BMI View: The Americas region is set to remain one of the most promising and active mining areas in the world between developed and emerging markets. As the global economic landscape undergoes turbulent change and uncertainty, a number of themes will continue to play out in 2012 and 2013 driven by changing global mineral supply and demand. Growth opportunities, political uncertainty and early stage exploration and development are just a few of the major trends within the Americas' mining sector.
1. Growth In Major Countries At Risk
We have revised our growth forecasts across several mining sectors in Latin America, including Chile and Peru due to the deteriorating economic and political environments in those countries. However we believe the outlook remains quite positive for these sectors given the large natural resources and levels of planned investment in Peru, Chile and Brazil. Based on investment expectations and global demand for minerals, we still expect mining sector growth in these countries will outpace that of developed markets. The countries mentioned above will continue to benefit from stable business environments, favorable regulatory and political climates and large mineral resource bases. However, rising costs and the increasing prevalence of public protests against mining projects could derail planned investment projects scheduled to come online in the coming quarters.
|Investment Growth Across Sectors|
|Peru - Mining Investment By Stage (US$bn)|
Growth in these three countries will be driven by demand for natural resources internationally, especially in Asia. With China as the primary market for Brazilian iron ore exports, as well as Peruvian and Chilean copper exports, economic growth in that country will support mining investments over our forecast period, to 2016.Mining investment in Peru and Chile will focus primarily on copper deposits, and we expect the world's two largest copper producers to experience strong output growth starting in late 2012. That said, several factors could delay projects in the coming quarters and we may be forced to revise our forecasts downwards, after the falling copper output in 2011. The majority of this investment will come from companies in developed markets in North America and Europe.
2. Developed Markets Growing, But At A Slower Pace
We maintain our view that the US and Canada will growth at much slower paces than emerging mining markets in Central and Latin America. Compared to their emerging market peers, these developed markets have large, well established mining sectors and more stable political landscapes, which make them attractive for additional investment and exploration expenditures. The key drivers of global mining growth will be felt less in developed markets, which have historically been more self sufficient in mineral production and reliant on domestic growth to fuel consumption. That said, mineral demand from faster growing emerging markets in Asia will encourage global miners to seek stable business environments, with good infrastructure and regulatory environments in order to boost exports.
We expect Canada will attract greater mining sector interest than the US, given its vast unexplored territories and more favorable mining business environment. It is home to some of the world's largest mining companies and its capital markets are particularly well suited to supporting mid- and junior-tier miners. We expect investment in Canada to focus heavily on gold exploration, with increasing expenditures on bulk materials for export and minerals such as uranium and potash. Mining investments in the US will target copper and gold as the US will continue to be one of the world's largest producers of the two metals.
3. Early Stage Mining Sectors Under Pressure In Central America
Although lacking a significant mining presence, we believe frontier mining markets in Central America and the Caribbean present attractive opportunities for growth from a low base. It is precisely because of this lack of historical mining activity that local citizens have opposed many mining projects and put pressure on politicians to manage and control the environmental impact of mining. This could not only delay or idle projects but deter investment altogether. We see the bulk of mining investments targeting precious metals and copper due to elevated prices, wider margins for these metals and potential for high returns on investments. In contrast, Jamaica and Cuba's bauxite and nickel producing sectors will face continued weakness as the economies in their primary markets, the US and Europe, experience very modest growth.
|Dominican Republic||Pueblo Viejo||Barrick Gold||Gold|
|Panama||Exploration in progress||Pershimco Resources||Gold|
|Panama||Cobre Panama||Inmet Mining||Copper|
|Jamaica||St Ann||Noranda Bauxite Ltd||Bauxite|
There are currently several large projects which highlight Central America and the Caribbean regions' mineral potential in. One of the most significant of these is Barrick Gold and Goldcorp's Pueblo Viejo gold mine in the Dominican Republic with potential for an estimated production of 625kozpa ('000 ounces per annum) when it reaches full production in 2013.
Despite this potential, regulations and laws surrounding mining across the region are poorly developed or insufficient to meet the demands of modern mining techniques. This creates inefficient permitting and licensing procedures as well as the potential for unsafe or environmentally damaging mining practices. The latter issue is causing local First the regulatory and business environments surrounding mining are not well developed and may cause delays or inefficiencies in the mine development process. Secondly, strong environmentalism on behalf of the public is causing significant opposition to mining projects seen as overly damaging to the environment. Government pressure on drug cartels in Mexico is forcing them to move into Central American and Caribbean countries, while economic uncertainty makes expected business environment conditions unpredictable.
4. US Coal Sector To Remain Weak
One key trend in the Americas is the changing nature of US coal production. We expect domestic demand for coal to fall in coming quarters as electricity production, coal's primary end-use, switches to cheaper alternatives. Several dynamics are driving the shift in production patterns in the US. With natural gas prices at near record lows and expected to remain so, utility companies and electricity producers are switching to gas-fired power plants. Furthermore, anticipated regulations on power plant emissions will likely force the closure of older, dirtier coal plants. This will reduce domestic consumption of coal, forcing miners to cut back on production. Lower domestic demand and growing consumption of both thermal and coking coal abroad will see coal exports from the US continue to rise. Coal exports in 2011 reached 107mnt (mn tonnes), the highest level since 1991.
|Power Consumption In Decline|
|US - Coal Consumption By Sector (mn tonnes)|
5. Political Risks Remain
We believe several key political risks remain across theAmericas region, especially with regards to uncertain government policydirection and public opposition to mining. We expect governments in Peru,Chile, Brazil, Colombia and Mexico to remain supportive of mining, though weanticipate some regulatory changes in these countries which could hinder sectordevelopment over the short term. However political pressure from constituentswill likely force politicians to seek greater oversight and stricter regulationover the mining sector in the coming quarters. We are seeing this trend playout already in Colombia, Brazil and Peru. While we maintain our view thatgovernments in these countries will remain favorable towards mining companies,we recognize the potential for rising risks to project development.
One of the riskiest mining regions in Latin America willremain Argentina. As the government's economic policies continue to address thesymptoms of the nation's economic imbalances rather than the causes, privatesector businesses will be key targets for government intervention. We expectfurther capital controls and foreign trade restrictions to be placed on themining sector in the coming quarters. We recognize the risk of outrightnationalization as evidenced by the recent government takeover of oil company YPF,however we believe the government will not nationalize mining sector companiesas of yet. The current economic conditions including a deteriorating tradebalance, and an overvalued currency could drive the government to more drasticmeasures in order to prevent economic decline.