Latin America's green minerals bounty: economic boom or environmental bust?
Latin America and the Caribbean have some of the world’s largest reserves of ‘green’ minerals, but economic and environmental challenges threaten its extraction plans.
To meet sustainability targets, the world needs a ready supply of the minerals that help power electric cars and make wind turbines turn. That’s good news for the struggling economies of Latin America and the Caribbean (LAC), because the region holds a large share of these critical resources.
The bad news is that getting at this mineral wealth is fraught with difficulties. The mining sector in many of the most mineral-rich nations is underdeveloped. In some countries, processing capacity - which is where much of the economic value lies - barely exists.
Local and international investment is sorely needed, and it’s in the interests of domestic and global governments for the money to flow.
But developing these sectors in LAC is controversial. Doing so without a keen ESG focus and the cooperation of local communities is likely to lead to resentment, protest and costly holdups and cancellations.
The mineral reserves of Latin America
The promise is certainly real. More than half of the world’s lithium reserves are located in the LAC region. Lithium is a key element in the production of rechargeable batteries, a technology at the heart of the world’s sustainability ambitions.
The region is also home to around 40% of the world’s copper reserves, and significant reserves of bauxite, graphite, nickel, tin, manganese, and zinc. All of these minerals have important roles to play in a greener global future.
They could also have an important role to play in the region’s economic development, if they can be exploited responsibly and sustainably.
Green minerals promise economic growth
A sustainable world needs these critical minerals, and activity is ramping up. The share of global investments in the exploration of copper in LAC rose from around 30% in 2012 to nearly 45% in 2022. Lithium in the region saw its share of global investment double over the same period. Major lithium mining projects are underway in Brazil, Argentina and Bolivia.
But what does that mean in economic terms?
We expect the revenue from critical minerals in the region to double to US$200 billion by 2050. By mid mid-century, revenue from critical minerals in LAC is likely to overtake revenue from fossil fuel production.
That’s positive, but is it enough? Current forecasts suggest that combined earnings from minerals and fossil fuels will be lower in 2050 than they were in 2022. In other words, the rise in mineral revenues will not be enough to make up for reduced earnings from oil, natural gas and coal. It’s no surprise that a number of Latin American countries are scrambling to find and exploit new fossil fuel reserves, regardless of the requirements of sustainability.
Adding value: extraction alone is not enough
One problem for the region is that it continues to be a producer of raw materials, but not a processor of them. Raw materials from LAC helped fuel China’s rapid economic growth over the last two decades, because of China’s high processing and refining capacity. By contrast, the extraction and export of raw materials are relatively low value activities.
To fully benefit from the abundance of natural resources, governments in the region need to encourage the development of local refineries, processing plants and manufacturing facilities associated with mineral mining. That’s beginning to happen.
International investment is also scaling up. The West’s relationship with China is tense, and reliance on China for mineral processing leaves the US and EU vulnerable in the event of a full-blown trade war. With that in mind, the US has already introduced policies to encourage the development of mineral processing capacity in the LAC region.
The landmark Inflation Reduction Act (IRA) stipulates that, by 2027, 80% of the critical minerals and battery components for US electric vehicles must be extracted or processed either domestically or in a country with a free trade agreement (FTA) with the US. Chile, Colombia, Mexico, Peru and a number of other LAC nations already have these FTAs.
Similarly, a Memorandum of Understanding was signed between Chile and the EU last year to establish a strategic partnership on sustainable value chains of raw materials, with the aim of developing added value activities in Chile.
Partly in response to these initiatives, China is ramping up its own activities in the area. In July 2023, BYD - the world’s largest producer of electric vehicles - announced plans to make Brazil its first EV and lithium iron phosphate battery manufacturing hub outside Asia.
Can mineral mining be responsible and sustainable?
While economic and geo-political pressures push in one direction, social and environmental considerations exert an opposite force. The success of LAC as the global hub for mineral extraction and processing may depend on its ability to develop capacity in a responsible and sustainable way.
Mining is traditionally unsustainable, with a range of potentially severe environmental and social impacts. This is more true in Latin America than elsewhere. In the IEA’s Latin America Energy Outlook, Latin America scores lowest among all regions on ESG-impact allegations linked to the mining of critical minerals. Between 2010 and 2022, the region had the highest number of publicly reported environmental and human rights abuses at mine sites. This is because minerals in Latin America are often located near sensitive nature reserves, many of which are home to indigenous people.
LAC naturally wants to develop its mineral mining and processing capacity, but the ends will only justify the means if sustainable mining practices are baked into the process. And there are still some challenges in the area of sustainable mining. According to the Global Atlas of Environmental Justice, 45% of reported mining conflicts are located in Latin America. A chequered history of mining disasters and land degradation feeds significant anti-mining resentment.
Anger manifests as protests, strikes and roadblocks. Politicians are pressured to cancel mining-related projects. The threats are real: mineral producers in Panama and Chile have had to suspend operations in recent times after local opposition.
So what’s the answer? Building a social contract is crucial to expanding mineral mining and processing in LAC. We think there are three steps to doing so:
LAC has major reserves of the minerals the world needs as it moves towards a sustainable future. But the economic opportunity will only be fully realised if the development of mineral mining is accompanied by a corresponding expansion of added value activities - alongside a cast iron commitment to environmentally and socially responsible mining practices.
Contributors
Greetje Frankena | Senior Economist, Atradius
Dana Bodnar | Economist, Atradius
Silvia Ungaro | Senior Writer, Atradius
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Great read!