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Arturo Lopez
Highlights From The PwC Americas' Mining Centre Of Excellence Event
PwC's Mining Centre of Excellence (CoE) held an event on March 6, 2012 to launch its Mining in the Americas publication, bringing in industry experts to Canada to share their experience.
Mining leaders from PwC's global network – Fernando Gaveglio, PwC Peru's mining leader; Alan Hails, PwC Colombia's mining leader; and Jaime Andrade, a tax partner at PwC Brazil – were brought in to discuss the prospects for their respective countries.
Christopher Garman, a director at Eurasia Group and the head of its Latin America practice, and Fred McMahon, the vicepresident of international research at the Fraser Institute, also discussed the political risks and opportunities in Peru, Brazil, and Colombia.
The issues that many of the countries share are related to a lack of infrastructure and a complicated legal structure. But the opportunities are numerous as the economies of all three countries are growing at a faster pace than most industrialized nations.
Here's a review of the three countries discussed:
Peru
Peru is one of the world's producers of silver and copper. The country is also Latin America's largest producer of gold, zinc, tin, and lead. Its Ministry of Energy and Mines (MINEM) recently reported that the total investment in mining last year totaled US$6.1 billion.
The country's mining industry is currently second after Chile in Latin America but it has the potential to become the leader in Latin America because it has a vast array of commodities, according to Gaveglio.
Garman highlighted some of the risks that need to be taken into account, such as the possibility of policy reversal and a move towards populism, which could increase during the election cycle in 2016. There are also widespread social protests, many of which will remain resolved.
McMahon said Peru is a global success story, but a temporary reversal in the resource boom could lead to political risk and instability. Still, gross domestic product per capita is growing.
Colombia
The country is the largest producer and exporter of coal in Latin America. It is also a producer of gold, nickel and emeralds. Hails said the outlook is positive as the country's credit rating was recently raised to investment grade.
While the industry has a promising future, there are still some issues that need to be resolved. Infrastructure is one of them, according to Garman. The current roads and railways are inadequate and can't be relied upon to import mining machinery or to transport product.
Security is another issue, said McMahon. There are still problems with the Revolutionary Armed Forces of Colombia (FARC) and organized crime, but they're not as bad as they once were. He added that the Fraser Institute's mining survey didn't receive any responses from companies doing business in Colombia five years ago; but it is today, which is a positive sign.
Brazil
The mining industry in Brazil is experiencing strong growth. Mineral production jumped 28% to US$50 billion last year and the growth rate is expected to increase 10% to 15% in the next three years, according to Andrade. The country's biggest mineral exports are iron ore, niobium, copper, and gold.
The government plans to modernize its mining code, which hasn't been updated since 1940. There are two drivers behind the reform, Garman explained. The tax take will be a bit bigger than expected as the government will double royalties, change the base of taxation and most likely levy a special participation tax. And its industrial policy drive will seek to increase incentives for domestic valueadded production.
Brazil is a very stable country, said McMahon. Its infrastructure, however, is still an issue and the legal structure, like other Latin American countries, is not like it is in other Westernized nations. Despite this, the country is on a strong growth path and its prospects remain bright.
How the CoE can help
The CoE aims to strengthen client service, improve efficiencies in delivering consulting, deals, tax, and assurance solutions to mining companies.
To help your company maintain a competitive position, our Americas mining group offers services and specific solutions to confront the most challenging industry issues, including:
- Improved business performance through lasting cost savings
- Enhanced enterprise value through sound execution of transactions of significant assets or enterprises
- Minimized tax costs related to mining activities in the Americas
- Better control of business processes using expanded internal audit function, especially for capital projects
- Improved stakeholder relations supported by independently verified reporting on corporate social responsibility
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