Mining industry

Outlook for Latin America 

Summary: Latin America remains in the focus of the international mining industry. Mining companies are financially supported via low tax and royalty rates, as well as favourable mining permit conditions. Nevertheless, the current results are below expectations. This article uses the examples of Brazil, Chile, Colombia, Mexico and Peru to show the current developments in the industry.

1‌ Introduction

In July 2019, the International Monetary Fund (IMF) revised its forecasts for economic growth in Latin America downwards. The reasons given were disappointing economic development in such important countries as Brazil and Mexico, as well as increasing concerns and tensions over the export tariff battle between the US and China. Fig. 1 shows the current economic growth in the 5 most important mining countries in Latin America and the growth forecast up to 2020. The World Economic Outlook (WEO) of April 2019 has revised its expectation for growth in Latin America by -0.8 % for 2019 and -0.1 % for 2020. Brazil is the worst performer with -1.3 % and -0.1 %, while Mexico’s growth is expected to be -0.7 % in 2019. In July, Chile lowered its growth forecast for the year 2019 by 0.3 % to 3.2 %.

As regards exploration expenditures, Latin America remains at the forefront of all world regions. This is the result of a recent survey by the renowned market intelligence corporation S&P Global [1]. This survey shows that global exploration expenditures for non-ferrous metals increased by 19 % to US$ 10.1 billion (bn) in 2018, and are expected to rise by a further 5 – 10 % in 2019. Latin America has a 28 % share of global expenditure in 2018, down from 30 % a year earlier. Base metal exploration expenditures in Latin America exceeded those for gold for the first time since 2014, in contrast to the global figures. The leading countries in Latin America are Chile, Peru and Mexico, which on a global scale are only bettered by Canada, Australia and the United States.

2 The mining industry in the most important Latin American countries

Most governments in Latin America have been financially supporting the mining activities in their countries for decades. Mining companies have been granted low tax and royalty rates, as well as favourable mining permit conditions [2]. Fig. 2 presents the Fraser Institute rankings regarding the attractiveness of the most important Latin American countries for the mining industry. The Policy Perception Index (PPI) takes account of 15 different criteria, such as political stability, government regulations, environmental standards, tax policy, etc.. A PPI of 100 is the optimum. In Latin America, Chile and Peru were well out in front, even on an international scale. Although the mining industry provided the countries with a sectoral investment boost, this did not automatically provide them with growth and development, as is shown by the discrepancy between export rates and the share of the mining industry in the countries’ gross domestic product. 

2.1 Brazil

With over 209 million inhabitants in 2018 and a gross domestic product (GDP) of US$ 1869 bn, Brazil is the ninth largest economy in the world. Per capita income is around US$ 9140, having fallen from US$ 12 810 since 2013 as a result of the country’s long economic crisis. Brazil is rich in natural resources. In the international ranking, the country is the largest producer and exporter of niobium and the second largest exporter of iron ore, bauxite, tantalum and manganese. Fig. 3 depicts a map of the major ore mines in Brazil. About 80 % of the entire mining output stems from the two states of Minas Gerais in the south and Pará in the Amazon region in the north of the country. According to the Brazilian Mining Association (IBRAM), over 183 000 people were employed in the mining industry in 2018. There are 9415 mining companies, of which 87 % are small or very small. The number of large companies is estimated at 132 or less than 2 % of the total.

The mining industry accounted for only 1.4 % of the GDP in 2018. Excluding the oil and gas industry, the value of Brazilian mine production was US$ 34 bn. Fig. 4 shows the development of recent years with a peak in 2011 of US$ 53 bn. However, there has been a slight increase since 2016, although it was smaller than expected, with 6.3 % in 2018. The hopes of the industry are now linked to measures taken by the new right-wing populist government, but environmentalists see an enormous threat to the Amazon region and other ecosystems. IBRAM points out that the mining industry uses only 0.5 % of Brazil’s territory. Investment expectations for the five-year period 2017 to 2021 are placed at US$ 18 bn, compared to US$ 75 bn for the phase from 2012 to 2016. For the period from 2018 to 2022, a slight increase to US$ 19.5 bn is predicted.

The mining industry exported commodities valued at US$ 29.96 bn in 2018 after US$ 28.38 bn in 2017 and US$ 21.62 bn in 2016 (FOB prices). This accounts for 12.5 % of Brazil’s total exports. Iron ore makes up 68 % of the mining industry’s export revenue, amounting to 389.8 million metric tonnes per year (Mta) (Fig. 5). In 2nd and 3rd places follow gold and copper concentrate, which tie at 9 % each. The exports of copper concentrate amounted to 1.25 Mta (or 335 kilotons (kt) of copper), while the gold exports amounted to 95 t. The quantities of copper concentrate and gold have increased by 8 % and 20 % respectively since 2016. Brazil intends to further expand its production volumes of gold and copper in the future. After iron ore, the largest export quantities are accounted for by bauxite, with 8.47 Mta, and manganese (2.61 Mta). Niobium only accounts for 95.5 kt.

At the forefront of the largest Brazilian mining companies is Vale. The company achieved sales of US$ 36.575 bn in 2018. 54.8 % of this is derived from iron ore. This corresponds to a production volume of 384.6 Mta in 2018, which amounts to about 15 % of global production. Vale is planning to further expand its Carajás S11D mine, which up to now has reached a capacity of 90 Mta (Fig. 6 and keynote picture) and is currently the only “truck-free” iron ore mine. For 2019, however, smaller overall iron ore production volumes are expected, due to the Brumadinho disaster. In the copper ore mining sector, Vale operates the two mines Sossego (Fig. 7) and Salobo in Pará, on the southern border to the Amazon Basin. 285 kt of copper were produced there, which corresponds to 85 % of the country’s total copper production. An output of 450 – 500 kt is planned for 2024. In October 2018, Vale gave the green light for the expansion of Salobo III and an investment of US$ 1.1 bn.

AngloGold Ashanti, Kinross Gold and Yamana Gold, some of the world’s largest gold mining companies, are active in Brazil. Through AGA Mineração, AngloGold operates two mines (Cuiabá and Córrego do Sítio) in Minas Gerais, as well as Serra Grande in central Brazil. In 2018, a total of 494 kOz of gold was extracted there, after 557 kOz in 2017. Kinross Gold was able to significantly increase its output from the Paracatu mine (Fig. 8) in Minas Gerais. The output of mined ore increased by 73 % to 47.9 Mta, while the gold yield increased by 45 % to 521.6 kOz. Yamana Gold operates the Jacobina mine in Bahia, northeastern Brazil, which produced 145 kOz of gold in 2018. Other gold mining projects in Brazil are at the planning stage, such as Anglo American’s União Project (Cu/Au). The company is already successful with nickel mining and operates the two mines Barro Alto and Codemin in Minas Gerais. In 2018, the output of these two mines was 42.3 kt of nickel. By-products include manganese and niobium.

2.2 Chile

Chile’s economy has developed well in recent years. With the country’s GDP at US$ 289.2 bn and its population at 18.7 million, the per capita income has increased to US$ 14 670. Economic growth was 4.0 % in 2018, while inflation was only at 2.4 %. The most important mining resources in Chile are copper (20.5 % share of world reserves), molybdenum (8.2 %) and silver (4.6 %). In the case of copper, the country’s share of 27.8 % of global production in 2012 put it in first place ahead of Peru (11.4 %), China (7.6 %), USA and DR Congo (both 5.7 %). In the case of Molybdenum, Chile accounted for 20.2 % of global production (2nd place, behind China), for silver 5.1 % (4th place) and for gold 1.1 % (16th place). Approximately 80 % of Chilean copper production comes from porphyritic copper deposits in the Andes, which in addition to copper, are rich in molybdenum, gold and silver.

The mining industry in Chile accounted for 9.8 % of the country’s GDP in 2018. Copper production alone accounted for 8.9 %, leaving only 0.9 % for all the other metals [3]. Over the last 20 years, the mining industry accounted for an average of 13.8 % of the GDP. Fig. 9 shows the development of Chilean production volumes for copper, molybdenum and silver since 2012 (2012 = index 100). While copper production volume only increased by 7 % to 5.832 Mta in the period considered, molybdenum production increased by 73 % to 60.705 kt. Silver production increased by 15 % to 1.37 kt, with a peak of 1.57 kt in 2014. Investments by the mining industry dropped from US$ 15.301 bn to US$ 9.242 bn in the period from 2012 to 2018, but the trend has been rising again since 2016.

Fig. 10 provides the copper production volumes of mining companies in Chile from 2012 to 2018. Well out in front as market leader is the state-owned company Codelco (Corporación Nacional del Cobre de Chile) with a production volume of 1.758 Mta copper in 2012 and 1.807 Mta in 2018. This represents a market share of 32.4 % in 2012 and 31.0 % in 2018. The output of Codelco’s flagship mine El Teniente (Fig. 11) will soon be increased to 0.5 Mta. The subsequent places in the ranking after Codelco are occupied by Escondida (owned 57.5 % by BHP Billiton, 30 % Rio Tinto, 12.5 % others), Collahuasi, Anglo American Sur and Los Pelambres. Escondida’s production volume of 1.076 Mta in 2012 gave it a market share of 19.8 %, and with 1.243 Mt in 2018 it achieved a market share of 21.3 %. Collahuasi, AngloAmerican Sur and Los Pelambres recently achieved 9.6 %, 7.2 % and 6.4 % market share, respectively. An additional 24.5 % is accounted for by more than 20 other companies, including Candelaria, Cerro Colorado, El Abra, Lomas Bayas, BHP (Spence mine), Quebrada Blanca and Zaldívar.

2.3 Columbia

Colombia is also among the countries with the fastest-growing economies in Latin America, although its annual growth has currently slowed to 2.7 %. However, for the next two years growth is expected to reach 3.5 % again. In 2018, the country’s GDP was US$ 319 bn, while the per-capita income was US$ 6625. At the same time, the unemployment rate increased to 9.7 %. According to the Ministry of Mines and Energy (MME), Colombia’s hard coal production output (boiler and coking coal) declined by 7.5 % in 2018 from 91.1 Mta to 84.3 Mta, which puts it in fifth place on a global scale. In addition to coal, the country’s most important minerals are gold, silver, platinum and nickel. However, Colombia has not recently been in the top 10 places of the international ranking with any of these metals.

In Colombia, there are only three provinces that account for a significant share of mining industry revenues (Fig. 12). These are La Guajira and Cesar in the north and Chocó in the west, which account for a combined 77 % share of the total (2017). In the extraction of metals and gold in particular, the number of mines is estimated to be around 300 000, with the vast majority of these operations being illegal. Among other reasons, this has to do with the long armed struggle of the FARC rebels, which ended after more than 50 years with a peace treaty and subsequent laying down of weapons in 2016. The official figures from the World Gold Council for Colombia show a gold production of 43.0 t for 2018, after 56.2 t in 2012. The MME cites a figure of 61.8 t for 2016. Gold mining is booming and numerous projects, such as Antioquia Gold and Continental Gold, are in the planning stage.

The coal industry in Colombia has long been dominated by foreign companies. Colombian coal meets the worldwide sulfur limits and is therefore popular everywhere, and in Europe particularly. The two major coal provinces are La Guajira and Cesar, which in 2018 accounted for a share of 92.5 % of the country’s 84.3 Mta hard coal production, after 91.1 Mta in 2017. Of the 84.3 Mta, 80 Mta were exported, 56 % of which went to Europe. Fig. 13 shows the proportion of export volumes accounted for by the most important companies in recent years. The market leaders are Cerrejón and Drummond with a most recent market share of 77 %. Cerrejón is a joint venture of Anglo American, BHP and Glencore International and operates the Cerrejón opencast mine in La Guajira. The US company Drummond owns the open-pit mines Mina Pribbenow and El Descanso near La Loma in the province of Cesar.

2.4 Mexico

Mexico’s GDP of US$ 1224 bn, equals about 2/3 of Brazil’s GDP. It corresponds to a per capita income of US$ 9180 for a population of 126.2 million. The country’s economic growth rate was 4.0 % in 2012, while the inflation rate was 3.8 %. Like Brazil and Chile, Mexico has a long mining tradition. It is rich in mineral resources such as gold, silver, copper, zinc, lead and molybdenum. In the case of silver, Mexico is in first place with its share of 22,6 % of the total global production. With gold it has a share of 3.3 %, putting it in 10th place, with copper 3.6 % and 9th place and with molybdenum 5 % and 5th place behind China, the USA, Chile and Peru. In 2018, Mexico’s mining industry generated 2.4 % of its GDP. Fig. 14 shows the proportions accounted for by the most important metals. Gold ranks first with 29.7 %, followed by copper (24.6 %), silver (14.8 %), zinc (8.9 %), iron ore (4.9 %) and molybdenum (3.2 %).

In 2018, Mexico produced 107.7 tonnes of gold (3.8 MOz) after 39 tonnes in 2006 and 95.3 tonnes in 2012 [4]. The 5 most important provinces, Sonata (34.0 %), Chihuahua (18.5 %), Guerrero (14.4 %), Zacatecas (13.0 %) and Durango (9.7 %) accounted for 89.6 % of the output. The 10 most important gold mines were responsible for almost 60 % of the production volume in 2018 (Fig. 15). Fresnillo’s La Herradura mine ranks 1st with 474 200 Oz. The average gold grade of its ore was 0.76 g/t. Some way behind follow Torex Gold’s Limon-Guajes mine, Goldcorp’s Penasquito and Agnico Eagle’s Pinos Altos (Fig. 16). After them come Leagold Mining’s Los Filos mine, Alamos Gold’s Mulatos, Fresnillo’s Noche Buena, Pan American Silver’s Dolores, Coeur Mining’s Palmarejo and Agnico Eagle’s La India. Up to 2024, there are about 20 new gold mines with a capacity of 1.23 MOz in the pipeline.

In 2018, Mexico’s mines extracted 5513 t of silver (194.5 MOz) after 2970 t in 2006 and 5045 t in 2012 [4]. Sonora Province was responsible for 81.3 % of the total mining output, while Zacatecas produced 6.3 %. Fig. 17 shows the distribution of the total output over the 10 most important silver mines. Fresnillo plc’s Saucito mine (Fig. 18) is the leading producer with its 19.8 million ounces (MOz), with a peak grade of 257 g of silver per t of ore. It is followed by Goldcorp’s Penasquito mine with 18.3 MOz and Fresnillo (15.1 MOz) and San Julián (14.6 MOz), which are two more Fresnillo mines. The other mines in the top 10 are Fortuna Silver’s San Jose, Pan American Silver’s La Coloracia, Coeur Mining’s Palmarejo, Fresnillo’s La Ciénega, Industrias Peñoles’ Tizapa and Minas de Bacis’ El Herrero. For realization by 2024, 15 new mine projects are being planned by companies such as Fresnillo, Industrias Peñoles, Endeavor Silver, Grupo México, Sunshine Silver and Almaden Minerals.

Mexico’s mining industry invested approximately US$ 4.9 bn in 2018, compared to US$ 8.0 bn in 2012. Of the total expenditure, US$ 445.5 million was spent on exploration, US$ 846.4 million on expansion projects and US$ 323.9 million on new projects. Spending on new equipment was US$ 713.6 million, while maintenance costs amounted to US$ 482.6 million. Slight increases in investment expenditure to US$ 5.3 bn are expected in 2019, with planned spending on new mine projects in particular rising to US$ 770 million. In line with the increase in mining output, the number of employees in Mexico’s mining industry also pleasingly increased. Since 2012, about 50 000 new jobs have been created. The number of direct employees thus increased to 379 000. Including supplier companies, the mining industry thus provides a living for about 2 million families.

2.5 Peru

Peru is currently considered the country with the fastest economic growth in Latin America. For the next two years, further growth of about 4 % is forecast. In 2018, the country’s GDP was US$ 222.2 bn and the per capita income of the 31.9 million inhabitants was US$ 6530. The inflation rate was only 2.1 %. Exports grew for the third year in a row, reaching US$ 48.5 bn, while a trade surplus of US$ 6.3 bn was achieved. The mining industry contributed 60.5 % to the value of exports. Peru has become the second largest producer of copper behind Chile, with a volume of 2437 Mta. In the production of zinc, the country is also in second place behind China with 1475 Mta. In the case of molybdenum, Peru’s production quantity of 28.03 kt puts it in 4th place behind China, Chile and the USA. The gold production of 142.6 t gives Peru 6th place in the global ranking, while its silver production volume of 4163 kt means 2nd place behind Mexico.

Fig. 19 depicts the development of the most important production rates over the years until 2018. The production volumes in 2013 are standardized as 100. The biggest increases over the years are shown by copper and molybdenum. Copper increased by 77 % from 1.351 Mta in 2013 to 2.437 Mta, while molybdenum increased by 56.0 % from 18.0 kt to 28.03 kt. Minor increases of 13 % and 9 % are shown by silver and zinc. The largest silver production volume recorded so far was 4418 t in 2017. Although about 14 % of Peruvian territory has been released for mining concessions, only about 1.5 % of the territory has been exploited for mining and exploration drilling so far. The most important mining regions are Cajamarca in the north and Arequipa in the south of the country. The mines are mostly located in remote areas at high altitudes of over 3000 m.

Mining investment declined from US$ 8.9 bn in 2013 to US$ 3.3 bn in 2016. Since then, however, there has been a renewed increase in investment. In 2018, the level of investment expenditure was US$ 4.9 bn. Of this, about 28.5 % was spent on mine operation, 13.3 % on new equipment investment, 15.4 % on preparatory work, only 8.3 % on exploration costs, but 21.9 % on infrastructure costs, as the mines are often located in remote regions. One example is  Anglo American’s Quellaveco copper mine project (Fig. 20). This project was approved in 2018 and comprises one of the world’s largest, low-cost, greenfield mining projects. All regulatory approvals have already been granted. The project costs amount to approximately US$ 2.74 bn. The capital reflux period from the commencement of operation in 2022 is expected to be 4 years.

3 Prospects

Latin America is a trend region for the mining industry. No other region in the world has received more investment in recent years. There are certainly several reasons for this. One reason is that the mining industry has a high degree of planning security, which is due to stable economies and the relatively mining-friendly attitude of most governments in Latin America. Another reason is that the metal contents of the ores are above average compared to those elsewhere in the world, which means that companies can achieve relatively low operating costs for the metal production process. A consideration of the market figures of recent years indicates that the lowest point has probably been passed, particularly the low mark of 2016, although the improvements in the years 2018 and 2019 still cannot be called significant. However, as from 2020, the situation is likely to improve noticeably.

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