Latin America ready to dance

Although long the runner-up to Africa in terms of attracting foreign investment from Australian resources companies, Associate Director Michael Cairnduff explores how some of the more favourable jurisdictions in Latin America are now coming to the fore.

Delegates at the recent Latin America Downunder Conference in Perth were treated to the best snapshot of the building opportunity that exists on that diverse continent, in both the established resources destinations of Chile and Argentina and, perhaps more excitingly, some less explored countries like the Caribbean.

The Australian Government has historically had strong representation in the region and has frameworks in place to support Australian investment in resources development opportunities across Latin America, evidenced by the comprehensive panel of Australian Heads of Mission who joined a panel session to provide delegates with a thorough and frank analyses of the respective climates for investment on their individual patches.

In fact, so enthusiastic were the gents on the panel about promoting the progress of the countries they are accredited to – perhaps with the understandable exception of Brazil – that panel convener and Australia’s Paydirt editor Dominic Piper ran out of time before he had the chance to open up to the floor for questions.

Argentina

The big news out of the meat-loving country of Argentina is that it has a new Government, installed back in October, which according to Ambassador Noel Campbell has declared the place under new management and open for business.

Campbell also called on potential investors in the room not to wait and see how it went, but said now was the best time for Australian resources companies to capitalise on opportunities opened up by the change, including some of the world’s most prospective ground for lithium.

An example of the new, open and collaborative approach from the new president was his immediate move to convene a meeting with the heads of all 23 provincial governments to make sure everyone was on the same page, and in another rare move front a press conference and answer questions in interviews.

Campbell said it was a priority of the new government to create conditions more favourable to foreign investment including the reduction of subsidies, the floating the local currency and the lowering of company taxes.

However, by way of qualification, he said there were obstacles the Government would need to work through to facilitate this including dealing with hyperinflation and finding a way to initially jump-start economic growth.

Brazil

The established mining destination of Brazil has also had some recent changes in Government, but sadly Ambassador John Richardson was unable to muster the same level of enthusiasm for improvement in that country’s investment landscape.

Richardson said although Brazil remained one of the world’s most significant mining related export countries, that critical part of the economy was experiencing uncertainty as a result of political machinations.

Not to mention the fact, like Australia, prevailing commodity prices have already hurt the economy.
With their President suspended for 180 days and travelling down the path of impeachment, and the long touted changes to the country’s mining legislation still on ice, Richardson said: “Frankly I don’t know what it will mean for mining in Brazil, but reform was essential.”

Those invested in Brazil already, and there are a few Australian-listed resources companies occupying that list, are facing at least six months of severe uncertainty, with stability unlikely to return in any substantial way until fresh elections due in 2018.

On a positive note, Richardson said there were still some compelling reasons to invest in Brazil including good assets, the current valuation of the Real and competitive cost structures.

He said there was a compelling opportunity for Australian METS companies to look at Brazil, given the country’s iron ore production was continuing to increase.

Chile 

Chile has traditionally been recognised as a significant trading partner for Australia, particularly when it comes to exchange within the resources sector, testimony to that fact is the longstanding and successful Free Trade Agreement between the two countries.

Ambassador to Chile, Columbia and Ecuador Tim Kane told delegates that things were moving ahead on his patch, with 2016 officially dubbed the “Year of Productivity”, quite appropriate given it introduced a Productivity Commission last year modelled on the Australian agency of the same name.

Another sign of a modernising Chile was the serious focus now on diversity, including roles for woman in mining at established operations.

“Chile mining industry is focused on taking it to the next level – it’s mining plus – and spawning other opportunities along the way like aquaculture,” Kane said.

Actions speak louder than words, and on that front BHP Billiton likes its investment in the country very much, having just spend $4 billion building its third copper concentrator at Escondida.

Central America

Australian Ambassador to Mexico, Cuba and Central America David Engel in fact holds accreditation for a total of nine countries, but unsurprisingly given the nature of the audience concentrated his commentary around Mexico.

Mexico was on an extraordinary trajectory, according to the man on the ground, with a diversified economy including a large advanced manufacturing component, providing opportunities for Australian investment outside of the resources sector.

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Engel said there was still a degree of mutual ignorance between Australian and Mexico when it came to an understanding around the opportunities that exist – quite an important issue to address when you consider Mexico is on track to be a top 10 global economy by 2025.

There is good scope for a cross section of metal mining in Mexico as well as exploitation of hydrocarbon resources, but the big numbers for the Government come out of the manufacturing sector with Mexico’s manufacturing output exceeding the rest of Latin America combined.

Engel believed the successful introduction of the Trans Pacific Partnership would have a significant impact on progress and foreign investment.

Caribbean 

Although not traditionally grouped with the usual Latin American powerhouses, few would argue that the Caribbean was not an attractive place to invest, and not just because it is one of the more politically stable destinations in the region.

High Commissioner to the Caribbean John Pilbeam said the group of islands usually divide along natural lines into the North and South jurisdictions, with the North reliant on Tourism and experiencing low growth, and the South reliant on oil and gas and experiencing no growth.

On the upside, he pointed to the fact BHP Billiton was commencing deep water drilling off Trinidad and Exxon was enjoying some success off Guyana. In addition to its prospectively for hydrocarbons, Guyana was also home to two large gold mines – one of which being operated by local miner Troy Resources.

Peru

There have been some ambitious resources projects pursued in Peru over the decades, but the large Pacific coast country has had its challenges along the way.

Ambassador to Peru and Bolivia Nick McCaffrey, after he informed us there was nothing much to report from Bolivia, said Peru had transformed itself in the past 15 years and was a genuine good news story on the investment front.

“Peru has a real sense of confidence and optimism about it, but there are still some serious issues to address relating to resources,” McCaffrey said.

Having said that, there have been about 80 Australian companies actively working in the country across the past six years, with the exploration and mining sector heavily represented.

There is a new government on the horizon in June following the result of a second round of presidential elections, with the Ambassador saying its didn’t really matter who got the nod as they were both business friendly candidates.

Michael Cairnduff is an expert investor and stakeholder relations adviser, who has extensive experience in the mining and resources sector and in managing government and community engagement. Contact Michael.

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