Following the Money to Latin America

We are confident that Latin America will not only bring into production many new deposits in the following years, but that many new discoveries will be made as well. We follow the money as Latin America is apparently the place to be.

Latin America continues to be the most popular destination for exploration investments in the world. According to the latest “World Exploration Trends” by the Metals Economics Group, 25% of total exploration investments worldwide were headed to Latin America in 2011 (in contrast to 10% in 2003), whereas 15% of all spending worldwide went to three countries: 1. Mexico (6%), 2. Chile (5%) and 3. Peru (4%).

 

More than $425 billion in investments have already been budgeted by international resource companies for the development of deposits in Latin America for the next five to 10 years, whereas the lion`s share flows to Chile, Peru and Colombia. (1)

Most near-surface deposits in other regions of the world with traditional sound mining jurisdictions have already been discovered and are increasingly being depleted thanks to technological advances in exploration and mining since the 1970s. Many of the largest deposits worldwide are being brought into production in Latin America these days, yet Latin America is still considered as being relatively underexplored, because its laws were not favorable for foreign companies in the past. During the last decade, a drastic change in politics and attitude towards foreign mining companies has occurred in Latin America with the result that most exploration funds are now flowing there continuously. Peru, Chile and Mexico rank among the three mining-friendliest countries in Latin America (according to the Fraser Institute) and the top 10 in the world. While the frameworks and jurisdictions for exploration and mining are worsening in many other regions (e.g. Australia or China), Latin America is increasingly improving its regulations. Peru is ranked third in the world in terms of gold, silver, copper and zinc reserves, yet from a mining standpoint only 15% of the country has been explored, leaving immense potential for future discoveries.

Already, Peru has experienced 10 years of consecutive economic growth and ranks as one of the fastest growing economies in the world (in 2006-2009, GDP grew on average 9% per year) in hand with one of the lowest inflation rates in Latin America. This is mainly due to Peru being the largest silver producer in the world, the third largest in copper and zinc, the fourth largest in lead and the sixth largest gold miner. The government looks favorably on foreign mining investments as a method of helping to finance the country’s development. The credit rating agencies Standard & Poor’s, DBRS, Moody’s and Fitch have all given the country “Investment Grade” status.  In 2009, mineral exports made up 61% of export revenue. Peru has signed free trade agreements with China, Canada, United States and other countries and has executed more than 30 international investor agreements which effectively protect investors.

In no other Latin American country does mining represent the main engine of the economy as is the case with Peru. Exports from the mining sector total some $30 billion, out of which around $10 billion is earned from gold and $7 billion from silver exports. With an output of 170 tons in 2010, Peru ranks as the world`s sixth largest gold producer. Illegal mining accounts for around 25% of that output, with a strong tendency that it will shift to foreign companies as mining regulations are increasingly tightened by the Peruvian government (for the benefit of sound/regulated mining). The third largest gold producer, the United States, mined 210 tons in 2010, whereas No. 2, Australia, had an output of 255 tons and China 345 tons – which translates into Peru having a realistic chance of ranking among the three largest gold producers in the near future as a production increase of only around 25% is required to achieve this.

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