MICLA

McGill Research Group Investigating
Canadian Mining in Latin America

The current mining boom

Mining investment in Latin America has been increasing substantially over the past decade and is now the the biggest destination for mining exploration investments. The prices of minerals has also substantially increased due to increased global demand (particularly that of China).

Mining Rents

The difference between the value of production at world prices and the total cost of production for minerals is referred to as the mineral rent. These rents can provide significant sources of income for the local governments but they are not stable because they depend on the type / quality of the mineral, and the costs of production. Inefficient taxation systems based upon royalties of total profits do a bad job of getting the local governments increasing profits as the rents increase.

Dutch Disease?

Dutch disease is an economic theory that an abundance of natural resources causes a decline in the manufacturing sector due to the increase of revenues making the currency relatively stronger which in turn drives up the cost of exports. The manufacturing sector becomes increasingly weak because the cost of importing becomes very cheap.

Broadly speaking the recent boom has created more wealth for Latin America but mines are not an infinite resource, and increasing production brings into question environmental and political issues. Creating a sustainable growth based solely on mining means that managing price volatility is crucial along with creating checks and balances for the governance of these mines.