecuador is an ally of Bolivia and Venezuela. The three countries (along with a number of States in the Caribbean and Central America) are members of the Bolivarian Alliance for the Peoples of our America, much better known by its Spanish acronym of Alba, which was founded by Venezuela and Cuba in 2004. Consequently, Ecuador’s mining code reforms, despite their inadequacies, suggest that the wave of resource nationalism in South America has peaked and may, indeed, now be receding.
A Financial Times report in early February may indicate the same. Last year, Bolivia nationalised Glencore’s Colquiri mine. The London newspaper reported that Morales had admitted that the mine’s production had fallen since the nationalisation in June 2012. Then, Colquiri had a monthly output of 429 t of unrefined tin and zinc.
In December, it was 337 t – a drop of 21%. Over the same period, the mine’s workforce had been increased by 30%, from 959 to 1 249. “Before, with few people, there was more production,” the newspaper reported Morales as saying. “Now, with more people, there is less production. If nationalisations mean producing less, then there is no point in nationalising.”
Resource nationalism in South America has remained restricted to the Alba countries plus Argentina. But the long global commodities boom, triggered by the unprecedented growth by so many developing countries, especially China, has encouraged countries to seek to increase their State revenues from mining. The Willis Mining Market Review Spring 2013 (the spring is that of the northern hemisphere) noted a long list of countries that sought to do this during the period 2010 to 2012. In large measure, they sought to do so by creating new or increasing existing royalties, taxes and tariffs. In South America, these countries were Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela. Or, to put it differently, only Guyana, Paraguay, Suriname and Uruguay did not try to do so.
It should be noted, however, that countries outside South America that sought to do the same thing included Australia, Canada, South Africa and the US.
Another issue that has arisen around the world, including in South America, is local community opposition to mining projects or mining company policies or aspects of these. In Peru, for example, companies such as Barrick Gold and Newmont have been subject to protests by local communities worried about water supply and water pollution issues and/or demanding a greater say in mining policy, regulation and approval. On top of this, mining operations can be “held hostage” in disputes that have nothing to do with mining. Again, in Peru, early this month Canadian company Rio Alto had to temporarily suspend some of its operations at its La Arena gold mine because the main road to the mine was blocked during protests against the country’s police and judicial system.
There are also other challenges. One of the most important of these is infrastructure. Willis reports that Latin America will have to invest about 9% of its GDP in infrastructure every year from now until 2020 inclusive in order to eliminate the gap between it and South-East Asia. During the period 2007 to 2009, Latin America invested only 2% of GDP in infrastructure. (Although, to re-emphasise, South America and Latin America are far from identical, these figures are still suggestive.)In Chile, it has been officially calculated that the country will need an additional 8 000 MW of electricity-generating capacity over the next eight years, to support industrial (which will include mining) expansion. But independent analysts expect only 2 300 MW will be built and come on line in that time.
In some countries, crime and political violence are actual or potential problems for mining companies. Kidnapping has become a serious concern in Venezuela, for example. On the other hand, the level of political and criminal violence in Colombia has been dramatically reduced in recent years.
Peace talks are under way between government and the main rebel movement, the Revolutionary Armed Forces of Colombia (better known as Farc). Last year, the rebels renounced kidnapping for ransom. A major break-through was the recent agreement between government and Farc on land reform.
There is optimism that a final peace deal could be reached by the end of the year. The Farc does not really have much choice: it has been battered by a decade of successful security force operations and its fighting manpower has been reduced by 50% since 2001.
In Argentina, miners and potential mining investors face the threat of high inflation, which is running at about 30%, Latin American business intelligence and news agency BNamericas has reported. This is in addition to the political risk posed by the government’s resources nationalism.
Across the border, in Brazil, a new mining code should now have been presented to Congress. The uncertainty over this code has acted as a severe drag on the development of the country’s mining sector. Apparently, almost 50 000 exploration permit applica- tions are frozen in the Federal government office responsible for issuing them (the National Mineral Research Department) because it is awaiting the issuing of the new code. Nevertheless, the country still expects to receive $75-billion in mining investments during the period 2012 to 2016.
And what is the view of the mining companies themselves? BNamericas Mining Readers Survey 2013 showed that 44.4% of mining company respondents saw Chile as the South American country with the best mining investment climate. Chile was followed, in order, by Peru (22.2%), Brazil (14.8%) and Colombia (7.4%).
While Chile was best and the others seen as attractive, there was concern that there would be a worsening in the investment climate in Argentina. The majority of respondents also expected their costs to rise this year and their spending to increase as a result. They were also less optimistic about metals prices and believed that sociopolitical risks would increase.