By Felipe Bedoya, Claudia Viale and Carlos Monge in the RWI Latin America office
From 6-9 March, more than 20,000 people from 120 countries traveled to Toronto, Canada for the most important mining event in the world: the annual conference of the Prospectors and Developers Association of Canada. During the conference, several Latin American countries, including Peru and Chile, presented the details of their countries' mining potential and legal frameworks in order to attract private investment.
The meeting also marked the release of the Fraser Institute's annual survey of mining countries. The Fraser Institute, an independent Canadian research organization, polls mining executives every year on the attractiveness of 79 resource-rich countries, comparing mining nations' varying geological, legal and political contexts as well as their mining sectors' market potential.
According to this year's Fraser report, Peru ranks 48th for a favorable political context for investing and 22nd in geological potential, dropping ten places in both categories from the year before.
Peru‘s president of the National Mining, Petroleum and Energy Association, Pedro Martinez, explained that the country's attractiveness to investors fell for two reasons. First, the campaign proposals made this year by several presidential candidates to institute a windfall profits tax on mining has made private investors uneasy. Second, social conflicts, including a protest in the Arequipa region against the Tia Maria copper project, halted mineral exploration activities in 2010, preventing the discovery of new mining deposits that would excite investors.
However, some mining analysts such as Jose de Echave, director of Cooperaccion, a Peruvian NGO working on mining and social conflicts, and Armando Mendoza, an economist and columnist for La República, noted that there is no evidence that a windfall profits tax negatively affects investments. De Echave explained that other indexes, such as the Metal Economics Group's annual report, rank Peru as a top mining investment location in Latin America. De Echave further noted that the lack of new discoveries and social conflicts have been caused by the mining activities themselves, poor state regulation and failure to meet environmental standards.
Conversely, according to the Fraser survey, Chile remains overall the most attractive mining country in Latin America, based on its performance in all categories, despite a recent government agreement to increase companies' royalty payments. Chile is ranked eighth in political context and first in geological potential.
Carlos Galvez, the manager of Buenaventura Mining Company, a major investor in both Chile and Peru, agreed that the royalty hike didn't discourage investment since the state had reached consensus on the change with private mining companies and the increased royalty payments are based on profits, not sales.
The overall average for the Latin America region declined slightly this year, from 33.4 to 31.6, due to lower scores for Bolivia, Ecuador and Venezuela, all of which fell thanks to mining-related social conflicts, changes in mining laws and contract negotiations from 2010-2011.
In response to these results, Bolivian vice-minister of productive development, Hector Cordova, made a presentation at the Toronto conference promoting several mining projects ready to be developed in the country, including zinc, gold, tin, iron and lithium ventures. Bolivia's government is seeking investment in these new projects that will add value to the country's minerals, most of which are currently exported cheaply as raw materials.
Also at the conference, an Ecuadorian commission headed by the vice-minister of mines, Federico Auquilla, discussed the status of ongoing large-scale mining contract negotiations, which were a key factor in Ecuador's fall in the "political context" ranking. Auquilla said that the first set of new contracts between the state and private mining companies would be signed in April and March. However, as of June, the government remained in negotiation with two mining companies and expected to begin the bidding process for new mining concessions in July.
A new cycle of mining investments has begun in Latin America, boosted by high international mining prices. However, while this trend continues and governments are eager to bring mining boom investments into their countries, urgent issues at the core of mining social conflicts remain. Among them are negative environmental fallouts as well as the impact of mining on local economies in regions where mining takes place. If these concerns are not addressed by those governments currently focused on promoting investment, it's easy to imagine that the new cycle of investment will come with a new cycle of social unrest as well.
LEARN MORE
- Fraser Institute Annual Survey of Mining Companies 2010/2011 (pdf)
- "View Point" Magazine Covers Latin America Contracts and Concessions
- Threats to Latin America Gas Subsidies Spark Protests
- ANÁLISIS QUINCENAL: Latin America Update, February 28, 2011
- ANÁLISIS QUINCENAL: Latin America Update, February 15, 2011
