LatAm Monthly

14th July 2021

It’s been a bit of an alarming month for the resources sector in Latin America.  The two big pieces of news have been Mexico’s national oil producer, Pemex, increasing its hold over the Mexican oil and gas supply chain, and the opposition-sponsored bill in Chile that proposes to hike taxes on mining companies up to 75%, dependant on the price of copper.

We here at Spotlight don’t usually concern ourselves with fossil fuels – it’s not our jam, as I think the kids say these days.  But Pemex’s moves in the oil and gas sector has given us pause because of the precedent they could set for hard rock miners. The first of these moves is the news that Pemex will take control of the Zama field, which contains as much as 1 billion barrels of oil equivalent.  The reason that this is such a big deal is that the Zama field was discovered by a consortium of private companies in 2017, led by Houston-based Talos.  The dispute between Pemex and Talos over ownership of Zama has been dragging on for years, based on the fact that the field shares a reservoir with one owned by Pemex, according to a study commissioned by both parties. The decision to award operatorship to Pemex, despite safety and capacity concerns surrounding the national producer, is indicative of the policy of President Andres Manuel Lopez Obrador’s government, which has sought to roll back 2013-14 reforms that opened the Mexican oil industry up more to foreign drilling and investment, consolidating state control of the industry.

Oil rig in the Zama field

The other big new job for Pemex comes on the distribution side of things. 76% of Mexican households use LPG for cooking, and the President announced last week that a new subsidiary of Pemex will become responsible for LPG distribution in the country.  Prices have risen over 30% in some areas of Mexico over the last year, and Lopez Obrador has criticised private companies for raising prices above the rate of inflation, and stated that large distributors in each territory do not allow competition to exist.  The new arrangement will debut in Mexico City, where prices are currently high.  Pemex has been the beneficiary of several such announcements recently, some of which are currently tied up in Mexico’s court system.

Turning the focus to Chile, Finance Minister Rodrigo Cerda made a presentation to the Senate mining committee claiming that the opposition-sponsored mining bill that is currently knocking around the Senate could damage investment, jobs and ultimately government takings from mining in the country.  Copper is Chile’s major export and the country is the world’s largest producer of the metal, which in times of high copper prices is a major boon. Cerda noted that current producers have tax stability agreements with the government which could protect them from increased tax rates, assuming the government does not renege on them.  This means that only future producers would be subjected to the new tax regime, and this would therefore present a major disincentive to new investment.  Cerda argued that current tax regimes are sufficient to bring national benefits from times of high prices, pointing out that prices had driven mining from 1.6% of Chile’s GDP in 2020 to 2.65% in 2021.

These moves in Latin America are separated by a lot of distance, and hopefully they are not indicative of a broader trend across the continent for governments seizing control of mining rights and revenue.  But with the recent election of leftist Pedro Castillo in Peru, it’s a situation that bears monitoring.

Around the Traps

Solgold (LSE:SOLG, TSX:SOLG) has provided an update on its work in Ecuador, with drilling commencing at its Rio Amarillo and Sharug projects, and already underway at Porvenir and Blanca.  Results from Porvenir are good so far, with visible copper sulphides in the core and 106 m at 1.02$ Cu equivalent intersected.

And overview of Solgold's various projects

Sun Summit Minerals (TSXV:SMN, OTC Pink:SMREF), which holds several projects and royalties in Sonora, Mexico, has announced a CAD $4 million private placement at CAD $0.66 and $0.81 for Charity Flow Through units.  It will use the proceeds for exploration on its flagship Buck property in Canada.

Lundin Gold (TSX:LUG) has announced record production at its Fruta del Norte mine in Ecuador, just sixteen months after commercial operations started.  108,799 oz were produced in the second quarter of 2021, at an average grade of 11.08 g/t.  Tom Obradovich, who was instrumental in the original development of the Fruta del Norte deposit, is now at Conquest Resources (TSXV:CQR).

Brazilian prosecutors are seeking a final agreement with Samarco over the 2015 rupture of a tailings dam that caused Brazil’s biggest ever environmental disaster.  Prosecutors say the approximately $3.8 billion paid so far is insufficient, especially when compared to reparations paid for other disasters. The dam failure released a vast amount of sludge, killing 19 people and levelling a village, leaving hundreds homeless.

That's all from me, enjoy your week everyone!

  • Jane Lockwood