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A Miner’s Playground

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Global Mining Review,

South America – expected to become the world’s new mining capital – takes pride in its enormous reserves of lithium, copper, silver, nickel, zinc and other major metals. In its 2019 annual publications, the United States Geological Survey ranked Brazil second in the world for its iron ore production and showed the country sharing the fourth spot with Bolivia and Peru for its tin production. Besides being a land blessed with metals and minerals wealth, South America has the operational excellence, exploration strength, government backing and mining experience and expertise to take its mining industry to the next level.

Industry analysts expect partnerships with international companies and high technological advancement to support the growth of the mining industry in South America. Late in 2019, Peru-based mining company Minsur partnered with Google for the application of blockchain to trace and fully register its specific mining processes, such as tin extraction.

South American miners and governments are desperately trying to win the favour of local communities and build a rapport with indigenous populations to ensure uninterrupted, protest-proof mining and exploration of metals and minerals in their areas.

Early in 2020, the head of the Brazilian Ministry of Mines and Energy discussed the country’s sustainable and responsible mining plans with several European diplomats. According to Brazil’s Minister of Mines and Energy, leaders from hundreds of indigenous communities in the country had called on the government to allow exploitation of resources on their lands.

Gold miners in South America are expected to strike gold in 2020 if the prices improve. Don Durrett, an expert on gold and silver mining stocks, listed a couple of gold mining companies with operations in South America in his list of top 10 gold mining stocks for 2020. South America may enjoy increased international attention as gold mining prospects improve in the future.

Taking a step back in time

The history of South American mining and the exploitation of the region’s mineral resources, labour and technology can be traced back to the 16th century. It all began in 1545, at the extremely rich Potosí mine ‘Cerro Rico’, located in Bolivia. The European colonial empires carried out silver production and disrupted the indigenous world through forced migration and enslavement of the natives. Gradually, the mining sector underwent nationalisation before privatisation took over. Favourable tax regimes and lenient regulations attracted foreign capital and huge mining corporations. Since then, companies have been extracting minerals in this region and to date, South America forms a key base for the global supply of metals and mineral reserves.

South America is home to 13 countries. Chile is the top exporter of copper in the world; Mexico is recognised as the leading country in silver production; Brazil stands in third position in iron production and Peru is the top exporter of silver, gold, copper and lead. Approximately 85% of South American mineral and metal exports come from these four nations.

What does the future hold?

Although certain factors are holding back the mining sector’s growth in South America, the region seems promising. Some of the countries in South America are still unmapped in terms of several minerals. This will offer growth opportunities for companies looking to expand their mining operations with the appropriate resources, as well as mining strategies in the region.

A growing demand for copper and lithium across the globe as a result of power electric vehicles is expected to play a major role in building the future of South American mining. Reportedly, a battery electric vehicle deploys about 83 kg of copper, and most of the plug-in hybrid electric vehicles (PHEVs) and all-electric vehicles (EVs) make use of lithium-ion batteries.

The ‘lithium triangle’ – comprising of Bolivia, Argentina and Chile – holds beyond half of the global reserves of lithium in brine form, which is more feasible to process compared to other forms. An abundant presence of this strategic resource is likely to provide a great opportunity for the region’s mining sector. Puno, a region in Peru, also shows great potential to be a major lithium mine. Companies who can provide efficient mining equipment, technology and services in these countries to help further extraction will benefit from it.

Another factor that may positively impact the South American mining sector is an improvement in the legal backdrop. Change in the mining policies, particularly in Argentina and Ecuador, are likely to open up avenues for the investors. Certain countries in the region are also improving their ability to regulate the relationship between investors and the citizens. This is likely to invite exploration projects in the coming future. With the reduction in the mining taxes, Argentina is probably to attract foreign investment in the mining sector.

Furthermore, lucrative opportunities exist for the investors in Colombia due to the country offering low operational costs, limited capital controls and a comparatively attractive company tax rate. Although Chile is currently undergoing water and energy scarcity issues, it presents prospects for the companies that can provide energy efficient systems and best practice water management systems to improve mining productivity.

Asset turning into a liability?

Although an abundant presence of natural resources is considered a strong point of South America, it has also proved to be a weakness for the region. Over the last few years, as a result of the growing demand for gold, the rate of small-scale gold mining has increased significantly. This has eventually caused the destruction of over 200 000 acres of the Peruvian Amazon rainforest.

Along with deforestation and environmental degradation, it has given rise to potential threats including illegal mining, human trafficking, health issues and a violation of human and labour rights. During mining, adverse effects on digestive, lungs, kidneys, nervous and immune systems have been observed among the workers due to the inhalation of mercury vapour. Besides that, the reproduction of mosquitoes from the mining wells has resulted in the occurrences of diseases like malaria and dengue fever among the communities.

Illicit mining and its impact

The US Department of State has recently shared an article regarding the illicit mining taking place in South America and its global impact. Certain drug trafficking organisations are deploying gold excavated through illegal means in South America in order to gain profits.

Illicit mining has proved to be a menace for the national security and prosperity of the US as it misuses the US financial system for illegal gain. Besides that, illicit mining gives rise to sex and labour trafficking and environmental degradation.

To combat this scourge, in February 2019, the government of Peru introduced ‘Operation Mercury’ with an objective to fight against illegal mining that was happening in La Pampa and Madre de Dios, which is the central point for illicit gold mining in Peru.

To read the rest of this article, please download the full May/June issue of Global Mining Review here.

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