LatAm mining industry in for a tough 2017, but not without hope

While 2017 is set to open with metals prices at significantly higher levels than a year earlier, persistent uncertainty around global economic growth is keeping mining companies in wait-and-see mode. However, some signs of spending recovery and better investment conditions are starting to emerge across Latin America, according to the BNamericas Mining Outlook 2017 report.

Price rallies in 2016 have lent a certain level of optimism to the global mining industry and while a major price recovery is not expected next year, there is hope that current price levels will consolidate and form the basis for a wider rebound of industry activity in 2018.

"Next year has already been internalized as a difficult year in which there will not be recovery of any aspects of the market," said Juan Carlos Guajardo, director of Chilean consultancy PlusMining. "The challenge, then, becomes... how to survive, how to approach the challenges related to low prices."

Key themes for a low-price environment in 2017 include a continued push for debt reduction, increasing productivity and lowering costs. A recovery of junior exploration is not likely just yet.

INVESTMENT CLIMATE

The preliminary results of BNamericas' Mining Survey 2017 – the full results will be published at the end of December – show that almost half of those polled believe political and legal uncertainty will deter mining investment in Latin America, while nearly two-thirds said the same about community relations.

However, at the country level, some of the region's most important mining jurisdictions have undergone changes that could start to benefit mining investment in 2017. The prospects for economic growth in Argentina have improved considerably with the arrival of President Mauricio Macri, and discussions are underway in Chubut province to hold a referendum on the possible lifting of bans on open pits and cyanide use.

In Brazil, the ascension of Michel Temer following Dilma Rousseff's impeachment has brought greater political stability and policies expected to help end economic recession in 2017. The new administration has also announced plans to auction state-held mining areas in an effort to attract investment in the near term, as mining code reform is likely to remain stalled.

Chilean copper mining in particular will be characterized by a continued push to improve productivity and reduce costs, while state-miner Codelco's troubles in advancing its growth projects will continue to dominate headlines. Presidential elections late in the year are unlikely to impact mining.

In Colombia, a mid-2016 constitutional court ruling that gives municipalities power to block mining has inspired a series of proposals to hold local referendums to vote on the activity, including in the areas that host the massive La Colosa gold deposit. How these proposals will pan out and the legal consequences of any votes against mining are unclear, but they are sure to generate considerable noise and be detrimental to community relations overall.

Mexico faces tough economic times in 2017, with uncertainty generated by the election of Donald Trump to the US presidency combined with expected continued low oil prices, peso depreciation and high public debt. But the Mexican mining sector's high exposure to gold and silver prices has proven a boon in 2016. Combined with cost reduction and production growth efforts, many miners have returned to profit. A slew of recent project approvals indicate that total mining investment could increase in 2017.

And in Peru, soaring copper production owing to the ramp-up of several large projects has driven GDP growth to one of the highest rates in Latin America this year and is set to continue in the year ahead. Output is forecast at 2.54Mt in 2017, 85% more than 1.37Mt in 2014 before the projects came online. But the country will continue to struggle with the community conflicts blocking much new mining investment. The new government of Pedro Pablo Kuczynski has been travelling the country trying to assuage protests and plans to contribute social infrastructure in mining project areas to try to gain support.

To access the full Mining Intelligence Series Outlook 2017 report, click here

In side photo: Brazil's S11D iron ore project