Mining companies are asking governments to make consultation and environmental procedures more flexible to mitigate production risks and attract new investments. However, there is no real reason to slacken regulations in order to promote mining in Latin America. Conversely, the region should strengthen these standards to prepare for a possible new mining cycle fueled by the transition to clean energy.
In the event of a new mining cycle, governments should safeguard against overreliance on commodity exports and the use of fossil fuels. Instead, governments and companies should explore ways in which the mining sector can contribute to economic diversifications and energy transitions.
Demand and prices for minerals produced in the region have fallen as a result of the global recession. Logistical issues resultant from pandemic-related lockdowns have slowed internal production. Consequently, mining taxes and royalties will likely fall this year.
Prices have not fallen enough to threaten the commercial feasibility of current projects, the global investment budget remains robust, and the region is attractive to mining investors. Furthermore, the global transition to clean and sustainable energies will most probably increase the demand and prices for the critical minerals (copper, silver, lithium and others) produced in the region.
Current investments are facing a temporarily lower demand and prices, and therefore providing lower returns on investments. However, none of these countries are at risk of having their minerals become “stranded assets,” (resources that have lost their value due to shifting global energy consumption). Businesses asking governments to ease environmental and social procedures have now focused on the need for greater investment in mining exploration. They have built a narrative that blames what they deem excessive procedures, particularly those related to consultations and environmental licenses, for the decline in investments in mining exploration in these countries.
Despite declining after their 2012 peak, exploration investments remained at higher levels than in the years prior to the super cycle, and higher even than in some years of the cycle itself. Latin American countries such as Chile, Peru, Mexico, Brazil, Argentina, Ecuador and Colombia are among those that were receiving the highest proportions of the world´s investments in mining exploration before the crisis.
Some companies may face short-term difficulties due to falling demand, prices and production challenges related to the internal and external shocks of the pandemic. As such, it may be reasonable for companies to ask for temporary measures, such as deferment of taxes or royalties for a few months. However, their demands for lower standards or permanent easing of environmental, social or fiscal procedures in the mining sector are not justified.
In addition to maintaining governance of the sector, countries should prepare themselves to effectively govern increased mining activity so that the sector contributes to environmental sustainability and socially inclusive diversification, instead of deepening our condition of commodity-led export economies highly dependent on volatile markets and concentrating productive job growth in limited sectors of the economy.