By Gordon Feller
Latin America has the planet’s largest reserves of copper, lithium and silver, with vast gold reserves. With modest local demand, the region comprises less than 10% of both world population and GDP. Nobody doubts Latin America’s geological wealth, and its natural exporter role. But its political instability is worrying mining investors.
This is a long-term industry, where investors say they need stable regulations and taxes over a project’s lifetime – 30 years or more. Latin America’s made great progress from its ‘forgotten decade’ in the 1980s, when war, dictatorships and default made long-term investing hard. It now boasts what industry executives consider is some of the world’s best mining jurisdictions.
Unrest began in Ecuador, when an uprising of indigenous groups and students was triggered by a proposal to cut fuel subsidies forced the government temporarily to flee the capital. Soon afterwards in Chile, Latin America’s most-developed country, planned Metro price hikes were met with a campaign of arson followed by mass protests. In early November, violent protests forced Bolivia’s left-wing president from power. And towards the end of the month, Colombia had joined the fray with a general strike and mass protest that also turned nasty. We investigate how the political turbulence could impact mining.
The biggest shock came from Chile, Latin America’s most developed economy. Long seen as an oasis of stability in the region, it is the world’s largest copper producer and has a large and sophisticated mining industry. The initial spark for the unrest, was an increase to Metro fares, but they spread to include the legitimate grievances of the working and middle classes in a country that has the highest inequality in the OECD and a rigid social and educational hierarchy that keeps most of the best jobs for a small upper class. To quell the protests the president had to replace the entire cabinet and agree to rewrite the constitution.
Mining wasn’t directly hit by the unrest but some fear it will be hit by tax or regulation changes in the wake of the protests. Yamana Gold, a TSX and NYSE-listed goldminer, has two producing mines in Chile, but Executive Chairman, Peter Marrone, isn’t worried: “There is always a risk of political unrest in any jurisdiction. You can see protests across the world, from Hong Kong to Paris. Clearly, in many societies a dislocation has occurred and there is a disparity that people want addressed. Many Chileans feel that the fabric of the social safety network needs strengthening. But it won’t impact mining because Chileans realize just how much the sector provides for the country. It pays better wages and higher taxes than most other sectors. As a result, there is no real demand from elected politicians or the general public for structural mining reform in Chile. In fact, Chileans are keen to protect the goose that lays the golden eggs. But that is not to undermine the significance of the protests. It’s clear that there are issues that Chile needs to fix. This is true in many parts of the world where similar protests are taking place. It’s positive in Chile that there is a consensus for a solution among both the government and opposition parties.”
It makes sense that in a country like Chile, which has grown wealthy from mining, there is little demand to disrupt the industry. As we explore in our article on Brazil, there is similar support for mining in Latin America’s largest economy. However, the protests are far more threatening to the region’s frontier mining jurisdictions, where the sector still hasn’t had time to demonstrate the benefits it can bring.
Consider Ecuador, for example. Unlike Chile or Brazil, where mining is well-established and enjoys widespread support, Ecuador’s nascent industry has fragile roots in the country. Its first large-scale commercial mines only opened last year. Home to untapped reserves of gold and copper, the country is now the centre of a modern-day gold rush as the world’s majors jostle for concessions. But if the protests continue, they could dampen that enthusiasm.
The protests are far more threatening to the region’s frontier mining jurisdictions, where the sector still hasn’t had time to demonstrate the benefits it can bring.
Javier Robalino, Managing Partner of Ferrere in Ecuador, a leading South American corporate law firm with extensive mining experience, admits the country’s embryonic mining industry faces challenges. “Ecuador is a young country in mining terms. If you look at our Andean neighbours it’s clear that Chile, Peru, Colombia and even Bolivia are far more developed in large-scale mining – especially for metals.” As a result, says Robalino, there is less appreciation for the industry. “In Chile most people see mining as a force for good in the country – something that drives economic growth and social development. We need to convince Ecuadorians about the benefits of mining.”
Ecuador’s protests broke out against the government’s decision to remove fuel subsidies. A powerful alliance of indigenous communities and students persuaded President Lenin Moreno to back down, reversing course. In itself the subsidy isn’t that important to international investors. It raises fears that the government could struggle to implement its IMF reform program. In turn that could threaten the government’s other market-friendly initiative – mining.
However, Robalino says investors shouldn’t be overly alarmed: “Nothing in the current political discussions suggests that Ecuador will change its treatment of international investors or mining in particular. If anything, there is recognition that we need mining to generate tax revenues. Of course, you can get particular protests around specific projects. But on a national basis mining was strongly defended by the Constitutional Court in 2019 and is here to stay in Ecuador.”
The protests caught a lot of Latin American analysts by surprise; turbulence spread across the region. Catch-all narratives that describe this as a reaction to ‘neo-liberal’ policies are too simplistic.