By Tania Herrera
Many countries in Latin America are struggling to overcome environmental and social conflicts that are delaying mine expansions and long-term projects.
In Peru, social conflicts have shelved projects by Newmont, Southern Copper, Bear Creek and Zijin Mining. In Chile, emblematic projects such as Andes Iron‘s Dominga and Barrick‘s Pascua-Lama are also suspended due to social-environmental reasons.
Barbara Mattos, senior VP at Moody’s Investors Service, covers diverse mining companies including Codelco and Escondida in Chile and Minsur and Volcan in Peru. In this interview in Santiago, she spoke to BNamericas about social-environmental challenges and provided a medium-term outlook for the mining sector.
BNamericas: How are environmental and community pressures affecting investments in Latin America?
Mattos: It’s a very important issue because more and more we see difficulties in obtaining environmental licenses, and environmental approval processes require more time. If companies used to take three to four years to obtain a permit for their projects, now they take five to seven years, and usually they have to re-do the same studies all over again.
Increasingly, we have more pressure from the local communities, from the political authorities and from the environmental organizations. This is something that will continue to be a very important challenge for companies.
What some foreign companies are doing is seeking a local partner to develop projects. For example, Mina Justa in Peru is an example of a mining company that sought a partner which already had local knowledge to develop a project.
BNamericas: Do you think communities are more conscious of these matters?
Mattos: I think there is more awareness, but it’s also to do with carbon emission targets that countries have under the Paris Agreement. For example, at Codelco they have to make some investments to adjust refinery emissions and it’s something that has to be finished by the end of the year.
BNamericas: Do you think that structural policy changes are required? For example in Chile, the [environmental evaluation service] SEIA is being reformed with an obligation for companies to do prior consultations with communities.
Mattos: I don’t think it should be because there’s a [government] policy. All companies should do a prior consultation with communities before starting the evaluation process. Not all of them are doing this but more and more they are trying to do it because they’ve had a lot of problems. In Chile, not so much compared to Peru. In Peru today we have very large projects that are totally stopped and the main issue is related to communities.
Perhaps it’s not necessary to have a policy for that because it should be common practice within the industry. It’s to do with corporate governance and we’re seeing greater concern for communities and the environment, much more than before. The companies are realizing that it’s a matter of profitability of operations; they’ve realized that it’s not feasible to just arrive and extract minerals, but they also have to contribute to the development of the area around a mine. It’s a sector that has to bring benefits to the local people.
BNamericas: Regarding sociopolitical risks, such as elections, what factors do you think are affecting investment?
Mattos: We haven’t seen a change due to elections yet. There isn’t a significant risk in Brazil because less than a year ago a new mining code was approved. We don’t know what will happen in Mexico with the new president, whether he’ll present a new policy or whether he’ll make any changes to the sector. However, we do consider it a risk. I don’t think mining is a focus for the Mexican government right now, it has other priorities. In Peru, regional elections will take place in October and I think the sector could see changes, but these will be more positive. I think it’s possible that projects that are on hold could finally be developed.
BNamericas: If present wage negotiations [in Chile] end up resulting in strikes, what will be the effect on the copper market?
Mattos: Copper fundamentals will not change substantially. Production will fall and prices will rise slightly, but I think in the long term it won’t affect the sector’s fundamentals.
I think that in labor negotiations, solutions should be found that are good for both parties in the long term. It shouldn’t be a solution that changes depending on prices, because these can change.
BNamericas: What perspective do you have for the mining market in the mid-term? Is the trade war a major risk?
Mattos: In terms of fundamentals of the mining sector, supply and demand, we see a more stable perspective. We’re now in a stable price situation, but with lower prices. We don’t expect prices to return to the levels seen in 2011-12, but neither do we expect a fall in prices.
Specifically with copper, in the medium term we have a positive perspective for fundamentals. There are no big new projects, and we’re seeing lower grades. The new projects, with the exception of Mina Justa in Peru, won’t start production for five to seven years. So we have very restricted supply.
In terms of demand, we haven’t seen a big change. There are risks regarding trade disputes, in China, which could affect growth in global demand but these are risks that while they bring more volatility, they won’t change profoundly the structural demand for copper. We see things like electric vehicles that use more copper, vehicle charging systems and renewable energies. These will support stronger demand and higher prices.
