Mining Latin America's minerals
sustainably is critical for the global
energy transition
Atradius Economic Research – February 2024

Summary•Latin America and the Caribbean’s critical mineral resources are needed for the global energy transition. Developing the
LAC mining and processing sector can also help diversify strategic supply chains for the US and Europe and boost
domestic economic development within the region.

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However, the only way that these resources can effectively be exploited is if done in a socially and environmentally
sustainably manner. Without that, mining activities can have a significant negative environmental and social impact,
especially for indigenous communities as evidenced by LAC's lowest performance relative to other regions concerning
ESG-impact allegations linked to the mining of critical minerals.

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Industry regulators and local and national governments need to be included to ensure adherence to ESG standards.
Authorities need to enforce these standards through the entire critical minerals value chain, even for Chinese companies
that don't adhere to international regulatory standards. This would improve the sustainability of the mining sector andcould help boost Western competitiveness in the region.

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Most importantly, local populations, especially indigenous peoples, need to be consulted from the beginning. To build trustand obtain a ‘social licence to operate’, authorities can't just ensure compliance with ESG standards, but they should engage
with local communities by setting up a dialogue between stakeholders, investors and communities.

The global energy transition is transforming the world
economy and risk environment. The resources needed tofuel growth are changing and so are the places theseresources come from. Businesses and governments in North
America and Europe are seeking to diversify and improve
the resilience of their supply chains for these criticalminerals and Latin America and the Caribbean (LAC) is acentral consideration. The LAC region holds significant
shares of the world’s critical minerals with great, long-term
potential to contribute to the global energy transition. But
the key to unlocking this potential is to ensuresustainability.

LAC faces major structural weaknesses like a challenging
business environment, high socioeconomic inequality andlimited integration in global supply chains. These weigh on
the region’s growth potential and attractiveness forinvestment. As we previously flagged, the global need for amining boom of critical minerals to meet the climate goals
could be a turning point towards bringing more domestic
value added. In this report we dive deeper in the state ofplay of critical minerals in LAC, the challenges and whatneeds to be done to open opportunities.

Resource-rich Latin America plays acritical role

But will critical minerals offer a new
earnings model?

The mining boom, required for meeting the global climate
goals, offers opportunities for the resource-rich countries in
Latin America and the Caribbean (LAC). More than half of
the world’s reserves in lithium are located in the LAC region,
mostly in Argentina, Bolivia and Chile, the so-called Lithium
Triangle. Additionally, the region holds some 40% of theworld’s copper reserves, mainly in Chile, Peru and Mexico,
but also in Brazil, Panama, Colombia, Ecuador andDominican Republic, the largest mineral producer in the
Caribbean. And finally, with shares in the world’s reserves
between 16% and 23%, the LAC region has significant
potential to supply some other essential minerals such as
bauxite, the primary source of aluminium that isincreasingly being used in electricity networks, graphite,
nickel, tin, manganese and zinc, and rare earth elements.

Developing these vast mineral resources will give a boost to
the economies of LAC. Our baseline expectation, adopted
from the IEA’s Latin America Energy Outlook 2023, is that
LAC revenues from the production of the selected criticalminerals will increase about 50% by 2030 and a further 33%
by 2050, bringing revenue from critical minerals to some
USD 200 billion, almost double its 2022 level. The IEA
estimates that these revenues would have to increase byalmost 2.5-times compared to 2022 in order to reach theglobal net zero by 2050 targets. Nearly all of the revenue
growth is generated from lithium.

Brazil has by far the largest reserves of these minerals in
LAC. However, it currently produces only small to moderateamounts of them. The exception is bauxite: Brazil is aleading producer and recycler of aluminium. Argentina also
has significant lithium reserves and is beginning withproduction. Bolivia, Chile, Mexico and Peru are already wellknown mining countries. Next to these countries, also
Jamaica (bauxite), Dominican Republic (bauxite and nickel)
and Guatemala (nickel) produce these minerals. These
countries have well-established mining sectors andinfrastructure (with the exception of Bolivia) which they canfurther develop to meet the growing demand for minerals toachieve the climate goals.
1 LAC holds large share of global CM reserves

Remarkably, by 2050, the LAC revenue from criticalminerals will overtake the combined revenue from theregion’s – by that time much lower - fossil fuel production. It
however remains to be seen whether the production ofcritical minerals offers a new earnings model for the region.
The combined revenues from the production of the selected
critical minerals and fossil fuels are estimated by the IEA at
about USD 330 billion in 2050. This is significantly lower
than the USD 520 billion earned in 2022.
This expected loss in overall revenues might explain the fast
expansion of fossil fuel exploration and production in some
LAC countries. Brazil, LAC’s largest oil producer, joined the
top 10 of global oil producers after an increase of its
production by almost 50% between 2013 and 2022 and aims
to become the world’s fourth largest oil producer by 2029
(from 9th in 2022). Oil discoveries in bordering Guyana since2015 have turned this tiny country into a leading oil
producer that is on course to enter the top-20 of global oil
producers by 2026. And Argentina’s new president, Milei,
recently proposed market-friendly reforms to attract moreinvestments to further develop its vast shale oil (world’s
fourth largest) and shale gas (second largest) reserves andexpand oil and gas production. Argentina sees this as a key
industry next to mining, and an important source of foreign
currency earnings.
2 Revenues from CMs to surpass fossil fuels by 2050 in LAC

The global importance of LAC is already evident in its highshare of investment in exploration for critical minerals.
About one-third of global investment is directed to LAC
countries, with the majority linked so far to copper. Over the
past decade, investments in the exploration of copper in LAC
rose from around 30% of global investment in 2012 to nearly
45% in 2022. In 2019 Panama, for instance, started
producing copper in one of the largest copper mines to beopened in the past decade. Lithium saw its share of global
investment double over the same period. Notabledevelopments in lithium include the opening of a mine in
Brazil in 2023, in Argentina a large mine is expected to start
operating in 2027, a consortium of Chinese companies end2022 launched a pilot project in Bolivia for the mining oflithium and Brazilian state-owned oil company, Petrobras,in 2023 expressed interest in investing in Bolivia’s lithium.

Further, the sale and export of these critical minerals in andof itself does not translate into economic development, as
we examined in our last report, How to unlock Latin
America's potential for nearshoring. The composition of
LAC’s exports of merchandise goods has worsened
dramatically over the past two decades. The share of lower
value-added commodity trade rose, as resource rich LAC,
and particularly South America, provided the raw materials
for China’s transformation into the world’s manufacturer. To
lift the earnings potential of their mining sector, resource-

Atradius Economic Research 2rich LAC countries are looking for ways to add more value
domestically by encouraging building local processing,refining, and manufacturing facilities associated withmining.

LAC mining boom is in the world’s
strategic interests
A mining boom could contribute to economic development
in LAC while also boosting the security and diversification ofcritical mineral supply chains – a major strategic interest for
the US and Europe who seek to reduce their dependence on
China for critical mineral processing activities. China
accounts for (nearly) all of global refining capacity of criticalminerals like graphite and manganese as can be seen in
figure 3. It is also the world’s largest processor of lithiumand copper, the mining of which is dominated by LAC.
3 China dominates the global refining of critical minerals

Latin America in the end of 2023. Another plant isscheduled to open in 2024. Moreover, mining company
Southern Copper, a majority-owned, indirect subsidiary of
Grupo México, is considering investing in copper smelter
projects in Mexico and Peru to reduce dependence on
offshore smelters, including in China. These are promisingexamples of creating more value locally from mining, butgovernments have also pursued some resource
nationalisation policies, which might scare off private
investors. Mexico for instance nationalised its lithium
industry in 2022 and Chile’s government in 2023 proposed
major reforms to increase the role of the state in lithium
projects, including creating a national mining company andthe requirement that all future lithium projects become
public-private partnerships.
Still, the process of attracting investment and developing
local value-added from the mining sector will be challenging
due to ongoing policy uncertainty, limited access totechnology and skills, increased anti-mining protests andsocial unrest in an increasing number of countries.
Unpredictable policies including resource nationalisation
will make investors hesitant to start new mining projects
and invest in midstream and downstream operations. But
overall, probably an even more important bottleneck might
be expanding mining activities itself.

Mining sustainably needs to beprioritised
Policymakers in the US and the EU have already introduced
policies that should help stimulate investment in LAC for
this reason. The US introduced the landmark Inflation
Reduction Act (IRA) in 2022 which aims in part at investingin domestic energy production and promoting clean energy.
One provision of the IRA is that by 2027, 80% of the criticalminerals and battery components for electric vehicles must
be extracted or processed in the US or a country with a freetrade agreement (FTA) with the US. Chile, Colombia, Mexicoand Peru have FTAs with the US. So do Panama, theDominican Republic and Costa Rica among other emerging
Central American countries. Another example is theMemorandum of Understanding signed in July 2023
between Chile and the EU to establish a strategic partnershipon sustainable value chains of raw materials between thetwo partners. A key aspect of this partnership is to create
added value in Chile.
Partially in response to higher Western investments in theregion’s mining sector, China is shifting more of its regional
investments towards critical minerals. The world’s largest
producer of electric vehicles (EV), Chinese BYD, is investingin a lithium cathode plant in Chile. And in July 2023, BYD
also announced plans to make Brazil its first EV and lithium
iron phosphate battery manufacturing hub outside Asia.
Earlier this month, BYD announced plans to set up a new EV
factory in Mexico that would serve as an export hub to the
US market. Higher Chinese competition in the region also
complicates the West’s goal of reducing dependence on
China.
Domestic governments are also increasingly active indeveloping LAC’s mining sector. Argentina’s state-owned
company Y-TEC opened the first lithium battery factory in

The challenge for the mineral-rich LAC countries will be to
expand their mining activities in a sustainable way. Mining
has been associated with a host of negative environmental,social and governance (ESG) impacts, including
environmental contamination, deforestation, human rights
violation, and corruption. Mining is highly energy- andwater-intensive, deploys the use of heavy machinery,
produces significant waste, and often leaves open pitsbehind in the landscape. It’s also vulnerable to natural
disasters. Mining is also dangerous for mine workers,
particularly in the case of underground mining, and isassociated with child labour.
The IEA’s Latin America Energy Outlook shows Latin
America scores the worst among all regions on ESG-impact
allegations linked to mining of critical minerals. It had in the
period 2010-2022 the highest number of publicly reported
environmental and human rights abuses at mine sites.
Allegations were particularly high in the impact oncommunities and the environment (about two thirds of theallegations reported world-wide). This is because minerals
in Latin America are often located near sensitive nature
reserves, many of which are home to indigenous people.
The negative environmental and social impact of mining
activities causes community protests almost everywherethat mining companies are active. But this is particularly
true for the LAC region. According to the Global Atlas ofEnvironmental Justice, a worldwide database on mining
conflicts, 45% of reported conflicts are located in Latin
America. Major disasters during the last decade have fed
anti-mining sentiment. Heavy rainfall in 2014 in Mexico for
instance resulted in the spill of 40 million litres of copper
sulphate into the Sonora River in Mexico, making it the mostserious environmental disaster in the history of mining in
Mexico. Two tailings dam collapses occurred in Brazil in

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In Focus: Social challenges of expanding mining
Developments in Panama at the end of 2023 highlight the challenges for expanding mining and greening the energy supply amid risinganti-mining sentiment. In October 2023, Panama’s National Assembly approved a renegotiated contract with a subsidiary ofCanada‑based First Quantum Minerals (FQM), the owner of Cobre Panama copper mine. The Cobre Panama mine started commercial
operations in September 2019 and supplies 1.5% of the world’s copper. The new contract offered more favourable terms to thegovernment and would allow FQM to extract copper for at least 20 years and extend mining operations for another 20 hectares in aforested area of the Panamanian Caribbean.
Its approval by the National Assembly triggered massive social protests and road blockades. Protesters among others warned about
threats to water supplies and the environmental impact of open-pit activity, which would destruct key ecosystems that indigenous
people depend on. They filed a case at the country’s Supreme Court, saying that the contract may violate the constitution because there
was no public bidding process, no effective or prior public consultation, and no environmental impact assessment. Anti-mining
demonstrations only stopped once the Supreme Court unanimously declared in an historic ruling at the end of November that thecontract was unconstitutional as it violated 25 articles of Panama’s constitution, effectively overturning the agreement. Those include
the right to live in a pollution-free environment, the obligation of the state to protect the health of minors and its commitment topromote the economic and political engagement of indigenous and rural communities.
Termination of the contract and the closure of the mine has negative consequences for Panama’s government finances and economy.
The government might face arbitration claims for as much as USD 10 billion, the amount that FQM claims to have invested in the mine
and associated infrastructure, including a power plant, cross-country transmission lines, roads and a port. This would amount to over
10% of Panama’s 2023 GDP.
What will happen next is unclear, but renegotiation of the contract and restarting operations at the mine seems very challenging as the
Court’s ruling and anti-mining sentiment offer little scope for this. In early January 2024, about 500 people protested at the Cobre
Panama mine to pressure authorities and the mining company to follow through on plans to close the site. FQM has indicated that it isseeking formal talks with the Panamanian government to proceed with the safe and orderly closure of the mine (Chile's SQM suspends
operations at lithium salt flats due to blockades | Reuters). In any case, the episode not only shows the challenges for the green
transition but has also damaged Panama’s business-friendly reputation.

2015 and 2019, causing gigantic mudslides that destroyed
villages and infrastructure. The first occurred on the Doceriver, killing 19 people and the second on the Paraopeba
river, killing 270.
These mining-related conflicts come in many ways, butparticularly take the form of social protests and strikes,
which often come along with road blockades. Increasingly,
indigenous people protest against the opening of new mines,
as they directly feel the impact of mining on theirenvironment and access to clean water and land, whileusually benefitting the least from the revenues generated bymining. A recent example is Peru, where anti-mining
protesters demanded the president to deliver on her
campaign promise of cancelling the Tia Maria greenfieldcopper mine project, so far with little success. This is incontrast to Panama, where massive protests eventually
forced copper mining operator First Quantum to suspend its
operations (see In Focus). Also in Chile, lithium producer
SQM had to temporarily suspend its operations in theworld’s largest lithium deposit at the start of the year, due toroad blockades by indigenous people. These conflicts showthat environmental responsibility and the ’social license tooperate’ are closely related. Such conflicts underscore theimportance of obtaining a ‘social licence to operate’.

Building a social contract is key for
expanding LACs mineral activities
In order to capitalise on its mining potential, the LAC region
needs to adhere to high ESG standards and benefit local
communities. Preventing, mitigating and restoring theadverse impacts of mining on the environment are keytasks for the sector. We see three types of initiatives could
help in this regard.

First, the global mining industry itself has done importantwork for instance by institutes such as Towards Sustainable
Mining (TSM) and the Initiative for Responsible Mining
Assurance (IRMA) and the Copper Mark that developed mine
certifications and standards and advise on how to makemining accessible to local communities and stakeholders.
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TSM has participating organisations in 13 countries,
including Argentina, Brazil, Colombia, Guatemala,Mexico and Panama. IRMA has completed audits at
more than a dozen sites in Africa, North America(Mexico) and South America (Argentina, Brazil andChile).

•The Copper Mark is a framework to promoteresponsible practices across the copper, molybdenum,
nickel and zinc value chains. Over 30 mining
companies in twenty countries participate, including
Brazil, Chile, Mexico and Peru and it has 38 partners
across the metal value chain.

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Furthermore, the International Council of Mining andMetals (ICMM) unites 24 mining companies (and 42
associate members), including from Bolivia, Brazil,
Chile and Peru (and Colombia, Ecuador and Mexico as
associate members) and is dedicated to a safe, fair andsustainable mining and metals industry. In October
2021 and in line with the objectives of the Paris
Agreement, the ICCM members pledged to achieve netzero scope 1 and 2 greenhouse gas emissions by 2050
or earlier.

Second, initiatives by international organisations support
resource-rich countries to conduct sustainable mining. The
Climate-Smart Mining Initiative, launched jointly in 2019 by
the World bank and IFC and the EU-Latin America
Partnership on Raw Materials project. The latter promotes
sustainable and responsible mining with the environment

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and the communities to achieve a fair, green and climateneutral economy. Such ESG standards and setting ESG
objectives are necessary, but not sufficient for sustainable
mining. Adherence to ESG standards and reporting isuneven in the LAC region because it contains many different
types of mining companies, ranging from large global
companies to smaller local companies. Among these global
companies, those from China are for instance not a memberof the initiatives mentioned above. Meanwhile, ESGreporting for many of the smaller local mining companies ismore challenging. Moreover, most of the ESG-standards areindustry led and do not necessarily focus on what the local
community finds to be valuable.
And third, and most importantly, initiatives by the mining
countries themselves are needed to mine sustainably. To
build trust and obtain a ‘social licence to operate’, authorities
should not only set clear regulations, but also ensurecompliance with these regulations and ESG standards. Most
importantly, they should engage with local communities by
setting up a dialogue between stakeholders, investors andcommunities. Particularly here the LAC mining countries
have work to do. Chile is a good example of the importanceof this. Its 2050 National Mining Policy is probably the mostfar reaching in the region. It includes targets to reduce water
use in the mining industry, eliminate critical tailings by
2030, ensure that 90% of electrical energy contracts in themining sector come from renewable sources by 2030 and

100% by 2050 and generate a positive net impact on
biodiversity by 2050 in all large- and medium-scale mining
projects developed since 2021. However, it does not
explicitly contain measures to engage the local community.
The feeling of being sidelined when state-run copper firm
Codelco signed an agreement with lithium producer SQM
was an important trigger for the road blockades that
resulted in the suspension of SQM’s operations early 2024.
This underlines the importance of engaging local
communities at the beginning of mining projects.

Greetje Frankena, Deputy Head ERD
greetje.frankena@atradius.com+31 20 553 2406
Dana Bodnar, Economist
dana.bodnar@atradius.com+31 20 553 3165

Atradius Economic Research 5

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