EDITOR: | October 21st, 2014 | 1 Comment

Rodeo – Round-up of Latin American Mining – Part One

| October 21, 2014 | 1 Comment

South-AmericaPre-2000, much of LatAm was off-limits to foreign miners and had been (with the exception of sporadic openings (and closings) since the Second World War. As a result much of the mining sector had languished. Some countries, (notably Chile and Peru) had seen nationalization of substantial foreign interests. With the opening of the economies, the ASX miners were first in but largely deserted the fray early on, with only a few stalwarts persevering (mainly in Chile). The rest of the playing field was left to the TSX-listed players and a tiny crew of AIM-listed players. At one point we heard the statistic that there were 190 TSX-listed miners with interests in Mexico and we could well believe it because every second company we can upon was Mexico focused. From there they swarmed forth to all points south like an army of soldier ants (the marabunda as it is known in Brazil) devouring all in their path.

Having reached all accessible (and inaccessible) parts of the continent and been stopped in their tracks by the collapse of mining finance, it seems a good moment to review what has transpired, what has changed and what might happen when financing improves.. This we shall do here on a country by country basis with Part 1 covering Argentina to Colombia. Part 2 covers Ecuador to Venezuela.

Argentina – reality trumps propaganda

Argentina gets so much bad press that it is almost a thankless task trying to talk up the situation, but having lived there for 10 years, I know the place better than most… In recent years the country has been vying with Peru to be the number one gold producer in the continent, this is made even more impressive by the fact that it does not have the innumerable producers that Peru does but only a merely handful of mines. The big base metal play is the Alumbrera mine of Glencore/Yamana. The biggest disappointment is that the nearby Agua Rica project has been stuck in development mode for so long now rather than being moved forward.

Then there is the uranium potential of Argentina. We have written about that here in Investorintel before with a handful of foreign players, including U3O8 and Blue Sky Uranium, hunting in Patagonia (which under the Gondwanaland scenario is merely the “other half” of Namibia). With an indigenous and growing fleet of nuclear plants, the country is the only one serious about the nuclear industry in Latin America. Here there is potential for a “soup to nuts” nuclear supply chain.

The government is deserving of criticism for being unorthodox on so many fronts, but when it comes down to it, a lot more is happening here than in many other mining jurisdictions in the continent.

Brazil – Not Measuring Up to the Promise

Considering its size Brazil has not figured as much on the mining radar as it might. Of course it is known for its iron ore but that tends to be reserved for those with Home Team advantage (i.e. Vale) or those foreign behemoths that care to go head to head with Vale. Though we should not forget the country’s overwhelming dominance in Niobium and even its small (and very long-standing) Rare Earth production.

Despite most of the focus being gold amongst foreigners the most progress in production in recent times has been companies like Mirabela in Nickel and Largo Resources in Vanadium. Farther back Eldorado Gold (EGO) used to have one of its prime assets as the São Bento gold mine. The company exited the country when that mine reached the end of its minelife but now is back with, strangely enough, a producing iron ore mine and working on opening up a gold mine.

A flock of junior explorers invaded the ex-garimpeiro territory in the Amazonian states and found fertile territory but few actually got their act together and moved to production because there was a strong “faker” element to their efforts (“the build the resource and some sucker will buy it” philosophy). The only time that worked out was Eldorado’s takeover of Brazauro Resources way back in 2010.

The new wave of mineral trend seems to be fertilizer mineral plays with Verde Potash (TSX: NPK) and DuSolo Fertilizers (TSX-V: DSF).

It is our perception (possibly mistaken) that Brazilian entrepreneurs seem to be the most realistic and helpful partners that won’t try and eat a foreign mining partner alive, as is the case in many other Latin climes. However, they also have little patience with those foreign explorers of the dithering variety.

Here we have the famous Carmen Miranda dressed up with a fair amount of Brazil’s mineral wealth around her neck. Are they chunks of phosphate we espy?

Bolivia – Much Maligned

Ever one to side with the underdog, and in this case junior miners are not the underdogs, we have a sneaking admiration for Evo Morales and his regime that had really knocked the Bolivian economy into shape over the last few years, much to the chagrin of Wall Street analysts with their stock nostrums. As far as mining is concerned the country is still churning out product and has its historical fame as a source of tin, silver and antimony. However there is only so far that one can go (safely) with artisanal mining and that point has been reached. The rest of the riches will stay in the ground if it is left to low-tech artisanals to come up with the solution.

Bolivia’s recent bad press relates to Apex Silver which was totally a case of a company shooting itself in the foot and South American Silver where the government bears a lot of the blame for doing an asset grab (presumably at the instigation of the Chinese trying to get their hands on Indium and Gallium), but which was aided and abetted by management at the company being totally torpid on the issue of developing the Malku Khota mine and instead doing the old Vancouver “waiting for a buyer” trick while the locals were waiting for jobs. That blew up in management’s face..

Do not be surprised though if Bolivia “matures” as its prosperity rises and selective most favoured status is dished out to those that show themselves to be real job- and income-creators for the economy.

Chile –copper giant but not much else

Using the fallacious idea that Chile is a great jurisdiction for copper mining and thus is should be a happy hunting ground for other metals, Canada has long had a love affair with Chile which has borne very little fruit. The problem here is the TSX obsession with gold which has companies going where mere mortals fear to tread and searching the very heights of the Andes with an attitude that all problems can be solved with money. This has led them to end up in waterless locations with gargantuan capexes and scarcely a friend in the world. It is not just juniors that have fallen for these fallacies as Barrick’s Pascua Lama debacle was the mother of all mishaps. The other lesson that came from that experience was that it was the Chilean side of the border that caused the fatal blow to the project NOT the Argentine side.. Think about it..

Meanwhile Chilean projects above a certain altitude line are proving to be a “contour line too far” and purveyors of such projects should be (and are being) given the scepticism they deserve.

Colombia – promise arrested

This is the country where the myth of El Dorado (the Golden One, a man/god covered in gold) originated. It is good to remember the use of the word “myth” in the sentence. Pre-2010, with our investment banker hat on, we were regularly doing due diligence on Colombian gold projects before any of the bandwagon of juniors rolled into the country. As we didn’t like what we saw pre-gold rush we were happy to NOT have anything to do with subsequent “discoveries” there and we have not missed anything as things have turned out to be a morass of environmental squabbles, residual guerilla problems, artisanal mines, locals who can’t make up their minds whether they want progress (or not) and oligarchs playing in the mining space. Sounds like a recipe for problems and stagnation. You bet.. That the biggest deal we can remember was a certain Brazilian “genius” doing a takeover (Ventana Gold for CAD$1.5bn), that was ultimately part of his undoing, is not much of an endorsement either.


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  • Christopher Ecclestone

    Anyone still delusional on Chile being the “miner’s friend” might care to note Yamana’s 3q14 results with Tte company attributed its loss to non-cash charges related to the newly enacted Chilean tax changes, totaling $329.5 million. Oops… if it had been Venezuela, it would have been the “evil Chavez” or somesuch..

    October 30, 2014 - 5:59 AM

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