EDITORIAL PAGE (March 23, 1992)

Heading to Latin America for mineral exploration is all the rage these days, but investing south of the Rio Grande is no guarantee of success. In fact, apart from Chile, success stories are few and far between.

That’s not to say there aren’t opportunities in the area. Ian Park, president of Greenstone Resources, has been diligently working away there for nine years now. Acquisition costs, he says, are one-third lower than in North America, typically running from $5 to $25 per ounce of gold in the ground. Operating costs are 20-40% less than in North America because of better grades and lower labor rates.

Perhaps most important, there’s a much more receptive regulatory environment than in North American jurisdictions, making it much easier to get permitting in place.

But Latin America is no bed of roses. Mexico, one of the darlings for mineral exploration today, has some good, well-established copper mines and, of course, silver mines (although it’s hard to believe they’re profitable given today’s silver price). But one of the most closely watched projects is the Santa Gertrudis gold mine, opened in late 1991 by Phelps Dodge. It’s Mexico’s first heap leach gold mine, and an example others emulate, but is 60,000 oz. a year worth the effort?

It will take time to lay the groundwork to revitalize a mining industry in Mexico after 20 years of neglect, to be sure. But a lot can go wrong waiting for the culmination of those efforts.

The key to sustained success in Mexico — and indeed in all of Latin America — is the continued availability of capital. The big mining companies would probably be quite happy to keep things to themselves. They, and major corporations in other industries, have already put up significant sums of money in hopes of getting in early on the region’s revival. In 1990, for the first time in almost a decade, more money was invested in Latin America than flowed out. In Mexico alone in 1991, $11 billion was invested by private sector sources, although only a small portion of that went into mining. That kind of money is bound to meet with some success. But, with no middle class to speak of in Latin American countries, what’s missing is a vital, junior exploration sector that can spread risk by raising money from a large pool of investors.

Being successful will depend on many factors. We’d like to see Canada participate and help Latin American countries achieve that success by providing not only expertise in mineral exploration and development, but also a market for raising capital.

That’s why we favor a North American free trade agreement that would allow stock markets here to raise money for junior companies to participate in developing Mexico’s mineral potential. And if that worked, we might provide the capital market needed to raise the venture capital needed for other countries in Latin America, too.

Given the proper regulatory climate, Canadian stock markets could become the conduit for channelling capital from a broad base of international investors into Latin America. That would keep control out of government hands and spread ownership beyond a small number of large companies.