Mining in the Andean

The outlook for mining in the Andean region amidst political and social risks.

The mining industry in the Andean region could play a major role in the economic recovery of Chile, Peru, Bolivia and Ecuador. More specifically, Bolivia plans to double tin production in 2022; Ecuador expects four major mining projects to start production before 2025, while Chile aims to continue being the world’s largest producer of copper. Despite these plans, mining companies across the region are increasingly worried about political, regulatory and social risks.

A board member of a Peruvian mining company gave us the local context, “The Andean is a complicated neighbourhood right now: we do not know if it is going to the right or to the left. Colombia is complicated but it defends itself, Ecuador is trying hard to attract investment, but Peru’s mining policies are bad for the industry, Chile is uncertain and Bolivia is a disaster.”

“The Andean is a complicated neighbourhood right now: we do not know if it is going to the right or to the left.”

Board member, mining company, Peru

The metals produced in the Andean region could play a pivotal role in the global energy transition at a time when international governments and companies are rushing to cut greenhouse emissions.

Increasing levels of political uncertainty have become a major risk for mining companies operating in the region. The COVID-19 pandemic has worsened the Andean region’s inequality issues, polarising the political landscape and resulting in more radical policies being planned for the mining industry. Such policies and discussions range from increased taxes on mining profits in Chile to talk of nationalisations in Peru.

The strategic position of the mining industry for many Andean countries makes it highly politicised and there are increasing tensions between local communities and public opinion. An Ecuadorean mining lawyer confirmed, “Lasso has made a number of statements saying ‘welcome to the mining companies’, but the reality is that there is strong opposition from the left and Lasso does not control the Senate. So, while Lasso says ‘welcome’, the Constitutional Court continues to issue sentences that restrict mining. Last week, there was a Constitutional Court ruling that prohibits mining in protected forests, revoking licenses that had already been granted. This is the reality that investors don’t see from the outside.”

“Lasso has made a number of statements saying ‘welcome to the mining companies’, but the reality is that there is strong opposition from the left and Lasso does not control the Senate. This is the reality that investors don’t see from the outside.”

Mining lawyer, Ecuador

The Central Bank of Peru claimed in November that anti-mining protest had paralysed several projects in the country. Also, social unrest in the country’s mining areas puts the development of new projects at risk. In Chile, the executive president of Antofagasta, a leading global copper producer, said that violence was becoming a source of pressure against mining companies.

An executive at a UK-headquartered, international mining company with operations across Latin America was optimistic, despite the challenges, “I believe investment in the Andean cone will come, nothing has happened during the last two years but there is plenty of money around and these funds need to be invested. I believe the political and social challenges have already been internalised.”

The Peruvian board director wasn’t so sure, “Investing in Peruvian mining right now is very difficult. These are long-term investments and the margin for improvement will depend on whether Castillo leaves the presidency, or not. There is growing competition from Canada, Australia and Africa while governments across the Andean region are holding the mining sector back.”

Foreign investors we spoke to are increasingly concerned about the political and social risks and are slowing down their investments but are not yet at the point of withdrawing from the region.

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