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REGIONAL ROUNDUP LATIN AMERICA

BHP/Vale pay for Brazil disaster

Brazil’s government said it may fine mining The apologies, however, are not doing ficials have determined a cause for the rup-
giants BHP Billiton Ltd and Vale SA for the much to calm nerves. More than 500 peo- tures, though Samarco acknowledged that
“environmental catastrophe” caused by rup- ple remain displaced because of destroyed workers, 13 of whom were washed away by
tured dams at an iron ore mine jointly owned homes, and recovery crews are slogging the torrent, were engaged in an expansion
by the companies in a south-eastern state. through nearly 100km of mud-caked flood- of the first dam when it burst. The work was
plain in a search for more victims. necessary because of increased output at the
The Government is increasingly concerned mine.
over the rising death toll and contaminated Fernando Pimentel, the governor of Minas
mud flowing through two states as a result of Gerais, said the companies were not doing A state prosecutor said investigators were
the disaster. It is studying the mine’s permits enough to address the problems caused by probing reports that Vale contributed to high-
and will ensure the owners pay for cleanup the disaster, including the interruption of wa- er water volumes behind the dam by sending
costs, Environment Minister Izabella Teixeira ter service for hundreds of thousands of resi- waste from one of its nearby mines to Sa-
said in Brasília, the capital. dents downstream. marco’s tailings pond. When a reporter asked
about the reports at the news conference, the
“If federal fines are applicable, we will ap- Water from the dams that burst contained executives did not answer.
ply them,” Teixeira told reporters. “There will mining residue known as tailings.
be punishment, and under Brazilian law the The disaster has become a public rela-
environment has to be repaired.” “Samarco, to blame for all of this, will have tions, regulatory and financial nightmare for
to make a greater effort,” Pimentel told re- the companies. Politicians, environmentalists
Her remarks are the strongest yet from the porters in Governador Valadares, a city of and residents are calling for tougher rules on
Government, which was caught off-guard by 300,000 residents that is now having its water the mining industry, which employs hundreds
a disaster that killed at least nine people and trucked in. of thousands of people and is a major source
left at least another 21 missing in the mineral- of export revenue.
rich state of Minas Gerais in early November. President Dilma Rousseff believes the min-
ing companies must pay for the clean up of In addition to the financial costs due to
The warning came as the chief executives devastated and flooded villages and the res- lost output and repairs at the mine, which ac-
of Australia-based BHP Billiton, the world’s toration of water supplies, a presidential aide counts for about 10% of Brazil’s iron ore ex-
largest mining company, and Brazil’s Vale, the said. ports, BHP Billiton and Vale are expected to
world’s biggest iron ore miner, took responsi- face steep fines as well as lawsuits at a time
bility for the disaster. The Brazilian leader telephoned Ferreira when iron ore prices are at their lowest point
and Mackenzie, Brazil’s national integration in a decade.
After surveying the devastated area to- minister Gilberto Occhi told reporters.
gether, BHP Billiton chief executive Andrew A person familiar with the insurance frame-
Mackenzie and Vale chief executive Murilo Known for her harsh reprimands of oppo- work around the mine said that the disaster
Ferreira told a news conference their compa- nents and subordinates, Rousseff told the could trigger $US600 million in insurance
nies would meet all their obligations as joint chief exectuives that she expected Vale and claims.
owners of the mine, which is formally run by BHP Billiton to cover all environmental and re-
Samarco Mineração SA. construction costs as well as pay compensa- In response to the growing public criticism,
tion to displaced families. Vale on said it had “supported Samarco since
They said BHP Billiton and Vale would cre- the first day” of the disaster and had provided
ate a joint fund for the recovery costs, but The conversation was “tough”, a presiden- 100 employees, helicopters, fuel and vehicles
added that it was too soon to calculate how tial press aide told Reuters. To reinforce her to the recovery effort. Ferreira said he did not
much would be needed. They also reaffirmed message, Rousseff asked her chief of staff, see the need to publicise his first visit to the
their long-term commitment to the joint ven- Jaques Wagner, to meet with the companies’ area because he did not want to speak on be-
ture. executives. half of Samarco.

“We are 100% committed to do everything Mackenzie flew to Brazil in November as The mine employs about 1,800 workers,
we can do to support Samarco and make this Ferreira came under increasing fire from local most of whom are now on paid leave as op-
right,” Mackenzie said. “We are deeply sorry authorities, residents and media for what many erations have been halted.
for everyone who has or will suffer for this ter- saw as a laconic response to one of the South
rible tragedy.” American nation’s worst mining disasters. – Reuters

Neither the companies nor Brazilian of-

BHP Billiton reviews South American JVs

BHP Billiton Ltd said it was reviewing two at Antamina and Cerrejón,” BHP Billiton chief Cerrejón in Colombia, one of the world’s
other mining JVs, in Peru and Colombia, executive Andrew Mackenzie told a confer- largest open pit coal mines, is owned equally
following a dam disaster at an iron ore mine in ence call. by BHP Billiton, Anglo American plc and Glen-
Brazil, which it jointly owns with Vale SA. core.
BHP Billiton has two types of JVs where
BHP Billiton told analysts and investors it it does not operate the mines, he added, ac- Brazil’s president slapped preliminary fines
was examining the structures of its Cerrejón cording to a transcript of his comments re- of $US65 million against Samarco, and Brazil-
coal JV in Colombia and its Antamina copper/ leased by the company. ian federal prosecutors also announced plans
zinc JV in Peru after the Brazil disaster. to work with state prosecutors to investigate
Under some ventures, mostly in its petro- possible crimes that could have contributed to
Two dams collapsed on November 5 in leum business, another party is the operator, the disaster.
south-east Brazil, killing nine people and coat- while in Samarco, Cerrejón and Antamina,
ing a two-state area with mud and mine waste. there is a standalone company that is jointly So far there have been nine deaths, BHP
owned. Billiton said on November 13, citing Samarco.
The Brazilian mine is owned and operated State authorities said at least 21 people were
by Samarco Mineração SA, a JV of Anglo- “That (second type) is the kind of arrange- still missing and most were likely buried in the
Australian BHP Billiton and Brazil’s Vale. ment we need to review and have been re- heavy trail of sediment that was disgorged
viewing, to be honest, to decide ... whether when the dams burst.
“We will look into, for our own benefit ... a more petroleum-type model might be more
the arrangements that we have at Samarco appropriate in the future.” – Eric Onstad, Reuters
which mirror similar arrangements we have

PAGE 102 DECEMBER 2015 - JANUARY 2016 AUSTRALIA’S PAYDIRT

SAVE THE DATE!

LATIN

AMERICA

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for Australian-Latin American relations, showcasing the very best of this growing relationship.The 2016 event will bring

this vibrancy to Australia’s mining capital for the first time, allowing a new dimension to unfold.
The two-day conference will provide prime opportunity for governments, companies, service providers,

media and investors to network and share their stories and experiences of operating in one of
the world’s premier mining investment regions.

www.latinamericadownunder.com

To present, exhibit or attend as a delegate please contact
Melita Fogarty on (+61) 8 9321 0355 or email [email protected]

REGIONAL ROUNDUP

Chile continues to
court Australians

Chile remains Australian companies’ “To overcome these challenge we are
most welcoming gateway to Latin
America, according to the head of a re- very interested in attracting the capa-
cent Chilean government delegation to
Australia. bilities of Australian METS companies

As the world’s largest copper produc- to Chile.”
er, Chile is a first-world mining indus-
try but Vice Minister of Mining, Ignacio The two objectives may appear con-
Moreno, told Paydirt Australian compa-
nies would find it an ideal springboard trary but Moreno believes the prize on
from which to launch any South Ameri-
can expansion. offer is so large that both Chilean and

“We want to promote Chile as a plat- Australian companies can enjoy growth.
form for Australian companies in South
America,” Moreno said. “It is the best “If possible, we would like to investi-
bet for Australian companies and the
best entry point to the entire continent. gate synergies between Australian and
The country has very good investment
rules and stability. Our legal invest- Chilean METS companies,” he said.
ment framework doesn’t discriminate
between foreign and local investors, “I think the South American market is
or between public and private inves-
tors. Codelco [the state copper mining huge and there is room for everyone.
company] is treated in the same way
as private investors. So, there are ad- More than competition, we are looking
vantages for Australian companies and
Chile should be seen as a platform for for alliances.”
wider South America.”
That would include building a Chilean
Australian mining’s presence in Latin
America has increased in the last dec- presence in Australia, he said.
ade as junior explorers become more
aware of the region’s potential and the “It is important to show Chilean inter-
opportunities still available. However, it
is the country’s METS companies which est in Australia and have a permanent
have led the charge with many now es-
tablished in Santiago or Lima, capital of relationship because Australians are
Peru.
very active in Chile.”
Moreno said the purpose of his visit
was to encourage more Australian Both countries recently signed on to
METS companies to enter
Chile and also learn from the Trans Pacific Partnership (TPP) but
them and the Australian Gov-
ernment about what it takes like his Australian counterparts, Moreno
to develop a strong METS
sector. is still unsure as to what affect the free

“In Chile, we have been trade agreement would have on the
working on the METS sec-
tor for 10 years and we are mining and METS sectors.
interested to look at what
Australia is doing and also “We hope the TPP will have a posi-
put out an invitation to METS
companies,” he said. “There tive affect but Chile only signed a few
is $US74 billion in the mining
portfolio in the next 10 years months ago and as a mining ministry
and we expect more than
half of those projects to be we don’t yet have a clear agenda. We
developed. But we need the
best capabilities to develop are building that with the foreign office
them because we face chal-
lenges; especially regarding now and so should have a position in
energy, water issues, tailings
management, etc. the next few months.”

While the METS sector provides the

Australian companies would find Chile an ideal springboard from strongest engagement between Chile
which to launch any South American expansion, according to a and Australia, project investment is also
government official increasing with a new generation of
Australian junior miners and explores,

led by Hot Chili Ltd, achiev-

ing success in Chile.

This comes despite

Chile’s copper landscape

generally being dominated

by the world’s majors. Ac-

cording to data from SNL

Metals & Mining, Chile’s

2014 exploration budget of

$US594.4 million places it

fifth on a global level. How-

ever, while majors account-

ed for $US427 million of the

country’s copper explora-

tion, the contribution of jun-

iors was only $US47.2 mil-

lion. By comparison, juniors

accounted for $US606.5 mil-

lion of Australia’s $US1.25

billion exploration budget in

2014.

Chile boasts a mining portfolio worth $US74 billion, with half of the projects Moreno said the Chilean

expected to be developed in the next 10 years Government was conscious

PAGE 104 DECEMBER 2015 - JANUARY 2016 AUSTRALIA’S PAYDIRT

LATIN AMERICA

of the role juniors could The copper indus-

play in generating the try’s contribution to GDP

next wave of discovery, stands at around 10% and

particularly at a time the recent fall in commod-

when exploration spend- ity prices has led to re-

ing was on the wane, and duced revenues flowing to

said it was considering public coffers.

ways it could encourage Bachelet established a

them. sovereign wealth fund in

“Investment in explo- 2007 which accumulates

ration is crucial for the surpluses which are above

condition of the mining 1% GDP, meaning Chile

sector and we are con- still finds itself in a healthy

cerned because explo- position.

ration budgets have de- In October, the Govern-

creased,” Moreno said. ment announced it would

“We believe one reason give Codelco – the world’s

for this is the decline largest copper miner –

in the copper price but “We want to hear from Australian $US600 million to support
there may also be partic- juniors what we need to resolve its investment plans.
ular situations in Chile that need and how we can improve public policy “Taking into account Codel-
to be resolved. We want to hear co’s updated 2014-2018 busi-
from Australian juniors what we to encourage exploration. ness and development plan, the
need to resolve and how we can company’s plans to adapt its in-
improve public policy to encour- vestments to fit the current eco-
age exploration.” nomic scenario and its efforts
to rein in costs, a decision was
The availability of land has made to give Codelco a capital
already been raised among the

many TSX-listed juniors active injection that will allow it to main-

in Chile and Moreno said the Government reform is only related to other sectors.” tain its healthy financial standing,” the Minis-

was looking at ways it could counter the prob- While even established mining jurisdictions try of Mines said in a statement.

lem. such as Australia have endured painful de- Codelco is re-examining its investment

Community relations remain another chal- bates around mining’s tax contribution but in plans in light of a sharp drop in copper pric-

lenge for Chile, Australia and the global min- Chile – where royalties are 5% on copper – it es and has said it will delay some projects

ing industry. While Chile has not experienced is off the agenda. and redesign others. But it underscored that

the level of protest and clashes witnessed in “Tax reform is not really debated regards it would not abandon key projects it says it

Peru, Brazil or Ecuador, Moreno believes the the mining sector,” Moreno said. “We had that needs to keep production flowing.

issue remains a critical one to the industry. debate 10 years ago and changed the royalty It plans to invest up to $US22 billion over

“It is now a key factor in the success of a rate in 2004. A temporary levy was brought in the next several years, some $US3 billion less

project where perhaps it wasn’t 20 years ago,” following the 2010 earthquake but in the last than initially planned, to revamp ageing mines

he said. “This may be the most difficult chal- five years there has been no public debate and build new ones to counteract falling ore

lenge the global industry faces. Communities about the tax contribution of the mining sec- grades and maintain copper output.

are more organised and engaged and want tor. The Government understands the indus- “These funds, plus the September bond

to be involved from the genesis of a project. try is facing a difficult situation so we don’t feel issue, allow us to secure financing for this

We have a changing paradigm of the relation- the need to press the sector.” year and next year, considering our adjusted

ship and it is a very complex task for the investment plan,” chief executive Nelson

industry.” Pizarro said in October.

Chile is also facing complex tasks on The lowering of targets has also been

the wider domestic political front. On her seen in government. Moreno said the

re-election in 2013, President Michelle Government had revised its forecasts for

Bachelet identified education as a key copper after getting its 2015 predictions

plank of her reform agenda. wrong.

“We believe we have to face this “At the beginning of the year we had

structural reform because society has projections of $US3/lb copper price,”

changed in the last 20 years. We have to Moreno said. “Looking back that was too

calibrate public institutions to the new ex- optimistic and there has been a strong im-

pectations. The public education system pact on public funds because Codelco is

is poor and it is very important that we an important source of finance.

have a better, more democratic system “We are actually optimistic for the

for the future. We must also improve pro- medium-term outlook,” he said. “I think

ductivity and the way to do that is through we may have a difficult 2016, but things

education. Chile is losing talent and so look positive for 2017 and 2018. Some of

closing the education gap is a win-win for the majors are cutting production around

the country and industry.” the world next year, and that could take

To fund the education reform, the Gov- as much as 300,000t out of the copper

ernment has also launched tax reform market.

but unlike other countries has not been “We think a price for 2017 of about

tempted to lean on the mining sector for $US2.80/lb will be positive for the indus-

greater contributions. try.”

“In the mining sector, there will be no – Dominic Piper
structural change or changes in mining

tax or royalties,” Moreno said. “The tax Chile is already proving a gateway to Latin America

AUSTRALIA’S PAYDIRT DECEMBER 2015 - JANUARY 2016 PAGE 105

REGIONAL ROUNDUP

Manas settles in Kyrgyz

Manas Resources Ltd may At AISC of $400/oz gold production, Shambesai is unrivalled on the ASX as a low-cost project
have one of the lowest op-
erating cost, ready-to-develop, Total average costs for Manas’ Shambesai design mean it is not really that sensitive to
gold assets of any listed ASX project, including capital is $US720/oz, based gold price at all, it is more funding for the pro-
company, but with sentiment on a life-of-mine (about 4.5 years) gold price ject and sentiment helps with that of course. It
for juniors languishing, com- of $US1,300/oz. is getting financiers on board in a low political
ing up with project financing risk jurisdiction and getting funding in place.”
remains a problem. Given the downward trajectory of the yel-
low metal, Manas saw it prudent to rework the Pit re-optimisation work and project sched-
At less than $US1,100/oz, design of the Shambesai open pit. uling has also resulted in a heavy reduction in
the gold price wasn’t flatter- pre-production capital estimates from $US41
ing at the time of print and with Initial results have demonstrated reducing million to $US30 million, with total capital
uncertainty on which way gold the pit size by a total volume of 50% would costs now $US44 million down from the BFS
was headed, investors can’t be result in only a 15% reduction in the gold re- estimate of $US48 million.
blamed for not digging deep to source contained in the pit.
fund projects, particularly in China, Russia and Kazakhstan have shown
relatively unknown jurisdic- In February, Manas was working with an in- a penchant for investing in Kyrgyz, while Euro-
tions such as the Kyrgyz Re- pit resource of 2.4mt @ 3.71 g/t for 289,100/oz pean investors have also been enticed by the
public. which had been optimised to 1.83mt @ 4.18 cheap cost of doing business in the country.
g/t for 246,400oz in October.
However, if investors were Calderwood said project funding could
prepared to look closer at “We are looking at the smaller pits and come from these markets plus boutique bank-
places like the former Soviet scheduling around that. It is a highly profitable ing firms and private equity groups.
state, chances are they may operation anyway; it is in the bottom quartile
well think twice about pursuing opportunities of world projects and probably in the bottom “It is fully approved and ready to go, con-
in such countries. 10% in terms of projects around the world. It is struction is expected to be quick, about 12
very low and we have a good chance to drive months and the pay back [10 months] very
“There’s a lag of perception on political risk it even lower because of the cost of opera- rapid also,” Calderwood said.
and in the case of Kyrgyz that lag is too long,” tions and capital costs as well,” Calderwood
Manas executive chairman Mark Calderwood said. BFS numbers indicated a project running
told Paydirt. at 550,000 tpa for 55,000 ozpa gold over 4.5
“It is not dependent on gold prices at all. years, with life-of-mine cash flow after tax and
“There is quite a negative perception about AISC costs of $US400 or lower with the pit royalties of $US138 million.
Kyrgyz, but in country it operates quite well
and it will improve. It sits on one of the richest The BFS was carried out in 2013 at a gold
gold belts in the world and there is not a lot of price of $US1,500/oz, which was re-worked at
work being done, so there is a lot of potential $US1,300/oz to deliver the estimates above.
there.”
However, with contracting, equipment and
Boosting the country’s prospects of attract- fuel costs trending downwards, Manas is re-
ing potential investment dollars was the suc- viewing capital and operating costs again and
cessful running of national elections in Octo- expects to update the market in the Decem-
ber 2015. ber quarter.

It was the second election since the Bakiev Meanwhile, a PFS has started on potential
Government was overthrown in 2010, with underground ore, within 120m vertically and
SDPK claiming power with the highest num- 170m laterally of the pit.
ber of votes required for entry into parliament
and first rights to form a coalition government. Measured and indicated underground re-
sources are 660,000t @ 5.9 g/t for 124,700oz,
Joining SDPK, led by Prime Minister Temir including 390,000t @ 3.6 g/t gold (oxide) and
Sariev, to form government are the Kyr- a sulphide resource of 270,000t @ 9.2 g/t.
gyzstan, Ata-Meken and Onuguu-Progress
parties. – Mark Andrews

Importantly for the resources sector, there Mark Calderwood
has been no change in the heads of parlia-
mentary committee on subsoil (mining) issues
and State Agency for Geology and Mineral
Resources.

“After the ousting of the president five years
ago they have had a couple of democratic
elections which have functioned well and
shows the political climate is maturing. They
are pro mining, as mining is a key part of their
economy which will help us along quite a bit,”
Calderwood said.

“People want stability and the Government
for the last five years has been pretty good
and stable.”

Politically, Kyrgyz seems as good as any
country to be launching a mining business,
especially one touted to produce gold at aver-
age operating cash costs of $US416/oz over
life-of-mine.

PAGE 106 DECEMBER 2015 - JANUARY 2016 AUSTRALIA’S PAYDIRT