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Even though Barrick Gold helped propel the Dominican Republic to the top of Latin American GDP growth last year, the country is a laggard when it comes to mining attractiveness in the region. (Photo: Barrick Gold)
Wednesday, March 4, 2015
Special Reports
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Latin America Mining Climate Improves


Chile most attractive, Honduras least attractive for mining investment.

BY LATINVEX STAFF

Latin America has become slightly more attractive for mining investment, according to the latest annual Fraser Institute survey of mining companies.

“The median investment attractiveness score increased slightly this year, placing Latin America and the Caribbean Basin in a similar overall position as Africa and Asia,” Fraser says.

The survey is an attempt to assess how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment.

An overall Investment Attractiveness Index is constructed by combining the Best Practices Mineral Potential index, which rates regions based on their geologic attractiveness, and the Policy Perception Index (PPI), a composite index that measures the effects of government policy on attitudes toward exploration investment.

Chile, Peru and Mexico are the most attractive mining countries, while Honduras, Guatemala and the Dominican Republic are the least attractive, the survey shows.

Policy factors examined in the PPI include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system , the taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labor regulations, quality of the geological database, security, and labor and skills availability.

The results are based on responses from 485 exploration, development, and other mining-related companies around the world.

THE LEADERS

Chile, Peru and Mexico have Latin America’s best mining investment climates.

Chile leads the way, both in overall attractiveness and policy perception (PPI). In fact, its policy perception score increased. According to Fraser, Chile is even better than US states like Colorado, Alaska and Arizona when it comes to policy perception.

Peru comes in second, followed by Mexico in third place.

However, respondents criticized increased taxes in both Peru and Mexico. “The past 10 years have witnessed continuous ratcheting up of taxation via royalties, windfall tax, etc. ,” said one mining executive. “They passed a community consultation law a few years back, generating significant expectations among civil society and communities, but the method of its implementation remains unclear.”

In Mexico, the new tax reform was also attacked.   Recent introduction of the new tax and royalty regime was done with poor and conflicting communication with the mining industry,” one mining complained. Although it ranks third in overall attractiveness, it ranks fourth in policy perception.

BRAZIL, COLOMBIA, ARGENTINA

Brazil ranks as the fourth-most attractive mining country in Latin America, although mining executives complain that permitting delays are quite common.

“Lengthy delays with the Ministerio Publico (public ministry) entering into the licensing and auditing of both mines department and environmental department,” says one executive.

In policy perception, Brazil ranks in the bottom half of Latin America. In fact, respondents say Brazil is among the countries with greatest room for improvement. The room for improvement score is calculated by subtracting a jurisdiction’s “best practices” mineral potential score from its “current practices” mineral potential score. The greater the score, the greater the gap between “current” and “best practices” mineral potential, and the greater the room for improvement.

Colombia ranks as the fifth-most attractive mining country in the region, but only seventh in policy perception. Respondents complain of too much red tape.

Argentina was not ranked as a country by Fraser, but a Latinvex analysis of the ten regions in Argentina shows that the country would rank as the 6th-most attractive country in Latin America.

“All of the Argentinian provinces increased their PPI scores this year. As well, all jurisdictions saw their investment attractiveness scores increase,” Fraser says.

Argentina’s Salta province ranks only behind Chile as the most attractive mining area in Latin America. Respondents’ ratings for it increased for uncertainty concerning environmental regulations (+25 points), legal system (+21 points), and regulatory duplication (+23 points).

And when it comes to policy perception, Salta ranks as the best place in Latin America, even better than Chile and areas like South Australia and Ontario.

Meanwhile, Uruguay improved its score and ranking the most for the region, climbing to 46th (of 122) from 82nd (of 112), reflecting better ratings for security (+47 points), political stability (+46 points) and trade barriers (+35 points). Uruguay now has Latin America’s second-best policy perception after Chile.

Nicaragua, ruled by a nominal radical, is considered much more friendly (ranking seventh overall and 6th in policy perception).

THE LAGGARDS

Venezuela ranks among the four worst countries in Latin America. Expropriation of mining projects without compensation remains the main challenge, respondents say.

The Dominican Republic, which experts say has enormous potential, ranks among the three worst countries in Latin America. Globally it ranks 103rd out of 122 national and local jurisdictions. That means it ranks behind countries like Zimbabwe in mining investment attractiveness and barely ahead of countries like Niger and Sierra Leone.
 
The Dominican Republic also has Latin America’s third-worst policy perception score. On a global scale, it ranks as the 14th-worst.  A lack of issuance of new licenses is among the main complaints. 

Ever since President Danilo Medina shocked local and foreign investors in February 2013 by attacking Canada-based Barrick Gold in his state-of-the union speech and subsequently forcing it to pay an additional $1.5 billion in taxes to the Dominican government,  the Dominican Republic has been seen as a uncertain country to foreign investment in general and mining specifically.

Barrick's exports last year boosted the Dominican Republic's GDP growth to 7.3 percent, the highest in Latin America.  "Mining has become one of the main generators of wealth, foreign exchange and revenue for the country," Manuel Rocha, president of Barrick Pueblo Viejo, said in a statement. "This has a positive impact on poverty reduction, export growth, foreign exchange generation, quality job creation and the payment of taxes to the Treasury, which in 2014 alone amounted to about $414 million from Barrick Pueblo Viejo."

Honduras is the country that ranks worst in Latin America, followed by Guatemala. Of the 122 jurisdictions ranked by Fraser, Honduras managed to rank as the fourth-worst worldwide, while Guatemala ranked as the seventh-worst country.

When it comes to policy perception, Honduras ranks dead last in the world. “Honduras did not see any improvement in the 15 policy measures,” Fraser says.

In fact, it deteriorated in the areas of uncertainty concerning the administration, interpretation, or enforcement of existing regulations (-17 points), regulatory duplication (-12 points), and uncertainty concerning environmental regulations and uncertainty over protected areas (-6 points each).

© Copyright Latinvex


 

Latin America Mining: Most & Least Attractive

LA Rk

GL Rk

Country

Score

1

13

Chile

77.2

2

30

Peru

69.6

3

33

Mexico

67.6

4

52

Brazil

58.5

5

58

Colombia

55.2

6

N/A

Argentina

54.6*

7

63

Nicaragua

52.8

8

65

Panama

52

9

80

Ecuador

45.9

10

83

Uruguay

44.6

11

95

Bolivia

41.1

12

99

Venezuela

37.6

13

103

Dom. Rep.

36.6

14

116

Guatemala

29.7

15

119

Honduras

26

Average

49.9

*Average score for 10 areas of Argentina

LA Rk=Latin America rank

GL Rk=Global rank



Sources: Fraser Institute, Latinvex (Argentina, LatAm average scores, LatAm and global ranks)

 

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