Latin America - a land of missed opportunity?

By Siobhan Lismore-Scott
Published: Friday, 27 June 2014

Latin America’s geology makes it a region with the potential to become a heavyweight in the global mineral industry. However, problems ranging from regulatory uncertainty to corruption and bureaucracy have historically prevented it from realising its immense potential, Siobhan Lismore-Scott, Editor, explains.

The richness and diversity of Latin America’s geology has long made it an appealing target for miners and minerals, having been an important part of the region’s economies for centuries.

Yet Latin America is often deemed to have failed to fully deliver on its potential as a world class mining centre, largely because of a turbulent and colourful political history that has seen countries up and down the continent relentlessly rewriting regulations governing the extraction of natural resources.

Such erratic policy making has been blamed for deterring investment and creating uncertainty in the mining sector, meaning that some mineral-abundant nations still lack the technology to capitalise fully on their native assets.

This year, several Latin American nations have found themselves in the public eye once again, as regulation, controversial policies and corruption in the mining industry have taken centre stage.

Renewed interest in lithium mining has thrust Bolivia and Chile into the spotlight, as both countries attempt to meaningfully exploit vast brine reserves in the Andean salars.

Meanwhile, In Peru, allegations of mining-related corruption dog the country’s government and Brazil’s failure to meet GDP expectations has held back its mineral industry.



Lithium in Bolivia and Chile

Latin America is one of the world’s most important lithium producing regions. According to US Geological Survey (USGS) figures, lithium resources in Bolivia and Chile are 9m tonnes and 7.5m tonnes, respectively, while Argentina holds a further 6.5m tonnes.

Bolivia

In Bolivia, however, recent changes to the country’s mining code look likely to frustrate the nation’s opportunity to become a top lithium producer.

In May, the government approved a controversial new mining law (see p26), which provides that only state-run firms can mine lithium and potash in the country and bans private firms from partnering with domestic co-operatives.

The policy follows a stream of nationalisations of foreign-run mining assets in recent years, which form part of President Evo Morales’ stated mission to return wealth and power to Bolivia’s long-marginalised indigenous majority population.

With general elections due to take place in the country later this year, many feel that the law is cynically timed and could prevent Bolivia from benefitting from a predicted upswing in lithium demand.

Bolivia’s lithium deposits are located on the Salar de Uyuni, the world’s largest salt flat, covering nearly 5,000 square miles (12,950km2) in Potosi and Oruro, southwest Bolivia, and are estimated to account for 50-60% of the world’s lithium reserves.

While extracting lithium from brine deposits is a relatively simple process, relying on solar evaporation, certain characteristics of Bolivian lithium present challenges that would benefit from access to international technologies; something that looks less likely now that the deposits have been earmarked for state development.

The Uyuni lithium is mixed with magnesium, as well as being unusually high in salt content, complicating the extraction process.

The salar is affected by seasonal flooding every February, while the remote location also raises the cost of bringing in energy, water and other inputs for lithium projects.

Chile

Despite being home to the domestic lithium giant, Sociedad Quimica y Minera (SQM), and fostering projects belonging to the major US producer, Rockwood Lithium, Chile is often regarded as having failed to adequately develop its lithium industry.

This could be about to change, however, as the country has embarked on a state-backed initiative to capitalise on its lithium reserves, which began with the establishment of a National Lithium Commission in June (see p58) and is intended to lead to the creation of a state policy for the exploitation of the mineral.

Attempts to open up the sector in the past have been thwarted by bureaucracy, while the difficulty of securing water rights in what is one of the driest areas on the planet, a problem that has also affected Chile’s iodine industry (see p14), and the operational difficulties of working in the Andean plateaus, have also been stumbling blocks.

The establishment of the commission highlights the government’s awareness that Chile’s lithium reserves are a precious asset.

Lithium was one of the few mining issues that was directly addressed in the manifesto of the current president, Michelle Bachelet, prior to her election in March this year. Bachelet, together with the mining minister, Aurora Williams, signed the decree to establish the commission on 12 June.

Corporate interest in the sector is also growing. Earlier this year, state-owned miner Codelco announced it would once again open a tender for lithium exploitation on tenements in Maricunga and Pedernales. At Salar de Maricunga, four companies, including Li3 (see pg54), are already exploring for lithium.

Corruption in Peru

The allocation of mining rights to potentially lucrative mineral reserves in developing economies frequently goes hand-in-hand with corruption, and Latin America is no exception.

In June, stories emerged which alleged that Peruvian President, Ollanta Humala, who used support for mining as a springboard to gain more votes during his 2011 election campaign, financed his campaign with ill-gotten mining funds.

Local press reports citing Humala’s political opponent, former President Alan Garcia, alleged that Humala accepted over $49,000 from a union representing informal miners.

Humala recently announced a package of economic reforms, which included promoting investment in Peru’s mining and energy sectors, along with pledges to, “streamline bureaucratic processes, encourage competition and reduce risks of fraud and corruption”.

Most of Peru’s export earnings derive from its metallic mining industry, which is a large producer of copper, gold and tin, but it also holds and exports a modest amount of industrial minerals, including phosphate, kaolin, talc, boron, andalusite and mineral sands.

Expansion of its industrial minerals industry will depend partly on Peru providing reassurance that its mining business can be run without undue risk to international operators and investors, while increasing pressure for environmental protection and sustainable development have added to restrictions on miners.

However, a series of laws passed over the last two decades, making it easier to acquire mining rights and secure private investment, suggest that the country is serious about its mining sector.

Brazil’s mining code

Brazil is the largest country in Latin America and is the world’s second biggest producer of natural graphite and the third largest producer of magnesia.

Nearly all the Brazilian magnesite reserves are located in Serra das Eguas, near Brumado, Bahia, with two companies, Magnesita Refratarios and Industrias Brasileiras de Artigos Refratarios Ltd (IBAR), exploiting reserves in the area.

The country’s graphite producers include Nacional de Grafite, with mines in Itapecerica, Pedra Azul and Salto da Divisa, and Grafite do Brasil, with a mine in Bahia state.

Magnesita is also developing a graphite project in Minas Gerais, along with talc reserves in Brumado.

In June, mineral sands producer Iluka signed an agreement, with global mining giant Vale, for the development of the titanium-mineral-bearing Tapira complex in Minas Gerais (see pg21).

Despite being a hotbed for industrial minerals mining, Brazil is not free of disappointments. As one of the BRIC (Brazil, Russia, India and China) nations, touted to see stratospheric economic growth at the beginning of this decade, the country has only averaged GDP expansion of around 2% since 2011, according to figures from Trading Economics.

Rapid development of infrastructure and construction projects, which were expected to boost raw material demand in the country, failed to materialise, while a struggling global economy has also kept a lid on exports.

On the policy front, Brazil has been considering an overhaul of its mining code. In April 2013, Brazil’s Senate created a commission to discuss proposals for new regulations as part of a planned overhaul of the country’s mining industry.

The regulatory sub-commission for mining and rare earth exploration is led by two senators, one from the governing Worker’s Party and one from the opposition Social Democracy Party.

The purpose of the commission was to discuss and propose specific regulations to flesh out a policy initiated by President Dilma Rousseff’s administration to update the existing tax and royalty rules under the mining sector’s current legislative framework.

However, since the announcement in February there has been little notice of any advancement from the sub-commission, although a new mining law was unveiled separately by Rousseff several months after it was formed.

Rousseff said her government wanted mining companies to have contractual stability and security and for concession renewals to be contingent on them meeting investment and environmental goals. What this meant in reality was an increase in royalties.

A royal headache in Mexico

The Mexican mining industry entered a new era in 2013. After a decade-long mining boom, which was only briefly interrupted by the global financial crisis, news that a 7.5% royalty tax was being imposed initially scared off investors.

The initial panic failed to make a mark however, as the economy ministry reported that foreign direct investment in the country’s metallic mining sector increased in the first quarter of 2014, when compared to the previous year.

Mexico is the leading Latin American destination for mining investment and is fourth worldwide behind Canada, Australia and the US, according to Metal Economics Group, accounting for 6% of global exploration spending.

However, prior to the tax being imposed, mining only contributed around 4% to Mexico’s national GDP, despite seeing investment of over $28bn between 2005 and 2012.

Mexico has a well-developed industrial minerals industry, hosting the world’s leading fluorspar producer, Mexichem, as well as developed wollastonite deposits and amorphous graphite mines in Sonora.

The Central American country is also seeking to develop its junior mining industry, with explorers looking at mining borates and lithium and the government seeking to develop the rare earths deposits underwater.

And to the future?

Indications are that companies operating within Latin America are developing projects to serve growing markets, and in some cases are aided by the governments in said countries.

Chile’s establishment of a Lithium Commission is a positive boost for those hoping to exploit the country’s vast reserves and comes after years of struggle by those seeking to develop the industry. Bolivia, meanwhile, with its own brand of resource nationalism, lies contrary to this on some levels.

Work being carried out by companies such as Magnesita and indeed, Curimbaba, which looks to provide the growing oilfield minerals markets with its sintered bauxite proppants, show how companies are working in Brazil to vertically integrate and work past the domestic demand picture.

Latin America does hold vast amounts of industrial minerals and has an established mining background, but it will be the governments within the countries that finally decide the fate of these markets.