Latin America has long been a fertile, yet dangerous, territory for mining investors. The legal backdrop is now improving, however, and the prospects for the region's main metals are excellent. Here are ten reasons why investors should consider Latin America's mining sector.
#1 Vast Region
Latin America represents almost 13% of the Earth's land surface area, and consists of 20 sovereign states and numerous dependencies covering an area of over 20 million km2. The population is currently some 650 million, with a combined nominal GDP of US$5,600 billion.
The region includes all the Portuguese- and Spanish-speaking nations located to the south of the US, ie essentially all of the territories that were once part of the Spanish, Portuguese or French empires. In addition to the countries in South America, the region includes one country in North America (Mexico) and several in Central America — incorporating the Guianas (French Guiana, Guyana and Suriname), and the Anglophone, Francophone and Dutch Caribbean.
#2 Common Tongues
Spanish is spoken as a first language by about 60% of the population, with Portuguese spoken by a further 34% (albeit exclusively in Brazil). French is spoken in Haiti and in the French overseas departments of Guadeloupe, Martinique and Guiana.
#3 Historic Appeal
Latin American mining has captivated international investors for centuries. Tales of Birú, a magical gold-laden land (that we now know as Peru), were enough to convince Spanish conquistadors to lead a risky expedition against the Incas. Since then, investors have continued to scour the region, not least for the mythical El Dorado.
#4 Prospective Geology
There was good reason for the historic interest in Latin America as the region has the world's largest reserves of copper, lithium and silver, and boasts significant deposits of gold.
Chile, Peru, Brazil and Mexico are particularly blessed with mineral resources. According to the US Geological Survey, Chile has the world's largest reserves of both copper and lithium, and the seventh-largest reserves of silver. Peru has the world's largest silver, third-largest copper, third-largest zinc, fourth-largest nickel and fifth-largest gold reserves. Mexico is fourth, fifth and sixth in zinc, lead and copper respectively; and is also a top-ten gold producer. Brazil has the world's second-largest reserves of iron ore, the third-largest of nickel and fourth-largest reserves of tin.
Beyond these countries there are world-class metal deposits spread around the region. For example, the Dominican Republic hosts the world's third-biggest gold mine, while Guatemala has the second-largest silver mine. Argentina, Bolivia and Chile form part of the 'lithium triangle' that together holds around 54% of global resources.
#5 Source of Major Metals
Latin America contains about one-fifth of the world's reserves of iron ore, with the most important deposits being located in Brazil and Venezuela. Important iron ore deposits are also located at Marcona in Peru, and along a narrow belt from Taltal to Ovalle in northern Chile.
The region's copper reserves represent more than one-quarter of the world's known reserves, nearly all of which are found in Chile and Peru. Lead and zinc are dispersed among many countries in Latin America but are found in greatest abundance in the central Andes of Peru, in the Brazilian state of Minas Gerais, in highland Bolivia, and in the Andes of northern Argentine.
Bolivia ranks among the world's five largest tin producers, and significant tin deposits occur in Brazil's western Amazon basin. Bauxite is extracted in Guyana and Suriname, and there are also major production centres in Venezuela and Brazil.
#6 Gold Potential
Latin America was Europe's treasure trove for gold and silver from the 1530s through the late 1700s. The region currently contributes only a small percentage to the world's production of these precious metals but the largest gold discovery in the world over the past ten years was SolGold's Alpala deposit, part of the Cascabel project in Ecuador.
Brazil is Latin America's leading gold producer, and the metal is also produced in Colombia, Venezuela, and in the Andes of Peru and Chile.
#7 Export Focus
Modest local demand (the region comprises less than 10% of both world population and GDP) makes it a natural exporter. The region currently accounts for about 45% of global copper production, 50% of silver, 26% of molybdenum, 21% of zinc and 20% of gold. The region could become an even more important producer as significant areas are under explored.
#8 New Political Scene
Although Latin America's geology means it has plenty of exciting exploration projects, the above-ground risks have often thwarted mining investors. The region has been blighted by political instability, with frequent periods of military rule and most countries have only returned to democracy within the past 40 years.
Fortunately, Latin America is finally emerging as a more mining-friendly jurisdiction than hitherto. A report by the Fraser Institute concluded that Latin America and the Caribbean was the standout performer in 2018, with the region's median investment attractiveness jumping 16% (despite negative weightings for Venezuela and Guatemala, and a poor score for Argentina). Chile, Peru and Mexico were the top-rated countries in the region, with Ecuador and Colombia registering large improvements.
#9 Exploration Boom
Globally, US$10.1 billion was budgeted for exploration in 2018 (up 19% on 2017 but down 53% since 2012) by 1,651 companies. According to S&P Global Market Intelligence (SPGMI), Latin America continues to attract the most exploration dollars by region; the US$2.7 billion allocation in 2018 was an increase of 15% over 2017. Led by the juniors, last year's exploration budget was the second highest share over the past ten years.
The region is host to five of the 11 countries with aggregate budgets of more than US$200 million in 2018 — the big three; Peru (US$610 million), Mexico (US$609 million) and Chile (US$576 million), accounting for 66% of the region's total, plus Brazil and Argentina. In total these five exploration-dollar destinations accounted for 90% of the overall amount allocated to Latin America.
Spending on exploration for base metals (primarily for copper, with some zinc and lead) rose 21% in 2018, pushing base metals' share of Latin America's total exploration budget to 42% from 40% in 2017. There were 24 companies that budgeted US$10 million, or more, for base metals exploration in the region, an increase from only 17 in 2017.
Gold's share of the region's exploration budget dipped to 42% in 2018, from 44% in the previous year. This was due to a budget increase of only 9%, compared with a rise of 24% in 2017. The relatively lacklustre performance of the precious metal is primarily attributed to budget cuts by AngloGold and Barrick Gold Corp. Nevertheless, 23 companies budgeted at least US$10 million for gold exploration in the region, up from 19 in 2017.
SPGMI reports that the budget for other targets in Latin America, which primarily includes silver and lithium with some tin and potash, grew 15% in 2018 from just 7% in 2017. The budget for uranium exploration dropped again, by 29%. At the corporate level, Ganfeng Lithium Co. and Pan American Silver Corp. were the top gainers, while Vale and Lithium Power International had the largest 'other targets' budget cuts.
#10 Operating Excellence
Latin America is home to many of the world's largest mines. In terms of absolute profit margins (measured, in US dollars, as annual revenue minus all-in sustaining costs), the region had four mines in the top-ten ranking last year, according to SPGMI. These were Vale's Northern System and Serra Sul iron ore mines in Brazil, BHP's Escondida copper mine in Chile and BHP/Glencore's Antamina copper mine in Peru.
For these reasons, and its convenient time zone, Latin America has long been a popular destination for mining companies based in Canada.
Toronto-based junior companies active in Latin America include Aurania Resources (exploring for gold in Ecuador's Cordillera del Cutucu region), Continental Gold (developing the Buritica gold project in Colombia), Gran Colombia Gold (Colombia's largest underground gold and silver producer) and Sierra Metals (operates the 82%-owned Yauricocha mine in Peru, and the Bolivar and Cusi mines in Mexico).
Vancouver-based juniors in Latin America include Golden Arrow Resources (active in Argentina and Chile), Leagold Mining (owns Los Filos in Mexico, and the RDM, Fazenda and Pilar mines in Brazil) and New Energy Metals (developing energy metals in Chile). Brazil-focused Meridian Mining is producing manganese at its Espigao do Oeste project site in the state of Rondonia.