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BMI index shows policy determines market attractiveness in Latin America

20th July 2017

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

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VANCOUVER (miningweekly.com) – With policy being of the utmost importance when determining market attractiveness, countries with reliably stable  business environments will continue to dominate the top mining risk/reward index scores in the Americas, reflecting miners' prioritisation of reducing risk, given a volatile mineral price outlook, according to market research firm BMI.

In its recently published Risk/Reward Index for the Americas, the analyst stated that the Americas region posts a middle-of-the-road score in its global mining risk/reward index, ranking third among five regions with a score of 50.9.

The Americas stands with a relatively higher industry rewards score, at 51.2, ranking second behind only Asia, owing to significant mineral reserves and large mining industry values (MIV) in key countries.

The Americas also holds the largest range of mining risk/reward scores, with more than 50 points between global leaders US and Canada and laggards Venezuela and Bolivia.

"The well-established regulatory frameworks, stable operating environments and, importantly, the significant size of mining industries in the US and Canada account for the countries' top scores,” said BMI.

“As such, both the US and Canada will remain the region's lowest-risk and highest-reward mining destinations.”

Like the first quarter, Argentina's mining risk/reward score continues to improve as President Mauricio Macri’s economic liberalisation and pro-business reforms boost foreign mining investment. This quarter, Argentina ranks 11 out of 17 countries, up slightly from the twelfth place it held previously.

BMI expects that regional and global leaders, including the US, Canada, Peru and Chile, will remain supported by significant mining industry values, well-developed infrastructure and mining regulatory frameworks, as well as competitive operating costs. These countries all posted above-average reward and risk scores, BMI advised.

Within this top cohort, the US and Canada maintained a slight edge over their Latin American peers, boosted by better electrification rates, slightly stronger mining regulatory frameworks and lower government intervention indicators, as well as better political and operational risk outlooks overall.

BMI singled out Ecuador and Panama as the two countries with higher-than-expected mining risk/reward scores, relative to existing mining industry values. A landmark agreement between the government of Ecuador and a foreign gold miner to develop a project without paying the 70% windfall profit tax will bolster Ecuador's MIV growth rate, competitive landscape, and government intervention scores, the analyst stated.

Meanwhile, Panama's strong MIV growth outlook, diverse mining competitive landscape and stable operating environment account for the country's solid score of 59.1.

Rounding out the bottom of the Americas mining risk/reward rankings are Bolivia and Venezuela, where BMI found that a high likelihood of government intervention, rising political instability and weak economic outlooks offset any mineral reserve potential.

Despite Bolivia's globally significant output of tin, zinc, lead and silver, falling production levels amid declining ore grades and poorly managed State-controlled companies, dampen the country's industry growth outlook.

Besides, high labour costs and strong government control of the sector will prevent foreign investment and thus the development of projects.

Venezuela's mining industry outlook will remain bleak, as the country moves closer towards a default and potential regime change. Lingering regulatory uncertainty and an economic crisis will prevent foreign investment interest for the foreseeable future, BMI said.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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