Eyes on Latin America

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.

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.