Political risk is alive in Latin America as protests spread

atin America, the traditional poster child for political risk in financial markets, is back as a source of concern for investors. Chilean President Sebastian Pinera on Saturday became the second leader this month to declare a state of emergency, his hand forced by violent protests in South America’s wealthiest country after an increase in transportation costs. In Ecuador, unrest blew up after President Lenin Moreno ended fuel subsidies.

London Metal Exchange and Fastmarkets to set lithium price benchmark

The London Metal Exchange (LME) is partnering with Fastmarkets to develop the reference price for its planned lithium futures contract, which will help analysts and executives to get a full sense of the global market for the key ingredient in the making of the batteries that power electric vehicles (EVs).

Unlike for copper or other metals used in the making of EVs, there currently is no traded price for lithium.

“In recent years there has been unprecedented price volatility in the lithium market, driven particularly by explosive electric vehicle (EV) battery demand,” the exchange said.

Unlike for copper or other metals used in the making of electric vehicles, there is no traded price for lithium.

The move, it added, comes after industry players, including producers, end-users and several leading automotive firms, urged the LME to develop effective lithium price-risk management tools.

“This global strategic partnership will develop a definitive roadmap aimed at providing a pricing mechanism for lithium that can be utilized throughout the supply chain and will support the development of risk-management tools for the industry,” Fastmarkets said in a separate statement.

Last year, the LME asked companies that assess prices of battery-grade lithium to submit proposals to supply a reference for cash-settled contracts it planned to launch  in the fourth quarter of this year.

Today, however, the exchange only said it would continue “to gauge appropriate timing” for a launch.

Currently, producers negotiate contracts with buyers, but the terms of the deals are not made public.

The LME, the world’s oldest and largest market for industrial metals, said it selected Fastmarkets because their prices were used widely across the industry.

The agency already provides the global benchmark for the cobalt market — another key battery raw material.

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Camino Minerals allowed to expand drilling in southern Peru

The Peruvian Ministry of Energy and Mines approved a permit related to Camino Minerals' (TSXV: COR) environmental impact assessment for the Chapitos copper-gold project.

The permit allows for the expansion of drilling activities along the Diva Trend at Chapitos. Drilling is expected to commence during the latter half of 2019.

Camino's 2019 exploration program is ongoing and includes geological mapping and structural analysis, chip/channel and trench sampling, and road building, all in preparation for geophysics and drilling

In a press release, Camino explained that the 200-drill pad permit allows for a maximum of 908 drill holes or 445,200 metres of drilling over a 3.6-year period.

According to the miner, the drilling will further define and potentially expand on the copper mineralized zones at the Adriana, Katty, and Vicky targets, but also includes drilling designed to evaluate the potential for additional zones of copper mineralization along the Diva Trend.

"Camino is excited to have received the EIA permit to continue drilling the Diva Trend copper mineralization along strike and down dip allowing for potential expansion of the mineralized footprint," the firm's CEO, John Williamson, said in the media brief. "The permit will allow the company to better locate drill collars in optimum locations to both test the Diva structure and other structural and stratigraphic copper opportunities while potentially minimizing drill costs."

Camino informed that the exploration program will also include follow-up work on the Atajo Trend where exploratory drilling intersected 0.83 % copper over 16.3 metres, including 2.09 % copper over 5.0 metres.

The Chapitos project is a 22,000-hectare land pack near Chala in southern Peru.

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New Energy to acquire project near Codelco’s and BHP’s mines in Chile

Canada's New Energy Metals (TSXV: ENRG) announced that it entered into a letter of intent with certain arm’s length vendors to be granted the exclusive right and option to acquire an initial 70% royalty-free interest in and to certain exploration and exploitation mineral concessions known as the “Exploradora North project.”

The 84,750-hectare project is located in the II and III Regions of northern Chile along the prolific West Fissure fault system between the open-pit Escondida mine, the largest copper mine in the world which is owned by BHP and Rio Tinto, and Codelco’s El Salvador underground copper mine.

In a press release, New Energy explained that Exploradora North is also located immediately north and east of Codelco’s Exploradora deep drilling project, where near-surface resource reported 100 Mt of 0.3 Cu and 0.2 g/t gold.

According to New Energy, Minera Activa, a private Chilean company, recently announced positive results in the Exploradora district, and Brazil’s Vale is also actively drilling to the west of Exploradora North.

To move forward with the acquisition, New Energy Metals, through a wholly-owned Chilean subsidiary, will enter into a formal option to purchase agreement which contemplates that the Vancouver-based firm has to incur in exploration expenditures on the project of at least $15 million within 48 months of the effective date. The company will also have to pay $8.5 million an issue an aggregate of 11,500,000 common shares of New Energy Metals, all of which will be done in different installments or phases.

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Bonus schemes play a role in tailings dams failures – research

A paper published in the journal Resources Policy states that bonus schemes for middle management employees in mining companies play a role in tailings dams failures.

According to the research article, such compensation packages actively encourage managers to cut costs and increase production, as the material decisions that put into motion such measures lay in their hands and positive results would increase their annual bonuses.

Although most mining companies don’t make public the compensation packages they give their middle management personnel, such incentives are known to be a common practice in the industry. Thus, using the information provided by the two companies that do report them, Newmont Goldcorp (NYSE: NEM, TSX: NGT) and AngloGold Ashanti (JSE:ANG, NYSE:AU), the authors of the study found that some schemes are equivalent, in financial terms, to an equity payment plus a put option.

The number of tailings dam failures has doubled in recent years from 8 in the period 1999–2003 to 16 in 2014–2018

“So the bonus is highly leveraged. Like investment bankers, the person stands to gain a lot if his/her performance is above target, but loses little, if it falls below target,” the study reads. “Year after year, managers keep taking risks with a low probability of occurrence but with potentially catastrophic consequences. These risks are compounded by shortages of experienced staff due to the cyclic nature of the industry and the retirement of the baby-boomer generation.”

Authors Margaret Armstrong, Renato Petterd and Carlos Petterd connected their observations to those in earlier research papers that analyzed certain cases of tailings dams failures and found that either production was increased or costs were significantly reduced in the years leading to the accidents.

The academics report that, for example, prior to the collapse of the tailings facility at the gold and copper Mount Polley mine in British Columbia in August 2014, which resulted in 24 million cubic meters of contaminated sludge and mine waste going into nearby lakes and rivers, Canada’s Imperial Metals (TSX: III) had grown its production by 23% in Q2-2014 from the previous quarter.

Boliden Apirsa, on the other hand, had flat revenues from 1995 to 1997, just before the tailings dam crashed at the Los Frailes lead and zinc mine in Aznalcóllar, Spain, in April 1998. But capital expenditures doubled during this period from $55.4 million to $112.3 million and operating income increased spectacularly from $2.3 million to $84.9 million. “So production costs must have dropped significantly over the period.”

The aftermath of the disaster in Brumardinho following Vale's tailings dam collapse. Photo by Vinícius Mendonça/Ibama, Wikimedia Commons.

In Brazil, production at Vale’s (NYSE:VALE) Samarco iron ore mine had increased by almost 40% in the five quarters just before the accident there in 2015, which killed 19 people and became the country’s worst-ever environmental disaster. Similarly, at the Paraopeba subsection of the Southern System where the Corrego do Feijão dam was located, production was risen by 12% in the five quarters before the Brumardinho catastrophe where almost 300 people died.

“The next question we asked ourselves was: Had an extra tailings dam been constructed to handle this additional quantity of rejects, or was it being pumped into existing tailings facilities? Alternatively, had filter presses or high capacity thickening been introduced to reduce the quantity of water?”, the authors of the paper ask.

After reviewing Vale’s quarterly reports for investors, which list all the major projects in progress, they found that there is no mention of building a new tailings dam or of filter presses. “This means that the existing ones had to cope with the waste from the extra production.”

Off the hook

Except for $42.5 million for the initial clean-up, the paper in Resources Policy highlights the fact that Boliden Apirsa succeeded in avoiding paying for the pollution caused by the tailings dam breach.

“Boliden's legal team and expert witnesses convinced a Spanish court of law that the tailings dam failure was due to geotechnical problems, thereby transferring the responsibility to the companies that had designed and built the dam. An epic legal battle ensued in which the Spanish Ministry of the Environment and the local government of Andalusia attempted to get Boliden to pay for the damage, but failed due to loopholes in the Spanish legal system,” the document reads.

In the case of the Mount Polley mine, Armstrong and her colleagues bring to the forefront the fact that the Independent Expert Engineering Investigation and Review Panel established after the accident found that the failure was caused by the design, which did not take into account the complexity of the sub-glacial and pre-glacial geological environment associated with the Perimeter Embankment foundation.

This has meant that no one has been held responsible for the disaster and, on top of this, the 3-year deadline to lay charges under British Columbia laws passed in 2017, while there is only one year left to lay charges under federal environmental and fisheries law.

The authors of the study refrained from commenting on the legal proceedings involving Vale’s tailings dam failures as they are still in progress.

In their recommendations of what would be needed to stop tailings dam failures, the researchers suggest, besides changes in the processing technology and wider adoption of the Mining Association of Canada’s guidelines issued in 2017, heavier fines and penalties.

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Sweden eyes Peruvian lithium

Sweden’s Deputy Minister of Foreign Trade and Promotion Niklas Johansson said this week that his country is interested in helping Peru develop its lithium mining industry.

According to Johansson, Sweden has become lithium-thirsty due to an increase in demand for electric cars, bolstered by government efforts to reduce carbon emissions and promote clean energy solutions.

EVs’ batteries have an intercalated lithium compound as one electrode material.

Experts predict that the mining industry will need to invest $12 billion within five years to meet the global demand for lithium

Even though Peru is not part of the so-called ‘Lithium Triangle’ formed by Bolivia, Chile and Argentina, just a year ago Macusani Yellowcake, the Peruvian subsidiary of Canada’s Plateau Energy Metals (TSX-V: PLU), found 2.5 million tonnes of high-grade lithium resources at its Falchani hard rock deposit in the southern Puno region.

According to Reuters, companies such as US-based Albemarle, the world’s No. 1 producer of the metal, and China’s Tianqi Lithium, the No. 3, may be waiting for Plateau to confirm the size of its reserves before showing their interest in Peru.

Sweden doesn’t seem to be waiting, though. Speaking in Lima at a conference called “Mining for the future: The Swedish experience,” which was organized by the embassy of the European country and the mining division of the Engineers College of Peru, Johansson said that the lithium demand from companies such as Volvo and Scania is in an upward trend and that Swedish miners are eager to develop responsible and sustainable lithium projects.

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Solgold’s stock sinks after submissions for mining referendum on Cascabel

Solgold’s (LON, TSX: SOLG) stock took another hit on Thursday, the day after submissions for a public hearing were heard in Ecuadorean Constitutional Court regarding the proposed referendum on mining in the provinces where the Australian miner’s 85% owned Cascabel project and other wholly owned exploration projects are located.  

Solgold holds 72 mineral concessions in Ecuador through four subsidiaries.  

Representatives from several Ecuadorean government bodies, regional community representatives, pro-mining groups, international mining groups workers and community members from Cascabel attended the hearing to demonstrate their opposition to the proposal, Solgold said in a media release.  

The court is expected to deliver its verdict by June 24.   

Earlier in the week, the vice president of the Republic of Ecuador, Otto Sonnenholzner, launched a new mining policy backing large-scale projects in the country. The policy is designed to strengthen investment and increase production in the mining sector and sets out a framework for environmental and social sustainability.

The policy document establishes the framework for mining sector planning for the period 2019-2030 and defines the government decision that will allow consolidating this sector as a fundamental axis of the country's economy, with a contribution to GDP of 4% by 2021.  

SolGold recently announced findings from its preliminary economic assessment (PEA) for the Alpala deposit in the Cascabel project in northern Ecuador. The project indicated approximately $17B (at $3.30/lb copper price and $1,300oz gold price) in taxes, royalties and profit shares to the government and peoples of Ecuador, Solgold said. 

Solgold’s stock was down 8.6% Thursday morning, trading at 53 Canadian cents on the TSX.   

 

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First Quantum wants to work in Panama without ‘legal uncertainties’

Canada’s First Quantum Minerals (TSX:FM) responded to Panama’s President-elect Laurentino Cortizo by issuing a media release stating that the extension of the contract to operate the Cobre Panamá mine fulfills current laws and regulations and that its team should be allowed to work without legal uncertainties.

The miner’s communiqué was made public a day after Cortizo said his government would review “clause by clause” the contract awarded to Minera Panamá, First Quantum’s subsidiary in the Central American country.

Cortizo’s administration takes power on July 1, 2019, and his remarks came only days after the national assembly rejected a bill that sought to reaffirm Minera Panama's contract. According to legislators, the 2% royalty rate established in the bill is too low.

Cobre Panama is the largest copper mine coming to market over the next couple of years and the biggest single private sector investment in Panama’s history

The outgoing government of Juan Carlos Varela proposed such a bill after last year Panama’s Supreme Court declared unconstitutional the law that approved the mining concession granted back in 1997. The tribunal’s decision was based on an appeal for annulment presented by an environmental group that alleged that the project was damaging for both the State and the environment.

Despite all the controversy, First Quantum maintains that past and recent agreements follow Panamanian laws and international regulations regarding transparency and corporate responsibility.

With respect to the request to extend its contract, which was signed in 2016, the miner said that it is willing to share all the relevant documentation with both the government and the general public.

“We do this with the belief that the Cobre Panamá project, which employs over 9,000 Panamanians in its current construction phase, will be able to proceed without any legal uncertainty,” the company’s statement reads.

Massive project

First Quantum’s contract extension involves a $327-million expansion of the already massive Cobre Panamá mining and processing complex, which is located in the Donoso area, about 120-kilometres west of Panama City. The plan is for the operation to grow from 85 million tonnes per year to 100 million annual tonnes, beginning in 2023.

The expanded throughput involves the earlier development of the adjacent Colina pit, the addition of a 9th mill, an expanded mining equipment fleet, additional conveyors, an in-pit crusher and other infrastructure related to Colina access.

This year, the company plans to allocate around $110 million to keep advancing the project until it reaches its full capacity of more than 375,000 annual tonnes of copper. Last year, investments in the open-pit operation reached $830 million and the previous year they were close to $1 billion.

But the miner should start recovering its investments soon. Following the processing of its first ore in early February, initial exports of copper concentrate will be leaving Panama's ports later this month.

Total investments in Cobre Panamá add up to $6.3 billion, according to First Quantum.

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Ecuador’s new mining policy backs large-scale projects

The Vice President of Ecuador, Otto Sonnenholzner, and the Minister of Energy and Non-renewable Natural Resources, Carlos Pérez, presented the country’s new Public Mining Policy, whose focus will be on supporting large-scale operations and investments, and eradicating illegal mining.

The announcement was made during a visit to the southern Zamora Chinchipe province, where Lundin Gold’s (TSX:LUG) flagship Fruta del Norte gold project is located. Both Sonnenholzner and Pérez stopped by the mine site and met with representatives of the Canadian company, who said 50% of the construction phase is completed.

Minister Carlos Pérez presenting the new mining policy. Photo by the Ministry of Energy and Non-renewable Natural Resources.

The government officials said they expect first exports from large-scale mining to be delivered before year-end and that the national treasury foresees royalties, taxes, patents, and earnings generating some $836 million between 2019 and 2021. By 2021, the Lenín Moreno administration wants the mining sector to account for 4% of the GDP.

Besides focusing on large investments, the new policy gives relevant authorities six months to update a National Mining Development Plan so that it incorporates a strategy to combat unregulated mining operations and severe penalties for those extracting mineral resources illegally.

The policy also requires authorized mining projects to comply with mining safety and environmental and social sustainability standards, which will be outlined in new regulatory and auditing mechanisms.

The new protocol calls for the establishment of specific targets related to the updating of applicable regulations for the mining industry, as well as goals associated to economic development, research and development, and management and administration.

The presentation of these guidelines took place on the same week the Ecuadorian Constitutional Court is scheduled to receive arguments from those who have put forward a mining referendum in the northern Imbabura province, where SolGold’s (LON, TSX:SOLG) flagship Cascabel copper-gold project is located.

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Argentina rejects Barrick’s challenge to glacier protection

The verdict is in, and it does not look good for miners in Argentina.  

In a unanimous decision on Tuesday, Argentina’s Supreme Court rejected a challenge to an environmental law banning mining in glacial areas that was brought by Barrick Gold. The Canadian miner had attempted to subvert Argentina’s controversial Glacier Protection Law prohibiting mining in glacier and permafrost areas.  

Barrick owns the Veladero gold mine in Argentina and the Pascua-Lama project on the Argentine-Chile border. 

The company did not issue a statement, but a Barrick source with knowledge of the matter said the court's decision would not affect any of the company's current operations in Argentina. The source, who said Barrick would "analyze" the ruling, spoke anonymously, Reuters reported.

Miners have long marked this region for its rich gold, silver and copper deposits, and have been on standby for nearly a decade awaiting a judicial decision from Argentina’s top tribunal as to whether or not they could mine in glacier terrain,” said Jorge Daniel Taillant, executive director, Center for Human Rights and Environment in a media statement.  

McEwen Mining’s Los Azules, Stillwater’s El Altar, and Meryllion Gold’s Cerro Amarillo are a few other mining projects that stalled when Argentina passed the world’s first Glacier Protection Law, prohibiting any industrial activity that could harm glaciers and periglacial areas Miners have long marked this region for its rich gold, silver and copper deposits, and have been on standby for nearly a decade awaiting a judicial decision from Argentina’s top tribunal as to whether or not they could mine in glacier terrain

The Argentine Glacier Law was passed in 2008, unanimously by Congress, when then activist Environment Secretary Romina Picolottibrought the draft law through Congress with no opposition whatsoever,” Taillant said. 

Then President Fernández de Kirchner vetoed the new Glacier Law on the grounds that it was detrimental to the mining sector.  

Environmentalists fought for the return of the Glacier Law, and in 2010 Congress passed a national Glacier Protection Law, prohibiting mining and oil and gas projects in glacier and permafrost areas, making the law retroactive. 

In 2015 Chile's Environmental Court ruled that the Pascua-Lama project had not damaged glaciers within the project's area of influence. 

Argentina’s public officials in the mining sector, and environmental authorities took nearly 10 years to carry out the glacier inventory which the law called for, and failed to crack down on mining operations already in glacier areas, which the law also mandated 

Sure that the court system would take years, or even decades to rule on the case, pro-mining public officials went about their business as if the Glacier Law did not exist, encouraging mining companies to move forward with investments, although the billions of dollars promised by mining companies to extract gold, silver and copper, did not materialize,” Taillant said. 

Argentina's Supreme Court knocked down the miner’s arguments, maintaining that the company failed to show that the Glacier Protection Law affected mining investments.  

“The request of Barrick to declare the unconstitutionality of the national regulations has been a perverse move that fortunately lost. Now, it is necessary to enforce the law and close Veladero. We can not allow more mining on the glaciers of the Argentines, " said Gonzalo Strano, a Greenpeace Argentina spokesperson in a media statement.  

Tuesday’s ruling halts 44 mining projects nearby or on bodies of ice that are being evaluated, according to the National Secretariat of the Environment. 

 

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