Latin America – is regulation clearing a path?

By Siobhan Lismore-Scott
Published: Friday, 13 December 2013

Mexican royalties passed; Brazil defers decision; Chile moves to frac

Over ten years ago, while working as a translator for a mining company in Peru, I was often surprised by the divisive views held by the public when I told them where I was working.

For the average Limenian (the term given then to the people of Lima, where I lived) the mining industry had transformed the country into a parable not unlike Tolstoy’s fabled beggar who spent his lifetime sitting on a pot of gold. My colleagues meanwhile would argue that the industry bringing jobs, education, healthcare and opportunity to areas which had been overlooked by the government and blighted by terrorism.

This was, as I mentioned, ten years ago. Today I am told that, at least since the hasty departure of Fujimori, that the hypothesis has moved on. Peru has looked to other countries in Latin America and taken lessons on how these countries are developing their mining industry. Countries like Brazil, which hosts the world’s largest graphite company (outside of China) Nacional do Graphite, and refractories company, Magnesita. Or Mexico, which has a fluorspar behemoth in Mexichem and Chile, which holds lithium and potash company SQM.

But the tide is turning – and it is a wave which encompasses all of Latin America. Just as Africa has taken to resource nationalism and Australia is reviewing its taxes, so countries in Latin America are reviewing their royalty payments. Regulation is opening up, leading the way for potential in hydraulic fracturing (fracking) and renewable energies. But for some countries, progress remains slow.


InMexico, the country recently introduced the steepest mineral royalties in the world, unsettling foreign and domestic mining companies operating in the country, and, arguably  jeopardising the Latin American nation’s mining-friendly image.

The fiscal reform bill, approved by both houses of congress at the end of October and signed by President Enrique Peña Nieto, has not gone down well with the country’s mining industry.

The aim of the bill was to boost mineral tax revenues to strengthen the government’s fiscal position. But Mexico’s mining industry, the biggest in Latin America, says it has been unfairly singled out and is being asked to make a disproportionate contribution.

Mexico senate this week also signed an historic energy bill, which has now been sent to the lower house. The ruling PRI party, its coalition bloc PVEM and the right-wing PAN were the proponents of the bill while the left-wing PRD and other leftists groups voted against it, at times occupying the senate floor and unsuccessfully motioning for suspension of discussion.

The legislation opens up legislation of all exploration, including shale-rock formations which jut from southern Texas into northern Mexico. It is expected that Mexico will begin to look at unconventional gas exploration.


In Bolivia, state involvement has been so high that for lithium producers it has meant regulatory hurdle after regulatory hurdle in trying to get a project off the ground.

This year the Fraser Institute, a Canada-headquartered independent public policy research firm, placed Bolivia below Zimbabwe at 92 of a list of 96 least enticing places for foreign mining companies to fund projects, despite being rich in mineral deposits.


The Fraser Institute Annual Survey of Mining Companies was sent to approximately 4,100 exploration, development, and other mining-related companies worldwide. The survey represents responses from 742 of those companies.


“Bolivia has missed a golden opportunity to become a lithium superpower following a failure to come up with a plausible technical approach to produce lithium carbonate on its own after more than five and half years of unfruitful experimentation,” Latin America economist Juan Carlos Zuleta told IM.

Faith is still there, however. In August this year the Dutch Ministry of Foreign Affairs’ special envoy for natural resources, Prince Jaime de Bourbon Parme, signed a declaration of intent on behalf of the Netherlands in Bolivia. This declaration spelled out a partnership which will see the Netherlands share its knowledge and expertise with Bolivia on exploiting and using its large deposits of lithium.


How, or when, or what this will entail, however, remains to be seen.




Chile is long established as a copper producer and it is also the largest lithium producer in the world.


“In Chile, the mining industry is by far the most important sector of the economy, representing an average 14.7% of GDP between 2003 and 2012; in the same period, mining exports reached an average of $36bn,” mining lawyer Jerónimo Carcelén, wrote recently in Latin Lawyer.


However, logistics and infrastructure can be an issue. Power outages are common and roads can become washed away.


In terms of its energy problem, Chile has started to look towards renewable energy to solve this conundrum. Solar energy has been discussed (an industry which consumes silicon carbide, high purity quartz, silica sand and soda ash and feldspar) and — since July this year — fracking is now taking place.   State oil company ENAP announced a successful frac at its Arenal block in Tierra del Fuego. The fracked well is reportedly flowing 120,000 cubic metres per day. ENAP has said it will spend $100m on unconventional exploration this year.


But for lithium producers looking to exploit the vast Salars (de Atacama and Maricunga) the main issue is regulation – since the complete disaster that was the Special Lithium Operation Contracts (CEOL), all has fallen quiet on that front.


The winner of the CEOL was expected to sign a 20-year contract with the government to explore the Atacama Desert. SQM’s winning bid to develop a lithium concession in Chile was declared as invalid by the Chilean government as it still had legal issues pending with the state. Follow-up contender Li3 Energy filed a petition with the Chilean government, asking them to consider awarding them the tender, but nothing has come of it.

 An issue, in any case, is the lack of available water on the salar, Carlos-Zuleta told IM.

“What if Atacama fails to deliver the lithium necessary for all the different competing uses in the following years? (...) I have reason to believe that that could in fact be the case. This has nothing to do with reserves (....) It pertains to availability of a key element in brine production nowadays: water,” he said.



A Brazilian government mining-reform committee this week said it will postpone a vote on a proposed legislation overhaul until February amid continued disagreement over the bill ahead of an upcoming recess.

The vote was been held up due to differences within Brazil's executive branch over some provisions in the bill, the Wall Street Journal reported.

"The government demonstrates that it doesn't want to vote on the bill this year," the bill's sponsor, Congressman Leonardo Quintao, told the newspaper.

The main sticking point, Quintao added, was whether the government would allow royalty rates to be established directly within the legislation.

But the mining industry itself is growing in the country, but also, it is looking to the end use market, with a view to becoming vertically integrated.  

In November, Solvay announced it has agreed to acquire the speciality chemical assets of ERCA Química, Ltda. in Brazil.

This, it said, allowed the group to more than double its production capacity in surfactants in Brazil, serving customers in the agrochemicals, home and personal care, coatings, mining and oil and gas markets.

Solvay Novecare deals in specialty surfactants which use industrial minerals as fillers, such as kaolin, calcium carbonate and talc.


Magnesitas meanwhile has gone the other way and is developing graphite and talc deposits within Brazil for use in its refractories and other end markets.


For oilfield markets, Brazil remains an important player as it has recently discovered significant assets in the country – both in conventional energy markets and unconventional ones. Protests, however, have marred this landscape so far.


A ripe continent?


Next year looks to be an interesting one in Latin America. We’ve touched on only a fraction of the exciting developments that have been taking place.


It is not a continent where mining is a new concept, nor it is a continent which is coming to the end of its path. But it is one which needs to work with the mining industry in order to develop. It is marred by past greedy government — and sometimes, greedy mining bosses— strict and sometimes, nonsensical regulation policies and a vast amount of misinformation in the public sphere.


There are logistical challenges and there are energy issues, but these look to be developed – which can only be a good thing for the industrial minerals industry.






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