South America Mining Industry Sees Investment Boom

South America Mining Industry Sees Investment Boom

By Taos Turner, Dow Jones Newswires

April 26 2005

Buenos Aires - South America's mining industry has attracted big dollars before, but with new projects underway in Argentina, Chile and Peru, the sector is experiencing such a boom that investment is now taking on glacial proportions. Literally.

Straddling the border between Argentina and Chile at an Andean altitude of 15,000 feet - high enough to make almost anyone pant for breath - Barrick Gold Corp. (ABX) is planning to move massive blocks of glacial ice to extract the gold underneath.

Barrick, the world's third-biggest gold producer, plans to spend around $1.5 billion to build the mine, known as Pascua-Lama.

The Canadian company says Pascua-Lama will be operational in 2009, allowing for mining on both sides of the border. The world's only binational mine, it will produce more than 750,000 ounces of gold a year for 21 years, the company says.

Barrick's plan is bold. And controversial. Some Chilean legislators, indigenous groups and environmentalists say moving glacial ice could irreparably damage the regional ecosystem.

But Barrick's project is just one of many in a region that hasn't seen this much interest in mining since the 16th century, when New World gold and silver enchanted the Spanish Crown.

"We expect investments of $4.5 billion in Argentina over the next five to six years," said Victor Di Meglio, director of the Argentine Mining Chamber. "There is a new mining boom because of higher metals prices everywhere and lower labor costs here."

The boom is even bigger in Chile, where officials expect investment in gold, silver and copper projects to total $10 billion through 2008. Peru expects a similar amount.

There is more exploration in Latin America than anywhere else, according to the Metals Economics Group, or MEG, a Nova-Scotia-based consultancy.

Last year Latin America accounted for 22% of global metals exploration budgets, MEG says, citing a survey of 1,138 companies that spent $3.55 billion. Canada ranked second with 20% and Africa third with 16 percent.

South America is attractive because its geological potential is so untapped. This is especially true in Argentina, where 75% of the mining area is unexplored, says Di Meglio.

Mining has had a long history in Chile and Peru and now accounts for more than 6% of each country's growth domestic product. In contrast, mining only recently gained momentum in Argentina and accounts for just 0.5% of GDP, according to the mining chamber.

In the mid-1990s Argentina passed new mining laws that attracted junior exploration companies and big diggers like Barrick. Thanks to those laws, and gold prices that later spiked to more than $400 an ounce, investment rose to $1.6 billion between 1996 and 1997.

In 1998 the boom began to bust and spending cooled for five years. Gold fell to $260 an ounce and in 2002 investment totaled just $162 million, the mining chamber says.

But by 2004 a growing global economy and soaring demand from China pushed prices up, leading companies to throw more money into the region.

Gold is now fetching around $435 an ounce. Copper is up too, at about $1.55 a pound, double what it cost just 18 months ago. This has been great for Chile, the world's top copper producer.

"Before the increase in metals prices, a lot of projects had to be put on the back burner," said MEG's David Cox. "When gold and copper prices go up, people start drilling."

Not everyone is happy, though. Indigenous communities and environmentalists have periodically blocked mine projects in the region in recent years. Most recently, regional and international attention has turned to Pascua-Lama.

"The mining exploitation will not only ruin the water reserves, but also will irreversibly damage the way of life of the Diaguita people, who have lived in the now-affected zones for many hundreds of years," according to Mining Watch Canada, a Canadian organization that rallies against mining projects which it says harm the environment.

Guido Girardi, a congressman from Chile's governing-left coalition, has said local environmental authorities should reject Barrick's glacier plans. He fears the plans would harm tourism and cause irrigation problems for downstream communities.

"We're not against developing the mine, but we think it should be made through tunnels and not an open pit," Girardi said earlier this month.

Barrick says the project is harmless.

"The ice to be moved would amount to less than 1% of the ice in that basin," said Vincent Borg, Barrick's vice president of corporate communications. And he says that moving it is better than the other options: melting it or letting it cave in during mining. About one million cubic meters of ice would be affected, he said.

Borg said the plan - to move an area of ice that is about 300 meters wide by 300 meters long by 10 meters deep to another glacier within the same water basin - would insignificantly affect the quantity and quality of the region's water supply.

Elsewhere, companies have run into other obstacles.

In 2003 residents of Esquel, a small town in Argentina's Chubut Province, blocked Meridian Gold (MDG) from mining there because they feared noise, cyanide poisoning and a loss of tourism.

And last November Peruvians concerned about water depletion, pollution and damage to sacred sites forced Mineria Yanacocha - owned by the world's biggest gold producer, Newmont Mining Corp. (NEM) - to stop exploration of the Cerro Quilish mountain in the central Andes.

Oxfam America, which encourages companies to work with local communities before undertaking new projects, says the Cerro Quilish affair could change the way companies relate to communities.

After locals protested Yanacocha's plans, the company took out an advertisement in Peru's leading newspaper, admitting it had made mistakes.

"No mining company had ever done this in Peru," said Javier Aroca, Oxfam's Regional Advocacy Adviser in Peru. Aroca also praised Australia's BHP Billiton (BHP) for working well with residents to solve problems caused by previous owners of its Tintaya mine in southern Peru.

Yet companies have other concerns too: Peru could change the way it taxes metals exports, and Argentina heavily taxes hot commodities exports like oil and soybeans.

"As Argentina is seeking to become and hopefully remain competitive in the field of foreign mining investment, we are optimistic that they will stay the course and not bring about abrupt changes in policy course over time," said Barrick's Borg. "There is always that risk and the mining industry shares that obvious concern."

Interestingly, Argentine President Nestor Kirchner, who has built a reputation for combating big multinationals that exploit Argentine resources - and whose favorite vacation spot is a glacier in his native province of Santa Cruz - has not taken a public position on Barrick's plans to move Chilean ice.

But on this side of the border, Kirchner has voiced unusual support for the mining sector.

"We will strongly support it," he said in a speech last year. "We will listen for ways that we can work actively in the government to ensure that ... investment comes quickly."