Both names are likely to attract attention because of their exotic origin, in faraway Africa. The first is the largest copper project to start commercial operations in the world in recent years and the second is one of the largest lithium projects that could start producing in the next few years. And both have one thing in common: they are in the Democratic Republic of Congo, one of the most difficult jurisdictions for mining investment.
A few days ago, the world’s leading mining company, BHP, operator of three large copper mines in Chile, reported that it is also considering investing in this country in what represents a historic shift in its strategy. Another traditional copper country, Zambia, neighboring Congo, has announced that it will design a stable, predictable and competitive mining regime.
These developments should be analyzed with great interest in countries such as Chile and Peru, which have concentrated the interest of the world’s mining investors in recent decades. The fact that mining investment in Congo and Zambia is becoming viable reflects that there is a great appetite for minerals such as copper, lithium, cobalt and others relevant to the decarbonized economy that the world is seeking to achieve, capable of digesting levels of risk that would have been very difficult to tolerate in the past. Following this argument, the sharp deterioration of the investment environment in Chile and Peru might not be so harmful because, at the end of the day, if one invests in Congo and Zambia, where risk has historically been even higher than in Latin America, the latter should be able to maintain its capacity to attract investment.
But this conclusion should be taken with extreme caution as there are significant differences. The most relevant is that while in Chile and Peru the grade of copper projects is below 1%, in Africa the grades average 4 to 5%, marking a gigantic difference. The quality of African projects can more than compensate for their poorer investment environment, especially because the time in which investors can recover their capital is much shorter and thus significantly limit the risk. Secondly, even though African institutions are weaker than those in Latin America, what makes the difference is the capacity to materialize projects, i.e. the delivery that an investment can have. In this regard, it is of little use to have an apparently superior institutional framework if mining projects in Chile and Peru face growing hostility at the regulatory and judicial level, which ends up generating poor legal certainty and low delivery, especially for new projects.
Finally, the geopolitical factor cannot be ignored. African projects are becoming viable because China is not only investing directly in projects in Africa, but also because for years it has been investing in infrastructure such as energy and transportation, which has created the conditions for projects that were previously very difficult to exploit due to their geographic location, and have now increased their chances of seeing the light of day.
The heated political processes that Chile and Peru are experiencing have mining as one of their central elements. It would be advisable to take world events into account so that, with intelligence and rationality, the best decisions can be made for the common good.