Eyes on Latin America

Potential and politics

Silver and gold have been in the spotlight for centuries in Latin America, with over half of global silver production taking place in the continent in 2019. Mexico, Chile and Bolivia feature in the world’s top 10 players by silver reserves, while Peru retains the largest reserves in the world. However, the star player today is copper with Chile alone accounting for over 28% of global output in 2020. Covid impacted all countries, but only diminished Chile’s annual copper output by 2% in 2020. Peru struggled harder with a 12% drop in copper production in 2020.

The second largest iron ore producer in the world in 2020 was Brazil, nearing half a billion metric tons of production. The mining giant was also in the top five producers of bauxite. According to government statistics, 22% of the country’s total exports in Q1 2020 were mining products, down 11.5% compared to Q1 2019.

As the world shifts towards renewables, Latin America’s stronghold on lithium reserves is as yet unmatched by any other region, with Chile and Argentina taking the lithium production lead.

With a history steeped in socio-economic disparity and abuse, the rise of populism across the continent has re-emerged, as it once did during the Great Depression. Improving conditions for the ever-growing working class is in the spotlight, with many politicians using the banner of hope as a means to get into power, with very few tangible results for their electorates.

“Torex Gold wishes to diversify through M&A to grow beyond a single asset to become a million to a million and a half-ounce producer.”

Jody Kuzenko, President and CEO, Torex Gold Resources

Mexico has long been a key mining destination for Ontario companies, such as Minera Alamos, which managed to permit, build and move its Santana mine into production in 2021, despite Covid and weather-induced challenges. The country offers a historically strong mining culture with affordable labor and access to an experienced mining professional pool. Mexico ranks highly in terms of operational and capital costs, however, President Andrés Manuel López Obrador’s (AMLO) moratorium on new exploration claims along with permitting delays have made the mining community slightly tentative about the country’s future. Reduced staffing due to Covid at Semarnat, the environment ministry, has also added to strenuous permitting delays.

Adding to the web of challenges, a slump in heroin prices has meant that cartels, which generally stay drug-focused, have diversified into other verticals, including extortion within the mining sector. The Mexican government’s criticism of the industry's environmental impact is also rippling across public perception, and chipping away at the positive ESG progress on the mining sector’s side. Certainly a need for more deeply informed leaders within the government is rising for mining industry and policy-makers to re-align goals. Despite the setbacks, AMLO has not raised the 7.5% special mining tax in Mexico as of January 2022, and existing concessions have been respected. The rise in prices of Mexico’s key metals, such as gold, silver and copper, has placed the country high on investor’s radars, who are trying to gage how policies will evolve.

Doug Ramshaw, president at Minera Alamos, spoke of the advantages of operating in Mexico, including a 1-year permitting process and operating costs that allowed the company to build its Santana mine for US$10 million. Regarding the challenges that Mexico presents, Ramshaw explained that the country has a 20,000-claim backlog. “The biggest change we have seen under the AMLO government has been the rise of union strengths,” he said.

Despite the current political challenges in Mexico, Torex Gold believes some of AMLO’s policies align with its goals of environmentally responsible mining and ending poverty. However, the Mexican president has also put in a bill for constitutional reform that would hand the State greater control of electricity supply, which many expect will cause energy prices to increase if it goes through. “There are some supply mix, pricing and availability concerns associated with the current administration’s proposed energy reform, which we are currently analyzing,” said Jody Kuzenko, president and CEO of Torex Gold.

One of the challenges of operating in Mexico is the well-known level of organized crime in the country. Through no area has been completely free of violence since the drug war began, the hot spots have a tendency to move from one state to another, depending on cartel movements.

“By the time you are in Northern Mexico […] the cartels leave mining companies largely alone as their main priority is getting their product into the US,” explained Ramshaw.

Torex wishes to become a million-ounce producer, and the company became debt-free Q1 2021 and had US$345 million in available liquidity. Its core focus is currently delivering a feasibility study for Media Luna in Q1 2022, advancing permitting, and completing the 83,000-meter infill drill program this year. The gold, copper and silver project aims to generate an expected average annual gold equivalent production of approximately 350,000 oz/y over 10 years once it reaches production. Optimizing and extending El Limón Guajes (ELG) is also a target to reach consistent cash flow and production to transition from ELG to Media Luna in 2024.

Sable Resources' projects in Latin America are advancing with a healthy balance sheet of over C$28 million in cash and investments as of Q3 2021. “We are financing the work at both El Fierro and La Poncha and our JV partner South32 is financing Don Julio. On the other hand, Los Pumas, 21 km south of Don Julio, is a grassroots discovery,” said Ruben Padilla, president and CEO, Sable Resources.

McEwen Mining, owner of the Fox Complex in Ontario, also has operations in Mexico and Argentina. A historically gold-focused company, McEwen has recently decided to create McEwen Copper to move the Los Azules project in Argentina from Preliminary Economic Assessment (PEA) to Pre-feasibility Study (PFS) within the next two and a half years. The aim is to take the new company public within the next year. “The left leaning political rhetoric in Chile and Peru has recently improved Argentina's profile as a destination for foreign investment in mining projects,” said Rob McEwen, chairman and chief owner, McEwen Mining.

Los Azules’ PEA was generated with a US$3/lb copper price, producing 415 million lbs of copper concentrate at a US$1.14/lb cost for the initial 13 years, with a lower, but still profitable rate for the 23 years following. “Los Azules is equivalent to a gold deposit of greater than 70 million ounces and with a gold equivalent production of just under 1 million oz and a cost equivalent of US$500/oz,” added McEwen.

Oprating in Bolivia, Eloro Resources has not seen any major changes for the mining sector since Luis Arce was elected president in 2020. However, the country is incentivising industrial development and has removed VAT on equipment imports. Previously focused on Peruvian-based La Victoria, Eloro has now turned its efforts to the Iska Iska project. Eloro is working towards a maiden resource report and meeting the necessary requirements for the TSX. ”The Bolivian mining industry is still in a place where they need outside expertise and that is where we are fortunate to be accepted in the country,” said Tom Larsen, CEO, Eloro Resources.

Images courtesy of Torex Gold Resources