Latin America Downunder Provides Diverse Discussion Points

THE CONFERENCE CALLER: There were some interesting theories to emerge from this week’s Paydirt Latin America Downunder conference in Perth.

The first was hypothesised by PCF Capital Group managing director Liam Twigger, who suggested global equity markets will increasingly see Exchange Traded Funds (ETF) open out into the exploration and mining development markets as they continue to impact the weighting in the junior mining sector.

Speaking on the sidelines of the opening day of the Latin America Downunder conference, Twigger said the past 12 months had seen an improvement in market sentiment – but most of the market interest and value had been focused on those resources companies that are in production or well advanced in the development pathway with grassroots exploration still a dirty word for many.

“Latin America remains the number one destination for project capital and gold is the preferred commodity,” Twigger said.

“Latin America as a region commands the largest exploration budget with 28 per cent of the global pool of exploration money being invested there compared with Africa at around 20 per cent and Australia and Canada at 14 per cent each.

“The key for Australian and other sovereign companies operating in Latin America is how do they fund themselves and get the best valuation for their assets?

“The continuing evolution of ETF’s is having a big impact on junior miners with some of the best-known ETF’s holding up to 20 per cent of a junior’s stock.”

Twigger explained that ETF’s are most active in resources producers, but added he expects to see them make their presence felt in the Explorer and Developer markets soon.

“Most of the ETF’s run on algorithms and pay no heed to exploration potential or a development pipeline – rather they look at market caps and whether a junior is in production or has a mining resource,” Twigger continued.

“The good news is that PCF expects to see a new wave of buying to enter the junior exploration and development market, which will lift share prices.

“The bad news is when they sell – it’s also by algorithm to rebalance or fund a repatriation.

“This can see stocks thumped.

“This increasing ETF presence is underway in the junior producer market with one fund changing its minimum market cap limit from $1.5 billion to $3 billion and the companies that are being dropped are literally being slaughtered by selling.

“The question is not how ETF’s will enter the junior exploration market but when.”

That Latin America is a desired destination for potential investment would be music to the ears of Peru’s Vice Minister for Mining, HE Ricardo Labo.

Labo indicated Peru has established a target of new mining investment worth US$14 billion as the country moves to grab a higher stake in the global resources sector.

Addressing the second day today of the conference, Labo said the new investment target was one of three central planks for Peru to achieve its redefined mining goals by 2021.

“Our overriding objective is to capture at least 8% of global exploration budgets,” Labo said.

“We have also set out on a path to increase our copper production by 30 per cent or some 3 million tonnes of fine copper concentrates over the next four years.”

“But to do this, we need to better promote exploration, make the pipeline for new projects feasible and guarantee the continuity of existing mining operations in Peru.”

The Minister’s push is in line with Peru’s top tier status in the world’s resources commodities, accounting for the largest reserve inventories in gold, silver, zinc, lead and molybdenum, as well as being the world’s second largest copper host and third largest tin reserves.

It is the world’s largest gold, zinc and lead producer, and grew its mining sector last year by 21 per cent.

“We particularly are keen to build on our Australian miners’ involvement in Peru,” Labo said.

“With the Australian Embassy re-establishing there in 2010, there has since been a rapid growth of resident Australian companies, with around 90 such representations.

“In terms of future co-operation, we seek to involve Australian expertise in blending the academic sector into our mining industry, bring the Australian skillsets and best practices in mine closure and environmental rehabilitation and attract increasing numbers of Australian mining services companies to establish in Peru.”

As a conference with a heavy slant on Latin America it was no surprise Australia’s mining fraternity was urged to diversify and look to Latin America for new opportunity and to ensure our resources economic reliance moves away from a scenario of “when China gets a cold, Australia now gets the flu!”.

The counselling came from the Council on Australia Latin America Relations (COALAR) chairman Chris Gale, who said it was essential Australia put down wider mining roots in Latin America not just in Asia and China.

“This divergence must include our mining services, exploration, production and Mineral Engineering Technical Services (METS),” Gale said.

“Australian and Latin American countries have more in common with each other than with Asian countries and each has much to offer the other.”

“Latin America looks to Australia for leadership and as a model to replicate its institutions.

“The increasing liberalisation of their markets on the Andean side presents many opportunities for two-way trade and investment.”

Gale declared Mexico and Brazil to be the countries that will emerge as two of the world’s largest economies over the next 10 years.

This, he indicated, was because the region produces more than its share of the world’s three most important metals –iron ore, copper and gold.

“Australia has 94 junior exploration miners in Latin America – an increase from 20 in 2008 – but this momentum needs to keep going,” he continued.

Australia is projected to invest US$55 billion in Latin America’s mining sector between 2012 and 2031- with many Latam (Latin America) countries ranking highly on the Frazer Institute’s register for mining investment attractiveness.

“One only has to look at Latam’s mining profile to reinforce why Australia should be paying the region far more attention and with a greater onground presence,” Gale said.