London, Lima capitalize on Latin American mining, Santiago still in the dark

As the London, Toronto and Lima capital markets enjoy one of the most prosperous mining periods in Latin America and the world, the market in Chile - despite the country's commanding stance in the industry - remains trailing in the dust, stunted by high barriers preventing growth.

As the world's primary copper producer and a main supplier of other metals, Chile has long puzzled experts in the industry for the striking lack of mining presence on its stock exchange, despite it being one of the more dynamic bourses in the region.

While London has hosted mining stocks since the 1800s - although the UK has almost no onshore mining industry - and Canada for a number of years has had both a robust mining sector and capital market for it, traditionally the only chance local entrepreneurs had of raising cash was to peddle their ideas to lenders and investors in the northern hemisphere.

But in recent years Lima has countered that notion with an exchange dominated by mining stocks that has grown on par with that of Sao Paulo's vaster and more diverse bourse, both being the two fastest growing markets in Latin America.

MORE STRUCTURE?

Why is it that Santiago - capital of a country with a mining industry at least as important as Peru's - has missed the boat and what can it do to jumpstart its local cash-raising power for the sector?

Some feel it boils down to putting the right structure in place to motivate investment.

In December, Chile's congress passed a law to create its own system of resource classification, saying the move would ease the country's risk-averse investors' fears about putting their money in local mining stocks and thus trigger local listings.

Others have looked to Peru's recently passed "use it or lose it" regulation to prevent idle concessions, saying that could be the key to promoting new projects and with them the need for financing that could be secured locally.

Juan Villarzú, chairman of junior Apoquindo Minerals (TSX-V: AQM) and former executive president of Chilean state-owned Codelco, says the main obstacle to market growth in Chile is the lack of smaller projects because of the hoarding of claims by large-scale players.

"Large companies, both Codelco and the rest, control the majority of Chile's mining properties," Villarzú told BNamericas.

In Chile, Codelco and multinational resource groups have amassed immense amounts of claims on territories that hold promise of hosting small or mid-size deposits, but not big enough for these giants to consider development.

The big players keep the claims simply because they are cheap to maintain and there are no legal measures in place to prevent them from doing so.

In the case of Codelco, holder of the world's largest undeveloped copper resource, not only is it unattractive to sell the lands it does not plan to develop, it even becomes a downright nuisance due to the heavy bureaucracy imposed by the government in order to sell a property, said Villarzú.

"In Chile there aren't projects not because there isn't any capital available, it is because there is no property," he added.

The situation has prompted Villarzú's Apoquindo, despite having a Chilean copper project soon to be in production, to take its capital aspirations to the welcome arms of Lima, where several juniors have initiated dual listings alongside their stocks on the Toronto Venture Exchange (TSX-V) or London's Alternative Investment Market (AIM).

Apoquindo, which already trades on the TSX-V, will list its shares in Lima this year.

LONDON STILL SWINGING

Danny Keating, head of mining research for London-based investment group Collins Stewart, says part of the reason why Chile has little of a market for mining is because traditionally miners and explorers have relied on raising funds through businesses in other sectors.

Meanwhile raising money in London is a trend in full force, with the AIM enjoying a strong mining presence and mining shares accounting for almost one-fourth of the main London Stock Exchange's (LSE) total market cap, he said.

"That's a big change in the last few years," said Keating. In London "you cannot ignore the mining industry anymore."

According to Graham Dallas, head of the LSE's international division, the best chance emerging Latin American markets have to gain exposure to mining is by attracting dual listings, either as feeder markets to AIM and LSE, or by enticing miners that already trade in London to list on their bourses.

Dallas and colleagues from the LSE community are currently touring Latin America to promote listings on the English capital's financial markets.

"We have in London a global mining market," he said. "There is plenty of capital available for Chilean and other Latin American mining businesses in London."