Fraser Institute: Latin America trails peers as mining destination (March 16, 2011)

Vancouver – Government policies of Latin American countries such as Guatemala, Bolivia, Venezuela and Honduras have dragged down investment in the entire region according to the Fraser Institute’s Annual Survey of Mining Companies for 2010/11. The conservative think-tank surveyed the opinions of executives and exploration managers for 494 mining-related companies around the world, asking them to review 79 jurisdictions based on exploration potential and the safety of their investment.

The survey shows the Latin American region has fallen behind in recent years, with its average investment rating falling from a score of 51.2 points out of a possible 100 in 2005/06 to 31.6 points in 2010/11. In comparison, Africa averaged a score of 40.5 this year, though it too has seen declines over the past five years. The four countries mentioned above (Guatemala, Bolivia, Venezuela and Honduras) fared the worst in the survey, managing to claim four of the five worst spots (the other was the Democratic Republic of the Congo, which came third-last). Indeed, only two Latin American countries managed to rank higher this year than last year, those being Colombia and Ecuador. In 2009/10, Ecuador ranked second last out of 72 possible jurisdictions; this year, it ranked 65^th of 79. Colombia fared better; it moved up eight spots from 48^th to 40^th.

The survey, carried out since 1997, assesses a region’s overall investment ranking for mineral exploration after taking into account its natural mineral endowment and public policy factors such as political stability, taxation, environmental regulations, infrastructure and security.

This year Alberta uprooted Quebec from the top spot with an average investment score of 90.2. It was closely followed by Nevada in second place, Saskatchewan in third, Quebec in fourth and Finland in fifth. Ontario finished 18^th while British Columbia continued to lag behind, finishing 36^th.

As for Latin America, Chile remained in the top 10 best jurisdictions to invest in exploration (it ranked 8^th, down from 7^th last year), and is “the only jurisdiction outside North America that consistently ranks in the top 10,” write the authors of the survey, Fred McMahon and Miguel Cervantes. Industry executives rated it the best Latin American country for investments in exploration, mainly because of the country’s clear regulatory framework, political stability and transparency, well-established legal system, reasonable environmental regimen and positive spending practices on infrastructure.

Mexico ranked 35^th best overall, however concerns over security meant the country lost ground over last year as the central government continues its battle with drug cartels. Nevertheless, Mexico was still rated the second-best Latin American country for mining investments, due to its long-standing mining traditions and generally mining-friendly governments. Transferring land claim and technical information on-line will ultimately help clear up bureaucracy and administrative issues, say company executives.

Colombia, Peru and Brazil have all seen increases in exploration spending this past year and have become some of the most popular jurisdictions for investors. However, the mining industry continues to have doubts over the long-term security of their claims in these areas, as the situation on the ground – be it environmental, legal, native or political – can often change quickly.

The rest of Latin America included in the survey, namely Argentina, Ecuador, Panama, Guatemala, Bolivia, Venezuela and Honduras, all fall in the bottom one-fifth of jurisdictions worth investing in. This is in no small part due to their unpredictable government policies, systemic corruption and lack of legal accountability.

The survey quotes several industry personnel to provide a general overview of how exploration managers or company presidents view these jurisdictions. For example, a CEO of an exploration company writes, “In Honduras, it is impossible to get licenses for exploration, let alone development.” A president of another company notes, “Ecuador has promoted a vague policy with no clear direction on what the royalty regime or tenure law will be in the future. It has created an overall policy which disincentivizes foreign investment in mining and exploration.” And, pretending to quote the Venezuelan government: “Thank you for finding this valuable gold deposit. You may leave now.”