Why Invest In Latin America?
With a USD$4.8 Trillion economy, over 600 million citizens and a growing middle-class, Latin America represents an attractive market for foreign investment.
The region has a lot to offer, including open and transparent financial markets, attractive incentives for companies to invest, an abundance of natural resources and a vast supply of human talent.
Latin America´s Opportunities for Mining Services
Latin America´s recent economic growth has been driven by a multitude of factors, one of the main pillars of growth being the expansion of the resources sector, including mining, oil, gas, and forestry. This unprecedented expansion, coupled with the recent and severe downturn in commodity prices has resulted in a number of structural changes to the local marketplace, specifically, companies are now putting more focus on their core business of mineral and/or oil extraction, resulting in a market trend to externalize non-core services. Combining this with widespread cost cutting and drives for greater efficiency, this has resulted in a market place open and ready for those companies that can::
- Bring high value, low-cost support services
- Expertise and equipment that will reduce operating costs, and
- Ability to help improve operational efficiency.
Interestingly unlike previous down turns, which were of a cyclical nature and primary resulted in belt-tightening within the sectors, this downturn is far more wide spread and is also affecting even the largest companies. No better example exists than mining giant Anglo-American, which has recently outlined severe cuts, that would see the company reduce its number of mining operations from (45) to (16). However due to the very nature of the industry, and the difficulty to stop already advanced projects there remains and will continue to be a number of large new mines being commissioned. For example, the (USD$7.4 Billion) Las Bambas project in Peru or the Cerrejon Coal Expansion in Colombia. These new projects will only exacerbate the problem within the industry and will add supply, to an already over-supplied market, resulting in even a great need for continued cost cutting and improvements in efficiency.
The experience of Foreign Companies Operating in LATAM ?
Services companies from Canada, Australia, and the US have a long-standing history of operating within the region; for example, there are approximately 60 Australian mining services companies operating in Chile, a further 60 operating within in Peru and another 15 operating in Colombia. With many times this number originating from Canadian and the US also operating across the region.
Key Opportunities In Different Latin American Countries
Peru Mining Products
Peru is fast becoming a mining powerhouse, with the mining sector experiencing the fastest growth in modern history; with the sector now accounting for over 50% of foreign currency, 20% of tax revenue and 11% of the gross domestic product. The country is an attractive market for establishing a legal entity, allowing 100% foreign ownership and minimal capital controls, and a relatively attractive company tax rate. Notable market opportunities exist for companies that can provide products and services associated with On-site Safety, Community and Social Engagement, Environmental Management and Improving On-Site Productivity. Some Examples include technology systems associated with fatigue management, advanced OHS training and systems, water management products, community mapping and engagement consulting, benchmarking, automated operation management systems and computer software leading to increased mine productivity and reduced costs.
Colombia Mining Industry
The country is the largest economy in the Andean region, with a national GDP of USD$378Bn (2013), and is the only country in South America with coastlines on both the Pacific Ocean and the Caribbean Sea.
The country is an attractive market for establishing a legal entity, allowing 100% foreign ownership, limited capital controls, cheap operating costs and a relatively attractive company tax rate. With large Coal, Gold and Emerald mining sectors, the country is an attractive jurisdiction for mining service companies that would be able to offer services associated with improving community engagement, products that reduce the impact on the local environment, systems that will increase mine productivity and specialists within the security consulting / services industries.
It needs to be noted that many Colombian mines are geographically isolated within remote and/or jungle regions, as such there is strong interest for systems and equipment that are simple to install, maintain and operate.
Argentina Mining Overview
With the formation of a new Government, the scrapping of high mining taxes, the re-floating of the local currency and the implementation of a number of measures to help open the economy, Argentina is widely being considered an attractive place for foreign investment.
With the Mining, Energy and Agriculture sectors having been identified by the Government as key elements for re-engagement, with the hope to attract over USD$40 billion of foreign direct investment over the next two years. Presently the country still retains some barriers to foreign investment, not allowing 100% foreign ownership and having some capital controls (albeit improving), and a relatively high company tax rate when compared to other regional jurisdictions. However, it is commonly thought that the current changes will eventually lead to the country becoming a very attractive jurisdiction for services providers that can offer a broad range of services and products to a market that has in many cases been starved of international know-how. This is especially relevant to those offering more specialized services such as mineral processing expertise, advanced environmental management systems, laboratory services and geological modeling services.
Mexico Mining Opportunities
Mexico’s is Latin Americas second largest economy, with a strong extractive sector and a population of over one hundred and twenty million people.
Recently it has been rated by the World Bank as the best jurisdiction in the Region to do business with. A large number of foreign mining and mining service companies are already active and thriving in Mexico’s mining and resources sectors.
Chile Mining Outlook
Chilean business links are especially well established with Canada, Australia, and the US with the country being an attractive market for foreign investment, offering a stable economy, good infrastructure and a large mining sector. As one of the most advanced economies within the region, the country has few barriers for establishing and operating, however, costs tend to be higher than other countries due to the higher local salaries. With that in mind, the resources sector is facing a number of challenges associated with water and energy scarcity, a need for increased productivity and to the reduction in costs.
Combined, these challenges present an attractive market for foreign companies that can provide higher energy efficient systems, water management systems and products, desalination plants, improved and low water-use mineral processing technologies, training and practices linked to improved productivity and systems that offer value for money.
What challenges should you expect?
The challenges are varied and numerous, however with the right help they are all manageable, some of the key challenges being:
- Doing Business can be complicated
- Establishing local relationships and networks can be difficult
- Understanding the local Language and Culture
- Navigating the Local Regulatory Frameworks
- Securing Social and Government Mandates /Licenses
If you need any help with the above or need a more detailed report exploring a specific market, please contact Craig at [email protected].
Wacth the video below to learn mor about the opportunities for mining services companies in LATAM!