Key Mining Themes: Americas

BMI View: The Americas mining sector will remain a top global source of industrial and precious metals, as well as coal, over the coming quarters. The region possesses significant mineral reserves and remains largely politically stable, ensuring both multinational and junior firms continue investing in mining assets. Chile, Peru, and the US will remain world leaders in copper production, while Brazil will be second only to Australia in iron ore production. Canada's status as a top destination for capital market fundraising will also enable mining-related investment across North and Latin America.

Mexico & Peru To Remain Top Destinations

Mexico and Peru will remain the fastest growing, diversified mining sectors in the Americas over the coming quarters. While we currently forecast the Peruvian mining sector will see a modest contraction for 2014, we expect positive growth to resume in 2015 and for growth to supersede its southern, more developed neighbour Chile. Mexico and Peru maintain open investment regimes, generally favourable regulatory frameworks, and significant untapped mineral deposits. Combined with these attributes, their steadily improving business environments and solid macroeconomic outlooks will attract long-term mining investment. While Mexico has among the highest mining royalties in the region and Peru continues to see significant social opposition to large-scale mining projects, as of yet inbound investment has continued apace, which will enable steady growth in both mined output and industry value in the coming years.

Steady Growth In Years Ahead
Mexico & Peru - Mining Industry Value Growth (%)

Key Mining Themes: Americas

BMI View: The Americas mining sector will remain a top global source of industrial and precious metals, as well as coal, over the coming quarters. The region possesses significant mineral reserves and remains largely politically stable, ensuring both multinational and junior firms continue investing in mining assets. Chile, Peru, and the US will remain world leaders in copper production, while Brazil will be second only to Australia in iron ore production. Canada's status as a top destination for capital market fundraising will also enable mining-related investment across North and Latin America.

Mexico & Peru To Remain Top Destinations

Mexico and Peru will remain the fastest growing, diversified mining sectors in the Americas over the coming quarters. While we currently forecast the Peruvian mining sector will see a modest contraction for 2014, we expect positive growth to resume in 2015 and for growth to supersede its southern, more developed neighbour Chile. Mexico and Peru maintain open investment regimes, generally favourable regulatory frameworks, and significant untapped mineral deposits. Combined with these attributes, their steadily improving business environments and solid macroeconomic outlooks will attract long-term mining investment. While Mexico has among the highest mining royalties in the region and Peru continues to see significant social opposition to large-scale mining projects, as of yet inbound investment has continued apace, which will enable steady growth in both mined output and industry value in the coming years.

Steady Growth In Years Ahead
Mexico & Peru - Mining Industry Value Growth (%)

Brazil and Colombia will also see their mined output and sector values grow over the coming years, yet will attract less interest from foreign mining firms than Mexico and Peru. Brazil's business environment remains problematic, with a complex tax system, inflexible labour market, and significant red tape. While the country possesses significant mineral reserves, its mining sector will be driven largely by domestic iron ore miner Vale, which is concentrating on growing domestic production to 450mntpa by 2018, compared with 306mntpa in 2013. Colombia's mining sector will remain dominated by thermal coal, and few new miners will develop greenfield projects. Still, we expect the country's mining sector to see solid growth on account of our constructive outlook towards thermal coal prices and still resilient European and Asian demand.

Positive Long-Term Trend To Continue
Colombia - Coal Production & Growth

Canada To Lead North American Mining

We expect modest sector growth in the US and Canada as the majority of global mining firms continue to focus on less developed Latin American assets over North American ones. In particular, the US will remain problematic for greenfield investment due to the country's long waiting times for mining licenses and permits, as highlighted by project delays in Arizona and Alaska. Still, the country will remain one of the top global sources of mined ore over the coming years on account of the country's mineral reserves and well-developed mining sector.

Country To Remain Global Giant
US - Mineral Production, 2012

As a country with a significantly developed natural resources sector, Canada will also remain a global mining leader both in mineral production and financing, with the country's capital markets continuing to be a top destination for both domestic and foreign mining firms seeking to raise funds for exploration and development. While equity financing will remain subdued compared to pre-financial crisis levels, we expect both IPO and M&A activity will gradually pick up in the coming quarters. Indeed, the total number and value of mining sector IPOs in North America grew 33.0% and 26.3% year-on-year, respectively, in the first half of 2014.

Strengthening Market To Benefit Canada
North America - Mining Sector Initial Public Offerings (IPOs) Value (USD) & Deal Count

Frontier Markets To See Little Development...

Frontier markets in Latin America, including broad swaths of Central America and the Caribbean, will see minimal sector growth over the coming quarters despite varying attempts to reform their respective mining sectors. Ultimately, mining firms continue to exercise capital control and limit investment to politically stable, less risky jurisdictions in the region.

Bolivia and Ecuador have enacted new mining reforms, while Uruguay's government has consented to the development of an USD3bn iron ore project. Still, in the case of the former two, political risks remain elevated, as both states have engaged in resource nationalism in the past through taxes or other limits to private sector control within the mining sector. Though Ecuador's mining sector has attracted the interest of China, particularly since China has invested heavily in the Ecuadorian oil and gas sector, investment inflows will pale in comparison to more developed mining sectors in the region. Uruguay legalized large-scale mining projects in 2013, but the country's mining sector remains underdeveloped and citizens have widely protested on social and environmental grounds.

Ecuadorian Inbound Investment To Remain Below Regional Leaders
Ecuador - Foreign Direct Investment Into Mining Sector, USD

...But Green Shoots In Argentina?

In contrast, Argentina may prove to be an exception. Despite high inflation, capital controls, and varied regulation across provinces, the country's central government has shifted towards more moderate economic policies in the past few quarters, which we expect to continue through the country's 2015 Presidential election. With the government increasingly looking to attract foreign investment into the country's oil and gas sector, stronger inbound investment in the mining sector may materialize in the coming quarters. In addition to various existing mines, Canadian miner First Quantum recently acquired the Taca Taca copper deposit, among the largest in the world.

Estimated 2014 Production For Top Argentine Mines
Company Mine Metal Resources/Production
Goldcorp Alumbrera (37.5%) Gold 125-130kozpa
Barrick Gold Veladero Gold 650-700kozpa
Pan American Silver Manantial Espejo Gold/Silver 69-72koz gold/3.75-4.05moz silver
Yamana Gold Gualcamayo Gold 170koz
Source: Company Announcements, BMI

Chinese Investment To Continue

China will remain the top non-Americas source of FDI into the Americas mining sector. We expect the country will continue to secure long-term supplies of metals in which it has a shortfall of domestic production despite our view that Chinese economic growth, and hence metals demand, will slow in the coming years. In Peru on the other hand, China will continue investing directly into the country, as demonstrated by the USD5.8bn sale of Glencore Xstrata's Las Bambas copper project to MMG in April 2014 and the Toromocho copper mine, operated by Chinalco. Together, the mines are expected to produce approximately 700ktpa. China will also continue investment into industrial metals production in Canada and Ecuador. In Canada, various firms are investing in both mine and related infrastructure assets to seek supplies of iron ore, lead, and zinc. Ecuador's mining sector remains undeveloped, though Chinese firms remain interested in exploiting the country's untapped reserves of copper and precious metals.

In contrast, although China will remain the largest foreign consumer of Brazilian iron ore and Chilean copper, it is unlikely to seek equity stakes or operational control of mine assets in either country.

Domestic Deficits Leave China Hungry
China - % Of Global Production & Consumption (2013)
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