Future bright for Latin America, but water issues impede growth

JOHANNESBURG (miningweekly.com) – While the outlook for mining in Latin America remains positive over the coming years, research firm BMI has outlined certain obstacles that will hinder its development, with water use and contamination among the most significant challenges.

BMI warned that companies and governments in Latin America would experience increasing pressure to respond to water scarcity and contamination issues, as freshwater shortages and droughts fuel tension between local communities and miners.

In January, Chile’s State-owned miner, Codelco, announced plans to seek partners to develop a desalination plant in Antofagasta.

In April, Argentina's government announced plans to invest $44-billion in water infrastructure, including a sewage system and treatment plant.

Meanwhile, in March, El Salvador passed a law banning all metal mining in the country to protect water sources.

“While El Salvador's mining industry is quite small and negligible in terms of gross domestic product, the ban underscores the difficulty policy-makers face in maintaining the delicate balance between the economic benefits and the social and environmental costs of mining,” said BMI.

Chile, Argentina, Colombia and countries in Central America were particularly likely to enforce stricter water regulations due to scarcity or contamination, or a combination of both.

Depending on the nature of the mining industry in each country, BMI believed governments would respond differently to the task of regulating mining and protecting water resources.

“Desalination plants may become mandated in Chile, and Peru will take an inclusive approach to help small-scale gold miners comply with regulations through reducing red tape and offering incentives such as banking services.

On the other hand, the Constitutional Court in Colombia has ruled on several cases over the past year against miners, creating uncertainty in the sector where the federal government remains supportive of mining development and leading firms to abandon projects,” said BMI.

The decisions include banning extractive activities in the Páramos region – an important source of fresh water in the country – and giving local governments more authority to prevent mining, often on concerns over water contamination and use.

Some large mining companies will take the initiative to self-regulate and increase water monitoring, as evidenced through the growing industry norm of providing yearly sustainability reports.

ON THE MEND
Despite these challenges, BMI noted that mining recovery is under way in both North and Latin America, following years of implementing financial austerity, coupled with rising prices boosting activity. BMI added that, against this backdrop, mining merger and acquisition (M&A) as well as investment activity would continue to pick up, particularly in stable operating environments and in mining sectors with relatively stronger price outlooks.

As such, Latin America's gold mining M&A activity increased significantly year-on-year in the first half of 2017, to $1.9-billion. BMI highlighted that continued supply and capital discipline from miners, who are wary of price volatility, would underpin growth strategies focused on partnerships, joint ventures and expansions of existing assets to reduce risk and cost.

However, the research firm warned that it held a slightly bearish outlook for industrial metals for the remainder of the year, as waning Chinese public investment continues to sap metal demand growth.

Meanwhile, in its regional overview of the Americas, BMI identified Argentina, Ecuador and Peru as emerging bright spots in mining, owing to improving regulatory environments.

“This brightens the prospects for foreign mining investment supporting long-term industry growth. For instance, in April, Peru proposed lower air-quality standards to encourage investment in smelting,” said the firm.

Peru also boasts some of the largest project pipelines in the region.

Sector-wise, BMI highlighted lithium as a key growth area, noting that countries like Argentina and Chile would experience solid investment and production growth, supported by a tightening global lithium market pushing prices up over the coming years.

“We expect lithium prices to continue on a solid upward trajectory, as rising global demand growth outpaces that of production,” said BMI, adding that project development in both countries' lithium sectors remained on track.