When investors consider a mineral exploration project, they weigh two risks – “Below the ground” and “above the ground”. Below the ground risks are technical and have technical solutions – resources, geometry, geotechnical, reserves, beneficiation, metallurgy etc can all be tested. Above the ground risks, however, are more complex. These are finance, market, jurisdiction, infrastructure, environment, and community.
– By Dr. Amit Tripathi, Director MPXG Exploration
When investors consider a mineral exploration project, they weigh two risks – “Below the ground” and “above the ground”. Below the ground risks are technical and have technical solutions – resources, geometry, geotechnical, reserves, beneficiation, metallurgy etc can all be tested. Above the ground risks, however, are more complex. These are finance, market, jurisdiction, infrastructure, environment, and community. Finance and market are often governed by global events like interest rates, commodity demand, investor sentiments, banking system and currency controls. These are fickle but often lots of data, analysis and various shades of opinions are available to guide the investors. Jurisdiction and infrastructure are under the control of the governments of the area (local, provincial, and national). In LATAM region most governments actually welcome investors and government officials want businesses to succeed. There are liaison managers and lawyers everywhere who offer their services and advice to investors. Community and environment risks are where most Indian investors get entangled and many a great project have stalled and faltered. The reason is mostly that of perception and business practices. We will discuss how business environment programs the thinking of Indian business leaders and how continuation of the practices that have brought them success at home makes them a pariah in elsewhere.
Doing business in India requires a unique skill of political management. Several of Indian business leaders owe their success to being able to manage political minefields and having relationships on all sides of the political spectrum. Of all the risks mentioned above the jurisdictional risk reigns supreme in India and therefore, those who can navigate these waters and develop effective jurisdictional derisking strategies get rewarded. As businesses look to expand beyond the Indian borders, the business environment rapidly changes, and different skills become relevant. Our businesses are often surprised that, in most “system driven” developed economies, business leaders tend to be financial and technical experts as those skills command a premium. Many Indian businesses that come to terms with these business culture subtleties have succeeded in the western world. Those are the ones that realize they could land in big trouble if caught trying to win undue favors and also become conscious of the fact that business success is possible even without political patronage, an alien concept in India. Many Indian businesses prefer to expand to Africa justifying its geographical proximity; however, we would argue that it is “business environment” proximity. Most African countries are “relationship driven” (as opposed to system driven developed economies) that is broadly parallel to patronage driven business environment in India and closer to the familiar way of doing business.
Latin America (LATAM) is a shade more complex and the businesses that would appreciate and handle these complexities would be richly rewarded by the “below the ground” riches LATAM has to offer. Most of the LATAM countries have a hybrid business environment (system + relationship driven) that become an order of magnitude more complex by indigenous communities that have alternative concepts of land ownership and ancestral and tribal territories. In many countries indigenous rights are recognized in their constitutions but often not clearly defined. This can lead to legal or political standoffs, as explorers, miners, governments, and indigenous communities vie for a greater slice of profits in mining projects. Furthermore, few LATAM countries are homogenous. Community challenges are different even within countries. In Colombia, indigenous communities are strong in Choco and paisas are strong in Antioquia; in Nicaragua the Caribbean coast provinces (RAAN and RAAS) have higher indigenous populations and fiercely protective their constitutional autonomy while the Pacific coast, with larger latino populace are under Central government jurisdiction. Miners in Nicaragua should also expect to cede a part of their tenement to artisanal miners; north Peru and southern Peruvian highlands have stronger indigenous communities compared to central Peru which is a lot more welcoming to mining projects; in Bolivia indigenous communities can build villages overnight over mineral areas and demand a negotiated settlement. As expected, community relations management is a premium skill necessary to succeed in many LATAM regions. Such a sophisticated community skill is rather rare in most Indian corporates. The business environment in India permits community issues to be addressed as a part of the larger “political management” strategy. Not so in LATAM. In LATAM the indigenous communities have a mistrust and a baggage of historical hostilities with the European origin Latino community and a living memory of series of wars in not so distant past. Most of these communities would not be as agreeable with the local politicians as their counterparts in India. Every project that succeeds in LATAM has had a robust and successful community engagement plan right from exploration stage. Many successful business leaders are those with excellent community relation acumen rather than political managers. Cornerstone of such successful community relation plans is neither to appear agents of the government nor a cash cow that all and sundry can exploit. Its tough to be accepted in any indigenous community but Indians have a foot in the door just for being Indian. Racial slur term used for most of the indigenous populace in LATAM is “Indio” – broadly translated as “Indian”! We in India are proud of our heritage. It would be possible to build bridges and, with appropriate effort, gain trust of an Indio that would be positively predisposed to the other Indio to begin with.
As miners ultimately need to work where the mineral exists, it is important to acquire projects that have well defined community strategies and proven track record of community outreach. Despite the “above ground” challenges, several LATAM areas remain extremely attractive mineral jurisdictions. Fraser Institute, that grades jurisdictions for their attractiveness has found large jurisdictional progress in several LATAM countries. In last few years Chile, Bolivia, Guyana, the Catamarca, Alta and San Juan Provinces of Argentina and Peru, have made remarkable progress as favorable jurisdictions for mineral investment. Colombia, under its new government, has also started to regain its lost ground. Peru, Chile, and Guyana feature as the most welcoming jurisdictions in LATAM (India does not even feature in that list!).
Geologically, all of the LATAM is a prolific mineral producer. Not only does it have lots of minerals but has the mineral having strong global demand. It has some of the world’s largest resources of copper, gold, silver, lithium, lead, zinc, iron, and many others. With improving jurisdictions and overall improvement in “above the ground” conditions, LATAM region is moving from a large potential to a large producer of almost all minerals. Lowering entry barriers have seen massive growth in “exploration” within the region which now attracts about 28% of global mineral exploration investment! (that’s about a billion dollars annually) largely funded through Canadian and Australian stock market financing using the junior exploration model. This exploration investment is rooted in the expectation that LATAM has a lot more unexplored mineral wealth, waiting to be discovered, than the official statistics suggest. In past jurisdictional factors have hindered exploration in Argentina and Ecuador. Most of Peru and Chile’s largest mines are found in the Andes and the same geology continues across the border into neighboring Ecuador so, it seems reasonable to suppose the extensions of the mountain range are also rich in minerals. Further, continuity in Colombia has massive copper – gold discoveries mostly in last 20 years (the author has personally witnessed and participated in some of these). La Colosa, Marmato, Titiribi, and Buritica within the Cordillera mountain belt in Colombia are additional proof of this concept. Several partially explored opportunities still exist in this belt that have been delayed due to “above the ground” reasons and are waiting to be discovered by the right suitor.
It can be concluded that LATAM offers excellent resource investing opportunities for Indian corporate investor interested in benefitting from this extremely profitable venture, provided they are willing to navigate cultures of a new world and appreciate alternative ways of doing business. Fortunately, no blame to government. Actually, we could argue that the Indian mineral policy quagmire and its incompatibility with global best practices would encourage Indian capital to seek greener pastures in LATAM. Indian corporates could also consider raising capital on Indian bourses to finance discoveries and benefit from massive capital gains that are hallmark of successful exploration projects. This could create a new category in our already vibrant markets. This is also a good time to raise capital in Canadian markets as exploration projects are getting readily financed with rising gold and silver prices with strong projections for copper as well.
Geologists from MPXG Exploration have spent several years exploring precious metals and base metals in LATAM region. Some of these exploration works have been in Peru, Colombia, Guyana and Nicaragua. A few of these have resulted in mega discoveries of millions of ounces of gold and large tonnage of copper. There are ongoing projects within the region for various overseas clients. We standby to support companies looking to foray in this highly prospective region.
A version of this article has been published in the Financial Express Online and can be accessed here. https://www.financialexpress.com/defence/exploring-minerals-in-latin-america-challenges-of-a-different-business-culture/2054136/