As a result of insufficient or untimely information, lack of interest by rating agencies and data providers, and a misreading of the region by international (and even local) players, the mining value chain in Latin America and the Caribbean is often appraised based on sovereign risk.
However, there are many instances where sovereign risk does not correlate with risk to miners. Leveraging over 20 years analyzing the region’s mining investment environment, AMI recently launched the Mining Risk Index, a quantification of seven key risks specifically applicable to mineral extraction, using over 70 metrics originating from a combination of published sources and our own interviews with miners, lawyers, regulators, and others in the region’s 16 leading jurisdictions.
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The 2022 Latin America Mining Risk Index
A qualitative and quantitative analysis of the risks facing both miners and investors in the region’s 16 leading jurisdictions
Results from the Mining Risk Index help create awareness of the importance of appropriately analyzing the interests of local stakeholders, the fears and aspirations of local communities, the rule of law and security environment, the past history of specific mines, and the historical relationship between the local community and the national body politic, among other issues. We take a look at 4 countries where an objective appraisal of the mining industry differs from the prevailing country risk ratings.
Argentina
| Moody’s | S&P | Fitch |
|---|---|---|
| Ca (Extremely speculative) | CCC (Substantial risks) | CCC (Substantial risks) |
If sovereign risk agencies had it their way, investors would flee Argentina, a country that has defaulted on its sovereign debt five times since 1824. But with a pipeline of 300+ projects in lithium, gold and copper, among many core minerals for clean energy, the world is not ignoring extractive industries there: players across the value chain are understanding and mitigating the risks associated with operating in Argentina.
AMI’s Mining Risk Index finds that legal and regulatory uncertainly risks, as well as the risk of political interference, are lower in Argentina than in the average Latin American country, partly due to the fact that most mining regulations—including taxation—are governed by the provinces. Argentina is unique in that sense. Safety and security risks, as well as operational risks as a consequence of unskilled labor or insufficient infrastructure, are also significantly lower than in neighboring countries, especially Peru – arguably one of the region’s best ranked jurisdictions in the eyes of sovereign risk appraisers.
A key question in the minds of miners is whether local courts will offer clear guidance on the future of projects within the vicinity of glaciers. If you have a vested interest in such endeavors or would like to understand the context underpinning the regulation, contact AMI for an independent assessment of the status of this legislation and the future of mining in Argentina.
Suriname
| Moody’s | S&P | Fitch |
|---|---|---|
| Caa3 (In default with little prospect for recovery) | SD (Substantial risks) | RD (Substantial risks) |
Much like Argentina, Suriname is viewed poorly by international investors relying only on sovereign risk metrics. But 85% of its exports come from mining and it ranks higher in AMI’s Mining Risk Index in security and infrastructure quality than most other countries in the region, including neighboring powerhouse Brazil. Existing mines today are well connected to the port, and although there is purportedly drug smuggling that passes through Suriname, it is not associated with high homicide rates. Suriname remains a fairly safe country for expats living there.
A lack of national legislation on Indigenous and tribal rights can lead to avoidable tensions, but Suriname boasts the privilege of being one of the few jurisdictions in the region with no mining projects on hold due to community opposition. This can be partly explained by the fact that mining is the largest industry in the country and every household has some personal connection to it, helping to underpin public support for the activity.
President Chandrikapersad “Chan” Santokhi of the VHP has three years left in his five-year term to modernize the economy, boost exports, and attract investment. He has high energy and mineral prices on his side. Working against him is a disunited four party coalition and a seasoned NDP party opposition aligned with former president and military strongman Desiré Bouterse. Can President Santokhi sustain his reform agenda and keep his four-party coalition together? Contact AMI to be knowledgeable of the full political risk in Suriname and remain aware of its changing dynamic.
Colombia
| Moody’s | S&P | Fitch |
|---|---|---|
| Baa2 (Lower medium grade) | BB+ (Non-investment grade speculative) | BB+ (Non-investment grade speculative) |
Colombia is a hallmark of fiscal responsibility in the region, as it has not defaulted on its debt since its foundation –a feat few Latin American countries have been able to achieve. This reflects accordingly in its sovereign risk ratings, where it ranks higher than larger economies like Brazil and Argentina.
But mining in Colombia is complex to say the least, with the political class largely disregarding the industry and the general population perceiving it to be a dirty, violent business with few benefits. Illegal mining in Colombia is widespread, and often backed by nefarious players in the country’s still sizeable shadow economy. Furthermore, illegal mining has a dreadful track record of environmental degradation that does not help promote support for extractive activities among the population.
Recently elected President Gustavo Petro crusaded against extractive activities, including coal mining, which in 2021 made up for 13.7% of Colombian exports, 58.1% of mining exports and 56% of Colombian mining GDP. Will he succeed? AMI’s decades-deep knowledge of the region and local partners can help you avoid political storms. Contact us to understand how you may be affected by a government looking to disincentivize extractive activities in a historically important jurisdiction for the industry.
Guyana
| Moody’s | S&P | Fitch |
|---|---|---|
| n/a | n/a | n/a |
Mining investors can’t find readily available guidance into risk in Guyana, a country where 32% of exports are related to mining and a country without projects on hold due to community opposition.
Miners in Guyana, small and large, enjoy broad political and public support. Gold mining has long dominated the economy and export volumes have ensured that regardless of who was in power, mining was actively promoted. Guyana is in the midst of an oil boom and has the fastest-growing economy in the world. In the long run, petrodollars will hopefully bring massive investments in infrastructure, education, and training that could open up the central and southern hinterlands to all kinds of development, including industrial mining.
AMI is the only leading business intelligence consultancy with boots on the ground capabilities in this jurisdiction. Contact us ahead of any investment in Guyana to carefully measure the costs of mine development, given the boom-town inflation that the country will continue to experience for the next few years.
