Why Latin America?

South America on Earth - visible ocean floor

Latin America covers one-sixth of the Earth with 20 countries (and 6 territories) and a combined population of over 615 million. Led by it resource sector, Latin America has emerged as a major new engine of the global economy. The region total mined revenue was over US$ 150 billion in 2012, with two-thirds coming from copper and iron ore; gold and silver contributing 20% [1]. In fact, a wide range of commodities abound; its countries are top or second producer in most precious and base metals.

From copper in Chile, to silver in Mexico, gold in Peru and Argentina, to lithium in the “Lithium Triangle”, iron ore in Brazil, coal in Colombia, plus uranium, platinum, diamonds in Paraguay, Latin America is blessed by its natural resource riches. Unsurprisingly, this sector of the economy received 26% of total FDI.

GlobalMiningInvestment2020According to S&P Global Market Intelligence, Latin America is the leading exploration destination since 1994; in 2016, it accounted for over 28% of total investment [2]. Mexico, Brazil, Chile, Peru, Colombia and Argentina remain at the top, taking 92% of the allocation. Additionally, these countries are all currently rated, with the exception of Argentina, investment grade by the major credit rating agencies.

As the markets regain confidence, the Economic Commission for Latin America and the Caribbean forecasts a 1.1% average expansion in 2017 [3]. It is believed that these very countries, by 2020, may capture as much as 50% of global mining investments, a figure that could reach around US$ 365 billion [4] and a sizeable portion of the US$ 21 billion forecasted for exploration, by 2025 [5].

S&P tracked US$ 82.95 billion in financing for mining and exploration operations worldwide between January 2013 to March 2015, with Latin America receiving approximately 17%. Already a favourite among Canadian resource firms (60% of total mining investment in the region in 2010[6], and more than half of all Canadian mining investment worldwide; and about 18.5% of funds raised on the TSX & TSX-V in 2012[7]), Latin America is also gaining attention of Australian investors. It is estimated by the Australian government that its mining companies could invest up to US$ 150 billion in Latin America over the next decade[8]. This interest is based on the need to diversify in areas outside of Asia, and perhaps also boosted after significant successes, such as the acquisition of ASX-born Andean Resources, by giant Goldcorp for $ 3.6 billion and other similar transactions.

The largest mergers and acquisitions in the history of the global metal mining sector took place between 2000 and 2015. About 16% of these transactions, in value terms, targeted Latin American and Caribbean firms, amounting to US$ 78 billion during the period. Target companies in eight countries accounted for 92% of this total, with Brazil, Chile, Peru and Mexico clearly leading destinations for mergers and acquisitions [9]. Between 2008 to 2012, the region reached up to 20% of deals according to EY [10], currently sitting around 5% [11].

Abundant resources, educated people speaking mostly two languages –Spanish and Portuguese-, relatively stable and favourable regulations and government, developing capital markets, as well as multilateral initiatives that nurture international collaboration makes the LATAM region a force to be reckoned with.

For all these reasons, Latin America offers exciting opportunities for mining companies and investors; it is en route to become a key growth market for the industry.

Sources:
[1] S&P Global Market Intelligence (previously SNL Metals and Mining). Latin America 2013 Annual Report.
[2] S&P Global Market Intelligence. World Exploration Trends. 2017 & previous
[3] CEPAL. 2017. http://www.cepal.org/en/pressreleases/economic-activity-latin-america-and-caribbean-will-expand-11-2017
[4] Codelco. 2012. http://www.bnamericas.com/news/mining/latin-america-to-receive-half-of-global-mining-investment-until-2020-codelco#
[5] CSA Global. 2017: http://www.mining.com/miners-spend-21-billion-exploration-2025/
[6] The North-South Institute: http://www.nsi-ins.ca/wp-content/uploads/2013/06/2013-Comparing-Subnational-Experiences-Heidrich.pdf
[7] Canadian International Development Platform: http://cidpnsi.ca/canadian-mining-in-africa-2/
[8] Foreign Affairs Minister Bob Carr, The Australian: http://www.theaustralian.com.au/business/latest/aussie-miners-spend-150b-in-latin-america/story-e6frg90f-1226652996015
[9] CEPAL. Foreign Direct Investment in Latin America & the Caribbean. 2016. 
[10] EY. Mergers, acquisitions and capital raising in mining and metals. 2013. http://www.ey.com/GL/en/Industries/Mining—Metals/M-A-and-capital-raising-2013-trends-2014-outlook
[11] EY. Mergers, acquisitions and capital raising in mining and metals. 2013. 2016: http://www.ey.com/Publication/vwLUAssets/EY-manda-and-capital-raising-2016-trends-2017-outlook/$File/EY-manda-and-capital-raising-2016-trends-2017-outlook.pdf

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