Honduras To Remain Problematic For Mining Firms

BMI View: The Honduran Congress' recent lifting of the country's moratorium on new mining concessions, in place since 2006, may open the country to further mining investment in the coming years. However, foreign firms face a litany of operational challenges in the country, including significant environmental and local opposition to mining, poor rule of law, and high levels of violence, which suggests minimal growth for the mining sector.

The passage of Honduras' General Mining Law is meant to jumpstart the country's mining industry by opening up mining opportunities to outside investors. The country currently produces small amounts of gold, silver, lead, and zinc. The new mining law will enable the government to issue new mining permits, though it also mandates that citizen meetings, organized by local town councils, exert final approval on proposed projects. The law also modifies the country's current tax structure, by raising from 1% to 2% the tax on free-on-board exports. Additional taxes of 1% each will be levied on mining firms to pay for the country's mining watchdog and to support Coalianza, an organization that supports public-private partnerships. A couple major miners, including Belgium's Nyrstar and Canada's Aura Minerals have operations in the country. Nyrstar operates the El Mochito lead-zinc-silver mine through its Breakwater Resources subsidiary, while Aura Minerals operates the San Andres gold mine.

Tepid Growth Ahead
Honduras - Mining Industry Value & Growth

Honduras To Lag Others In Region

While the revision to Honduras' mining law allows for some optimism for the future of the mining industry, we remain sceptical. Honduras continues to present a challenging environment for both foreign investment and mining operations. Many indigenous and environmental groups remain opposed to mining and will continue to do so. Though the mining law calls for local approval of mining projects, it only allows so after an exploration concession has been granted and contracts have been signed. Thus, tensions are likely to flair in the coming years over new projects as the limits of the new law are tested . Furthermore, as our proprietary risk and reward ratings indicate, we view Honduras as having more political risk, and a poorer business environment, than other countries in the region. The country's poor rule of law, corruption, and continuing violence will present risks for mining firms. Given that the industry has scaled back investment on risky, greenfield projects and is deploying capital more conservatively than in years past, we see limited upside for Honduras' mining sector.

Honduras To Remain Problematic
Honduras - Short-Term Political Risk & Business Environment Ratings
This article is tagged to:
Sector: Mining
Geography: Honduras, Honduras, Honduras, Honduras

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