In Americas Market Intelligence, Mining

John Price
Managing Director

When First Quantum’s $10bn Cobre Panama project was officially suspended by Panamanian courts earlier in 2024, many were shocked. The project was world class in its design, construction and operation. It contributed directly to 3% of the nation’s tax revenue, 5% of GDP and 70% of exports in 2023. How could the political class turn its back on such a vital project, given the shaky fiscal reality facing Panama? Some blame corruption, others cite political interference, but there is a simpler explanation, and one that all mining investors need to heed as they enter new jurisdictions.

Not all countries have the right to call themselves ‘mining nations’. To be considered a mining nation, a country must have a legacy of mining history, a legacy that engenders an understanding by both the voting public and the political class that the economic contributions of mining outweigh the environmental and social costs, particularly if the latter are mitigated effectively. If that consciousness does not pervade a nation, then at the first sign of trouble, political support for mining can, and often does, buckle. First Quantum faced this dynamic in Panama, Barrick faced it in the DR, Anglo-gold Ashanti and Minesa faced it in Colombia.

Miners must face the fact that the vast majority of voters have never seen a mine. What they know of mining is limited and often mis-informed by critics who oppose mining for a variety of reasons from legitimate concerns over the environment and community to the selfish pursuit of power and hefty payoffs. For decades, miners directed all of their efforts of persuasion at the executive branches of governments, who held sway over mining regulations. With the proliferation of smart phones and the erosion of Presidential power, miner concern shifted to vociferous local communities who became the greatest source of project opposition. To their credit, miners today dedicate more time, monies and skill into integrating their project with the needs and aspirations of local communities.

Now, there is an increasing awareness among miners of the fickle nature of national political support for their projects. Even in ‘reliable’ mining jurisdictions like Chile, the protests of the urban middle class, not to mention well organized groups of students and indigenous leaders, have tested political and judicial support for mining.

The once tried and true country risk metrics like corruption levels, FDI levels, bond premiums, international arbitration signatories, economic stability, economic freedom indices and the like may be missing the point. To properly predict the risk of collapsing political support for your mining project, you should consider two questions: 1) How effective is the voice of public opposition at eroding political support for a project? ; and 2) How much of a ‘mining nation’ is the jurisdiction in question?

How effective is the voice of public opposition at eroding political support for a project?

Today, three of Latin Americas largest mining jurisdictions, Brazil, Chile and Peru are all nations with strong civil society and civic engagement with opposition parties controlling congress. Furthermore, the executive branch, both by constitutional design and by virtue of low approval ratings, governs with a weak mandate. When their voters unite in anger on an issue, politicians tend to bend to their will. The same can be said of the political dynamic today in Colombia and Panama. In Argentina and Ecuador, executive leaders face strong opposition, but their popularity helps them defend difficult policies (austerity in Argentina, tougher security protocols in Ecuador).

At the other extreme are leaders whose popularity and political control of congress (Abinader in the DR, Bukele in El Salvador, AMLO in Mexico) enable them to legislate and govern with near impunity. In the cases of Nicaragua, Cuba and Venezuela, political power is also exercised with unconstitutional judicial authority, coercion, and torture, earning them the title of dictatorships. Miners who choose to operate in these jurisdictions are obliged to partner very closely with government, heeding to their wishes ahead of the general public, potentially creating reputational risk for the miner.

How much of a mining nation is the jurisdiction in question

National governments (and provinces in the case of Argentina) are responsible for setting mining regulations and taxes. Generally speaking, the larger the economic impact of mining in a jurisdiction, the more carefully and consistently a government treats the mining sector. Chile and Peru have the most respected mining laws in Latin America, which miners leverage fairly effectively to defend their projects, even when political support wanes or central governments find themselves under political siege, as has been the case in Peru recently. In Suriname and Guyana, all political parties understand the importance of mining. Governments in both countries have often made life easier for informal mining than the formal sector but they almost never oppose new mining projects. In Bolivia, mining is at the core of the nation’s history and despite plenty of political interference over the years, miners can usually count on political support.

In countries where mining is less economically important, political support is far less steadfast. In Brazil, there are legacy mining jurisdictions like Minas Gerais where miners are hosted by friendly state governments, but national environmental movements can help drive Brasilia to ban projects in the name of protecting green spaces. Today’s Lula administration is driving up the settlement costs of the historic lawsuit against Vale, caused by the collapse of its ill-maintained tailings damn that proved devastating to life and community. In Colombia, the department of Antioquia where mining first began in the country, local leadership is generally supportive of mining, but in Bogota, the political class has little stomach for the controversies that inevitably befall the sector. Before the Cobre Panama project began producing, Panama had a minimal mining sector, and as such, its political class and citizens had no clue about the economics of mining. The post-COVID quarantine malaise and angst among Panamanians who suffered a 17% economic decline in 2020 was effectively directed against the mine and politicians abandoned the project like a hot potato.

When one combines the lenses of the above two questions, then a clearer understanding of today’s (and recent history’s) political support (or lack thereof) for mining projects comes to light.

Taking a closer look at specific jurisdictions

Not every mining jurisdiction in Latin America can be neatly summarized by answering these two fundamental questions related to political risk, but they are prescient enough to contemplate ahead of mining investments in a new jurisdiction. At AMI, we approach mining risk through the lens of 7 different areas of risk, including political risk. Our whitepaper on Latin American mining investment risk sheds some light on our thinking. To enquire as to how we might help you assess investment risk ahead of a project or monitor project risk ongoing, reach out to us.

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