Latin America has been a hotbed of mining activity in recent years, but the disruptions from protests, nationalization and other economic challenges have created difficulties for mining companies in the region. Mexico nationalized lithium production earlier this year, and Chile is proposing a new mining profit tax of up to 36% that is linked to the copper price. These are just a few examples of the challenges facing miners in Latin America.
Despite these headwinds, Solaris Resources, a junior mining company with its flagship Warintza Project in Ecuador, has managed to announce an Investment Protection Agreement (IPA) with the government of Ecuador providing certainty with respect to the legal framework governing its project and investment.
This agreement shows that Ecuador continues to take consequential action to accelerate the development of the formal mining sector while mandating responsible approaches to community development and environmental protection. The IPA provides certainty of stable mining regulations, security of title and investment for the term of the agreement, as well as significant new tax incentives to accelerate the development of the project. Importantly, specific tax incentives include a 5% reduction of income tax, fixing the income tax rate applicable to Solaris at 20%, exemption from the capital outflow tax, as well as the exemption of all import duties for the import of goods needed for new investments in the project.
Nationalization of assets has been a concern in other countries, but Solaris’ IPA includes specific protections related to the prohibition of all forms of confiscation, non-discriminatory treatment and equal playing field, tax stability, legal security, and international arbitration for any disputes relates to the project. This level of protection is very important for foreign investors looking to do business in Ecuador.
The Warintza project cemented its place within the top rank of undeveloped copper projects in the hands of a junior with the completion of its 1.5Bt high-grade mineral resource estimate recently issued in April of this year. This resource is set within three additional adjacent discoveries already made with similar footprints providing evidence of a mega-system, of interest to majors looking to secure longer-term copper supply or diversify geopolitical risks.
While many of the issues plaguing Latin America right now often spill over to affect the mining industry, they are not caused by the industry itself. Recent protests in Ecuador over fuel and food prices were not related to mining, but they still caused disruptions. The protests ended, and agreements were made between the indigenous groups and the government to move forward.
Chile’s tax initially spooked investors, however, the newly elected President Gabriel Boric has made it clear that his administration understands the importance of the resource sector in the region. He has spoken with Canada’s Prime Minister Trudeau, and at a recent meeting, both spoke of the importance of the relationship between the two countries. The mining industry is a key part of that relationship, and President Boric has stated that he intends to attract more investment to Chile.
Ecuador’s government has been explicitly singling out Solaris Resources’ ESG ‘participatory model’ at its Warintza project as a model for responsible mining in the country. The company has strong relationships with its local indigenous partners and continues to have an open dialogue with all stakeholders. The Ecuadorian government has been supportive of the project, foreign investment, and the mining sector, as it is a significant contributor to the country’s tax base and a force for job creation.
The bottom line is that while there are challenges facing miners in Latin America, there are also opportunities. Investors need to be aware of the risks and be prepared to navigate them in order to succeed. Despite the headwinds, there are still opportunities and jurisdictions supporting mining investment and companies like Solaris Resources are a perfect example of doing things the right way at the right time.
