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The lure of Latin America: get set for a new mining boom

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By: James McKeigue

Latin America has long been fertile, yet dangerous territory for mining investors. But now the legal backdrop is improving and the prospects for the region’s main metals are excellent, says James McKeigue.

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 conquistador Francisco Pizarro to lead a risky expedition against the Incas. In the short-term the mission was an outstanding success: Pizarro ransomed Inca emperor Atahualpa for 13,000 pounds (lbs) of gold and twice as much silver. In today’s prices that is almost £2.4bn worth of gold, though the silver comes to a paltry £6m. Since then, investors have continued to scour the region looking for similar pots of gold. The mythical El Dorado, for example, first believed to be a king, then a kingdom, finally turned out to be a waste of time and money for the British, Spanish and German investors who backed expeditions to find it.

Today the lure of Latin America’s mining sector remains just as strong. Latin America has the planet’s largest reserves of copper, lithium and silver, with plenty of gold to boot. Modest local demand – the region comprises less than 10% of both world population and GDP – makes it a natural exporter. But the conditions above ground have changed. Latin America has emerged as a mining-friendly jurisdiction with a wide range of international mining firms listed on Canadian, US, Australian and British stockmarkets. The emergence of solid democracies across the region since the 1980s has finally allowed many Latin American countries to develop fair systems to manage international mining investment. Of course, profiting from mined metals is a risky business (Pizarro ended up hacked to death, spending his final moments daubing himself with a cross in his own blood). But from solid, London-listed majors to smaller explorers looking for that next big find, Latin America has plenty to offer MoneyWeek readers.

 

Latin America’s metal wealth

The region is incredibly rich in base and precious metals. Chile, Peru, Brazil and Mexico are particularly blessed. According to the US Geological Survey, Chile has the world’s largest reserves of both copper and lithium and the seventh-largest silver stocks. 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; it is also a top-ten gold producer. Finally, Brazil has the world’s second-largest stores of iron ore, the third-largest of nickel and fourth-largest reserves of tin.

Beyond the established powerhouses, you also have world-class metal deposits scattered around the region. So, for example, the Dominican Republic has the world’s third-biggest gold mine, while Guatemala has its second-largest silver mine. Argentina and Bolivia form part of the “lithium triangle” with Chile that together holds around 54% of global resources, which are defined as potential reserves. Moreover, it is likely that Latin America has even more mineral wealth than official statistics suggest as both political and economic turbulence have prevented international miners from exploring Argentina and Ecuador extensively.

Given that most of Peru’s and Chile’s largest mines are found in the Andes, it seems reasonable to suppose that their neighbours’ stretches of the mountain range are also rich in minerals. I interviewed Argentina’s then-mining secretary, Daniel Meilán, in Buenos Aires last year and he left me in no doubt about the country’s mineral potential. “Mining makes up roughly 15% of Chile’s GDP and something similar for Peru. Here in Argentina it is just 1%, despite the fact that we have a wider share of the Andes than Chile and therefore probably more minerals.” We should soon find out, as in recent years both Argentina and Ecuador have changed their mining policies and opened up to investors, creating exciting new frontier markets in the region.