Like other regions, Latin America has seen a slowdown in mining investment owing to the global decline in commodities prices.
But however much it might hurt in the short-term, the slowdown represents a chance for Latin American countries to rethink their strategies around mining and the industry’s strategic role in spurring economic development, says Paulo de Sa, Practice Manager with the World Bank’s Energy and Extractives Global Practice group (GEEDR).
“It’s an opportunity for governments to think about competitiveness of their industries,” he said at a World Bank sponsored forum on mining in Latin America during the Prospectors & Developers Association of Canada convention in March.
While in previous commodity downturns, countries cut taxes to remain competitive in a “race to the bottom,” de Sa is hopeful that this time around, governments will explore other ways to achieve competitiveness.
“We believe there are many, many ways of continuing to be attractive to mining investment other than just reducing the taxes,” he said.
To give governments some ideas on how to do that, the forum heard from officials from several different jurisdictions inside and outside of Latin America.
Data and innovation
While focused on Latin America, the forum looked at the experience of two successful mining jurisdictions in other areas of the world: Australia and B.C.
Robert Hough, senior leader of Australia’s largest science agency, the Commonwealth Scientific and Industrial Research Organization (CSIRO), noted that Australia has heavily invested in generating geological data to support industry.
“We recognized fairly early on the need for delivering pre-competitive data and a publicly funded collection of pre-competitive data across the whole continent,” Hough said.
“That’s very important in new jurisdictions — a rounded collection of that pre-competitive data, and what kind of data needs to be deployed out there to actually encourage exploration and obviously the potential for future mines in a given jurisdiction.”
Hough also talked about the need for broader investment in innovation and the importance of public agencies partnering with industry in order to incubate new industries.
“There’s a direct correlation … between the research and development spending in a nation [by both industry and government] and total productivity,” he said.
Hough pointed to CSIRO’s decades-long investment in regolith geochemistry to more easily detect orebodies in Australia, which is dominated by cover and has limited outcropping bedrock.
The resulting exploration models are used by virtually every exploration company today in Australia, Hough said, adding that such investment requires a long-term investment, but also benefits the nation for a long time.
In a recent example, Hough noted that Australia’s Deep Exploration Technologies Cooperative Research Centre — a seven-year public-private partnership — has already commercialized a jointly developed Lab-at-Rig technology, which provides real-time geochemical and mineralogical information on drill samples as they are collected.
This type of investment also boosts the local service provider industry, Hough said, which can then expand globally to offer its expertise.
Many jurisdictions that have earned a reputation for being no-go zones for mining —whether it’s due to high taxes, an ineffective permitting process or simply indifference by the government — struggle to reverse that reputation once they decide they want to attract mining investment. B.C. Energy and Mines Minister Bill Bennett offered up his province as an example of a jurisdiction that’s succeeded in wooing back miners.
In 2001, when the current Liberal government was elected in B.C. after a decade of rule by the New Democratic Party, the province only accounted for 6% of mining spending in Canada. Now the figure is closer to 20%.
After it assumed power, the government set to work to attract more exploration and mining spending. One policy that helped B.C. be more competitive was the streamlining of its permitting process. As part of that streamlining, it is ensuring that environmental assessments are completed within a reasonable timeframe, Bennett said at the forum.
“When we were first elected, there was no obligation to get the [environmental] assessment done within a period of time, so we imposed a 180-day period for the assessment of the project,” Bennett said. “You have to show the assessment office that you are ready for that 180-day clock to start, but once you’re screened in, it is our obligation as a government to assess the project within 180 days — that’s been very helpful.”
Recently, it also put together a “Major Projects Office” to reduce duplication of regulatory processes and approval timeframes. The process is led by the province’s Energy and Mines Ministry, which co-ordinates a permitting process that can involve five provincial ministries and other levels of government.
Presenting a plan not for winning back investment, but for maintaining it, Mario Cantu, Mexico’s Mining General Coordinator, Secretary of Economy, addressed recent reforms to Mexico’s mining regime, including the introduction of a royalty.
Mexico was one of few jurisdictions in the world that did not have a royalty before the tax — a 7.5% royalty on earnings before interest, taxes, depreciation and amortization — came into effect in early 2014.
Cantu said the tax was part of a modernization of the country’s mining regime and that the benefits go back to local communities — an important theme that recurred throughout the day. The royalty is shared between local (20%) and state governments (80%).
At the same time, Cantu said the government is trying to find ways to help reduce costs for both foreign and domestic mineral explorers and miners, and facilitate financing efforts.
It has also tasked the country’s geological survey with diversifying its exploration away from gold and silver — Cantu noted that Mexico has spent most of its time and effort for the past 20 years on precious metals, but is also rich in many other metals, including copper.
Infrastructure is another long-term investment that can pay off by attracting mining investment, as B.C.’s $750-million Northwest Transmission Line is doing. Imperial Metals’ recently opened $643-million Red Chris mine, for example, would never have gone ahead without the power line, Minister Bennett noted.
Ensuring that local communities see the benefits of mining was a recurring theme throughout the afternoon session.
The government’s role as a link between communities and mining companies, and the need for three-way communication, was also noted by GEEDR’s de Sa, and officials from Colombia and Ecuador.
“Ten years ago, when we were having these debates, everybody was saying the government needs to keep out because there’s nothing that they can do right — this is a relationship between the private sector and the mining communities,” de Sa said. “Now we are hearing the opposite, and we are hearing both civil society organizations and mining companies saying we need the government here, we need some sort of overall framework, local economic development, strategic special
development planning where we can integrate our efforts to make them sustainable.”
Colombia’s vice-minister of mines, Maria Isabel Ulloa, spoke of the importance of building trust with local communities, and of honest communication about mining’s benefits and its environmental effects from both the government and mining companies.
Javier Cordova, Ecuador’s new mines minister, noted that 60% of Ecuador’s mining royalty — which is now capped at between 5% and 8% — goes toward local social investment projects and regional development.
This policy, as well as improved communication with local communities, has made a difference in the feasibility of some projects in the country, Cordova said — the Llurimagua copper project, for example. Five years ago, Cordova says the project was too controversial locally to advance. But now run by a joint venture of Ecuador’s state mining company ENAMI and Chile’s Codelco, the project has reached an advanced stage.
Communities feel more comfortable with mining projects because they are seeing reinvestment from mining, Cordova said in translated remarks.