NO HEADLINE (March 19, 1990)

TEXT:

New realities in Latin America, including the recent election of civilian governments in Chile and Brazil, could help create new opportunities for Canadian mining companies. “Latin America is an area many major mining companies are now seriously examining for development opportunities,” said David Hutton, vice-president of exploration for Minera Rayrock (TSE), a Toronto-based mining firm that’s developing a copper deposit in Chile and gold mines in Costa Rica.

A lack of capital in many South American countries, however, remains a major obstacle to the development of the region’s mineral resources, Hutton told delegates at a special session devoted to Latin America at this year’s annual Prospectors and Developers Association Convention.

As governments in countries such as Chile and Brazil ease regulations governing foreign investment and encourage more mining development, Canadian companies could come up winners, he told delegates.

“Under the heat and pressure of new economic realities, several South American countries have been metamorphosed, and new opportunities for mining companies exist because the political climate is changing,” he said.

He noted military dictatorships in Brazil and Chile, for instance, have been replaced recently by democratically elected governments, and there is a new attitude to stimulate the mining sector and encourage foreign investment. But a critical shortage of capital continues to be a major problem in most South American countries.

He also warned that mining companies should be aware governments can offer front-end tax incentives and benefits to attract initial investment by foreign firms and that those incentives can be withdrawn just as easily.

“When you develop a mine you’re welcome, but when you’re taking money out of a country you’re seen as a drain on the economy,” he said.

In recent years, at least nine Canadian mining companies have invested in Chile, where foreign mining firms now produce the majority of that country’s gold and silver.

Canadian companies actively developing mines in Chile now include LAC Minerals (TSE), Placer Dome (TSE), Cominco International Resources (TSE), Bema Gold (VSE), Kap Resources (VSE), Goldteck Mines (TSE), Dayton Developments (VSE) and Bridger Resources (VSE).

The mining boom in Chile is expected to create a growing shortage of geologists, mining engineers and skilled workers as the demand for people to staff all the new mining projects grows.

The number of gold and silver projects currently under development indicates that Chile’s precious metal production will climb to 37.5 tonnes gold and 1,111 tonnes silver in 1992. That will be nearly double the 20.6 tonnes gold and 506.5 tonnes silver produced in 1988.

In Brazil, however, foreign mining companies considering investment still face uncertainty, according to Inco’s (TSE) Stephen Sopher. He said Brazil’s newly elected president, Fernando Collor de Melo, will have to work hard in order to restore that country’s credibility in the eyes of investors.

“Significant changes are taking place in Brazil, but businessmen still face uncertainty,” he said. Exploration in Brazil has only begun to scratch the surface, he explained, with less than $100 million being spent annually on exploration.

Inco holds an interest in the Crixas gold mine in the state of Goias. The company also discovered the Onca-Puma nickel deposit in Brazil.

“A severe lack of risk capital to carry out exploration is still a big problem in Brazil,” he added.

Up to now, about 80% of Brazil’s annual gold production (100 tonnes) has come from the manual workings of millions of independent prospectors, or “garimpeiros,” who use mercury to treat their alluvial gold production at scores of small surface operations scattered throughout the Amazon region.

According to Antonio Feijao, a representative of the Brazilian garimpeiros, modern technology is urgently needed to ensure a responsible and controlled development of the Amazon’s mineral resources.

He said at least one million garimpeiros are currently employed at more than 2,000 small operations in the Amazon region, with gold production amounting to nearly 500 tonnes in the last five years.