Latin America’s base metals miners expect bumper year

Lima, Peru — Latin American mining projects are famously difficult to pronounce: Michiquillay and Pukaqaqa are just two such tongue twisters. Yet, with mineral prices defying all forecasts of a slowdown, North American mining executives are now comfortably peppering their conversations with names like Toromocho, Caramanta and Paramillos as the region sets companies up for another bumper year.

Mexico and Peru each expect record mining investment of around US$1 billion this year, as not even presidential elections in both nations put prospectors off. Argentina, which long neglected its mineral potential, anticipates around US$400 million in exploration and mine development in 2006. Brazil has a host of projects that are set to come on-stream over the next few months and Colombia, once seen as a no-go area for miners because of its 40-year civil war, is now opening up to the search for gold.

With a touch of linguistic irony, it is the Chinese that are forcing Australian, British, Canadian and U.S. miners to grapple with some of Latin America’s most difficult monikers, such is the Asian demand for copper, zinc, lead and iron.

“What we are living through is a process similar to U.S. industrialization and the reconstruction of Europe after World War Two . . . You have big elements propelling demand, changing the price references,” says Fabio Barbosa, financial director at Brazil’s Companhia Vale do Rio Doce (CVRD) (RIO-N). “The period we are living in is not normal.”

Such a scenario is not lost on Chile’s Codelco, the world’s top copper producer. The company plans to near double its copper output at its main El Teniente, Andina, Chuquicamata and Radomiro Tomic mines to around 3 million tonnes per year by 2018, from a projected 1.8 million tonnes this year. The miner also has plans to explore in Mexico and at the Boa Esperanza mine in Brazil, which could begin production in 2012. The company aims to bring its new Gaby deposit in northern Chile into production in 2009 at a cost of around US$550 million, producing around 170,000 tonnes copper per year during the mine’s 13-year life.

Exploration this year will also begin at Peru’s huge La Granja copper deposit in the northern Andes. Rio Tinto (RTP-N) in late January signed its contracts after paying US$22 million at auction for the site late last year.

“The company is about to set up the mining camp and things are looking very promising,” says Jorge Merino, head of mining investment at Peru’s privatization arm, ProInversion.

La Granja, which also contains silver and gold, has resources of some 1.5 billion tonnes of ore, according to ProInversion, “but they could be twice that amount after exploration,” Merino asserts.

Even at the current level, resources are higher than those of Peru’s other major copper prospect, Las Bambas, although La Granja has significantly lower grades and a high arsenic content.

Mexican-Peruvian miner Southern Copper (PCU-N) says it will wrap up its prefeasibility study this year at copper project Los Chancas in Peru, as will Toronto-based junior Peru Copper (PCR-T, CUP-X) at the Toromocho copper site in the central Andes. Toromocho, which could be Peru’s biggest copper mine as soon as 2010, may also begin its feasibility study this year, according to the company, which listed on the Lima stock exchange earlier this year.

“All the majors have been to see Toromocho, and we believe it has a huge potential,” says Peru Copper’s Charles Preble.

Only Newmont Mining’s (NMC-T, NEM-N) Yanacocha gold mine, the largest in Latin America, paints a more downbeat picture in terms of exploration in Peru for this year. Yanacocha’s future depends on developing the Cerro Quilish site, which has some 3.7 million oz. of gold reserves, and the Minas Conga project, with 8.7 million oz. in reserves, both within the Yanacocha boundary area.

“Yanacocha’s long-term plan is questionable,” says Tony Lesiak, a senior mining analyst at global investment bank UBS.

Lesiak believes that strong government and local support are necessary to develop Quilish and Conga, but locals in the northern, dairy farming Cajamarca province appear to be fiercely against gold mining because they fear exploration will damage water supplies.

Barrick Gold (ABX-T, ABX-N) is also running into resistance at its US$1.5-billion Pascua-Lama gold project on the Argentine-Chilean border. Barrick says mine construction could begin around September, but environmentalists fear a mine would damage glaciers that lie over the area that the world’s no. 1 bullion producer wants to unearth.

Still, Argentina has a range of projects at an advanced stage, including a potash project owned by Rio Tinto called Potasio Rio Colorado, and the large copper-gold-molybdenum project Agua Rica, which is owned by Canada’s Northern Orion Resources (NNO-T, NTO-X).

According to Jose Herrera at the Argentine mines ministry, Pan American Silver (PAA-T, PAAS-Q) and Silver Standard Resources (SSO-T, SSRI-Q) will spend US$120 million on building a gold and silver project at the Manatial Espejo site in the Santa Cruz province, although no start date for production has been set.

When it comes to reaping the benefits of years of patient exploration, Brazil and Mexico are likely to lead the field this year. CVRD plans to expand its iron ore output at the Carajas mine in northern Brazil by a fifth to 85 million tonnes per year in 2006 to meet strong demand from Chinese steelmakers. It also plans to start up its Paragominas bauxite mine this year at a rate of 5 million tonnes per year to feed the Alunorte alumina refinery. In copper, CVRD has its so-called Project 118 mine and should notch up output of 36,000 tonnes per year by mid-2008. AngloGold Ashanti (AU-N) is also increasing its bullion production at its Cuiaba pit in Minas Gerais state starting in 2007.

In Mexico, Frontera Copper’s (FCC-T, FRCPF-O) Piedras Verdes copper mine in the northern Sonora state aims to begin producing some 30,000 tonnes a year, towards the end of 2006 and Peoles Milpillas copper project should reach an output rate of 55,000 tonnes by the middle of this year.

“With the price situation as it is at present, the Mexican mining bonanza will certainly continue,” says Sergio Rendon, head of mining promotion at the Mexican mines ministry.

— The author is a freelance writer based in Lima, Peru.