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Latin America is less attractive for mining

Latin America is less attractive for mining

Posted by José Peralta on March 25, 2014

Latin America is losing attractiveness for new mining investment, according to the recent report elaborated by the Fraser Institute, one of the most famous Canadian research centre. Since 1997, Fraser Institute has been elaborating an annual survey in the mining industry. The principal objective of this survey, according to the researches is “to create a report that the governments can use to improve their mining policies”.

Although the continent is presented as a prolific area for mining (28 of the 112 evaluated zones are in the region) the data per country is not so encouraging: many Latin zones are among the worst ranked for investment –the case of Argentina or Venezuela- and those that historically have had a good position, like Chile, have descended on the ranking.

The survey is answered by hundreds of CEO’s and executives of the mining industry. The world is divided into jurisdictions. For a jurisdiction to enter the survey at least 10 answers have to correspond to that zone.

The numbers. The three main indexes that are measured in the survey are: The Policy Perception Index (referring to the overall policy attractiveness of a jurisdiction), Best Practices Mineral Potential Index (based on the geological conditions of each site) and a combination of both known as Investment Attractiveness Index.

In Policy Perception the survey evaluates policy factors that affect investment decisions. Policy factors examined include uncertainty concerning the administration current regulations, environmental regulations, regulatory duplication, among others. In this Index, Venezuela, Argentina La Rioja (te south American country is divided in 11 jurisdictions) and Argentin Mendoza are in the bottom of the table, among the 10 worst zones. Venezuela was in that list in 2012, while the Argentinian zones plummeted several positions this year.

The Canadian jurisdictions of Yukon, Alberta and New Brunswick are among the top 10 of this index,  that is leaded by Sweden.

In the Best Practices Mineral Potential, the executives are asked about the mining potential of a zone assuming that the policies in that jurisdictions are the best possible. In that index, Uruguay, Honduras, French Guinea and Suriname are among the 10 worst zones. In that list Alaska leads the list as the zone with the most mining potential.

When both index are combined into the Investment Attractiveness Index, the executives are asked to assign what weights they would place on policy and mineral potential. The split is 60% on mineral potential and 40% in policy.  Also in this index several Latin zones are in the bottom: Uruguay, Honduras, Venezuela and three Argentinian areas (La Rioja, Rio Negro and Nequen). 

Each country. Alana Wilson, Senior Economist of the Fraser Institute and coordinator of the survey commented on the Latin American regions. “Venezuela is the lowest ranked jurisdiction in Latin America and has been ranked near the bottom of the survey of mining company rankings for the last five years”.

Chile was first added in 1998 and it’s the best Latin America representative in position 30 of the Policy index and 12 in the Investment Attractiveness . However it’s status has been falling constantly during the last years after being among the top ten places to invest in the world and being the top-ranked jurisdiction in 2000/2001.

Mexico, Peru, Argentina, Bolivia and Brazil were added between 1999 and 2001 and all score lower than they did when added to the survey. According to Wilson this suggests “ it has become less attractive to mining investment”

Ecuador was added in 2004 and it’s scores have dropped. Colombia, added in 2006, had five years of improving scores peaking in 2010, and has since saw its scores decline for each of the last four survey years.

Among the countries that had improved figure: Guatemala  that has improved its position each of the last 3 survey years and Panama, that obtained it’s highest Policy Perception index in this last survey.

“Uncertainty” Mining companies “seek stable, transparent, and predictable policy environment and jurisdictions looking to increase mining investment should focus providing this environment”, Wilson said.

“Overall, the main reason that mining companies rate a jurisdiction negatively in our survey is due to uncertainty. Mining in an inherently risky business with a long and costly process between discovery of a viable deposit and being able to earn money from production. During that time tens of millions of dollars may be invested and investors must have confidence in the stability, transparency, and fairness of the regulatory processes in place”, she added.

As an advice, the researcher suggested that, as mining is a fully international business, “jurisdictions must be prepared to compete on an international basis to attract mining investment that creates jobs and generates productive economic activity”.

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