SUSTAINABLE MINING INVESTMENT: BEYOND THE BUMPY ROAD… LATIN AMERICA STANDS TO SURGE.

Latin American mining jurisdictions have often been plagued by political instability and inequalities, placing at risk the long-term investments needed by the mining sector. 

While the continent maintains a track record of solid regulations in the mining sector despite regular political shifts, each news wave from Latin America to Australia carry its lot of worrisome events to the untrained eye. 

From regular demonstrations in Peru to yet another election in Ecuador – a country which temporarily owned a singular position as the only right wing led country on the continent – through the occasional erratic decisions of charismatic left-wing leaders in Mexico, Brazil or Colombia…. it would initially seem unwise to dedicate much resources to Latin America.

AND YET…

And yet, a closer look on the structural evolutions of key jurisdictions underlines the resilience of the mining sector and its capacity to re-emerge as a leader of sustainable mining in the next decade. 

First, there is no denying the assets of the region, from its geological wealth (in particular in copper, gold, silver, zinc and now battery metals) to the strength of its national mining ecosystems built on centuries of mining history. Its geographical location also makes it an overall secure mining hub with prime access to Asian, European and North American markets. The quality of its professionals and its often modern mining operations place Latin America as a prime contender to lead the pack towards sustainable mining in the future.

As often the success of a mining investment depends on two things: resilience in order to not get spooked by newspaper headlines, and the capacity to weed out bad projects and narrow on those with a sustainable license to operate in structurally sound jurisdictions. 

If you recognize yourself in this description, Latin America should then be a focus of much needed attention. And here is why:

THE REASONS FOR CONCERN: POLITICAL RISK & COMMUNITY OPPOSITION

Luiz Inácio Lula da Silva (Lula) in Brazil, Andres Manuel Lopez Obrador (AMLO) in Mexico, Gustavo Petro in Colombia, Gabriel Boric in Chile, Dina Boluarte in Peru, Alberto Fernandez in Argentina, Luis Arce in Bolivia… without even mentioning Daniel Ortega or Nicolas Maduro, the list of left-wing Presidents would make any Aussie investment banker dizzier than a fresh Pisco Sour or a strong caipirinha. 

When – not if – a left wing Correa-backed candidate will return to power in Ecuador, the tsunami will be complete. It is the unavoidable result of two societal and political dynamics: the widening of inequalities throughout the last two decades as well as increased populism among right wing candidates and/or former presidents (Keiko Fujimori in Peru, Jair Bolsonaro in Brazil…) which antagonized the local population and prevented them from winning their respective elections.

Beyond unfavorable national electoral results, the main risk to investments in the Latin American mining sector is often the incapacity to build a lasting social license to operate around mining sites. From Tia Maria in Peru to Mara in Argentina, there are countless of examples of local communities opposing mining development. 

This risk is all the more acute than most Latin American countries are signatories of the International Labor Organization’s convention 169 on indigenous communities’ rights. This ratification demands free prior and informed consent (FPIC) of communities impacted by mining projects without providing clear guidelines on how to conduct the process. 

The importance of this social license to operate for the last decade in Latin America is now common to every mining jurisdictions in the world. It is one of the main pillars of the “S” dimension of any comprehensive ESG strategy. 

In reality, Latin America is now benefitting from the head start in working with communities and establishing clearer guidelines. Peru now has a solid process for prior consultation and mining companies in Ecuador and Mexico in particular has shown diligence in engaging in this process.

Similarly, security and transparency issues have often plagued the mining sector in Latin America. In Mexico or Colombia for example, criminal organizations often use informal miners to launder the proceeds of their activities or try to extort mining companies in areas under their control. Informal miners, also called Garimpeiros in Brazil or Pork-knockers in Guyana, are also the cause of multiple environmental degradations who tarnished the mining sector’s reputation.

But here again there are strong positive evolutions to underline with stricter implementation of regulations and comprehensive formalization initiatives in the continent. A tailored due diligence on above-the-ground risks is essential to ensure the security of an investment and adapted methodologies on risk assessment allow to underline successful local mining projects even in seemingly antagonistic jurisdictions.

THE OPPORTUNITY: WHY LATIN AMERICA IS SET FOR A REBOUND

When taking a closer look at mining developments in Latin America over the last decade, it is undeniable that the successful mining companies are the ones who engaged in ambitious ESG strategies to mitigate sociopolitical and economic risks and ensure the sustainability of their operations. 

If there is always room for improvement, one can safely say that the need to collaborate better with demanding mining communities has encouraged mining leaderships in Latin America to adopt sounder ESG protocols and reduce risks for investors. Several mining operations in Latin America offer good practices that their Australian, African or European counterpart who be well advised to follow.

The structural assets of mining in Latin America are undeniable in particular as the global energy transition is ramping up. Chile and Peru hold some of the most interesting copper assets. Strong lithium operations are emerging in Brazil and Argentina. Mexico and Bolivia are home to some of the most profitable silver operations while gold discoveries in Guyana and Suriname remind us that West Africa and the Caribbean share the same remarkable geological variables since Pangaea. 

Latin America’s geographical location also offers a strategic competitive advantage, offering an overall secure mining hub with prime access to Asian, European and even more importantly the North American and markets at the time of the Inflation Reduction Act. 

It seems reasonable to forecast an increase in investments in Latin American operations as many countries adjust their critical mineral strategies. Latin America represents a safe alternative to provide mineral feeds for cathode factories and smelters in North America. Other large investors, ranging from European OEMs to Middle Eastern sovereign wealth funds have also confirmed strategic investments in Latin American jurisdictions. Savvy Australian investors should be prompt to follow.

A final argument could prove very valuable to convince Australian mining companies and investors to increase their presence in Latin America. In March 2021, the Mineral Council of Australia adopted the Canadian Towards Sustainable Mining (TSM) system to improve site-level performance through regular and transparent reporting on safety, environmental and social performance, including partnerships with First Nations landholders and communities.

Australian companies need therefore to understand and learn how to implement these reporting frameworks and ESG guidelines. Interestingly, most of Latin American jurisdictions (Colombia, Brazil, Mexico, Argentina…) have also integrated TSM in their operations sometimes for several years (Argentina). Investing in Latin American mining thus also offers the opportunity to acquire new knowledge and capacities on ESG protocols that will become mandatory in Australia.

Whether for their geological wealth, their competitive advantage in supplying key markets, their capacity to answer critical mineral strategies’ needs globally or the quality of their processes in mitigating ESG and above-the-ground risks, Latin American mining operations offer more than one key argument for Australian investors and companies to increase their presence on the continent.