Industry Trend Analysis - Limited Growth For Precious Metals - APR 2016


BMI View: Guatemala ' s precious metals production growth will be constrained by both rising local opposition to mining and ongoing corruption challenges , which will fuel security concerns and deter investment.

Guatemala's gold and silver production will experience muted production growth, as increasing local opposition to mining delays projects and interrupts operations and the country's ongoing corruption challenges will deter foreign investment. For instance, on March 11, protesters demanded the closure of Exploraciones Mineras de Guatemala's (a subsidiary of US firm Kappes, Cassiday & Associates -KCA) El Tambor gold mine, citing water pollution as the primary concern over the project. Previously, in July 2015, a court ordered KCA to cease construction at the El Tambor gold mine due to widespread protests against the project.

According to KCA, construction at El Tambor was completed in 2014 and the mine had already begun production at the time of the court order. Guatemala will continue to be a particular flashpoint for tensions between local communities and miners in Central America, as the lack of reforms by new President Morales' administration fails to allay the widespread popular discontent that drove President Otto Perez Molina to resign in September 2015 ( see: ' Lack Of Reforms Will Undermine Corruption Crackdown ' , March 1).

Uncertainty surrounding the new administration's mining policies will hamper foreign investment. For instance, President Morales, whose Frente de Convergencia Nacional party has yet to take a stand regarding the conflict between communities and miners, expressed his intention to raise mining royalties from 1.0% to 10%. However, in September 2015, Guatemala's Constitutional Court ruled against the legality of the 10.0% mining royalty and reinstated the original 1.0% rate.

High Risks To Overshadow Mining Potential
Select Countries - Mining Risk/Reward Index
Source: BMI

Project Delays , Stagnating Growth To Continue

Operational challenges stemming from corruption and political unrest, exacerbated by low commodity prices, will curb mineral production growth in Guatemala. We forecast Guatemala's silver production to increase marginally, from 27.3 million ounces (moz) in 2016 to 29.0moz by 2020. For instance, Canadian miner Tahoe Resources reported a slight increase in silver output, from 20.3moz in 2014 to 20.4moz in 2015, at the country's key silver mine, Escobal. Tahoe's 2016 silver production guidance reveals limited expectations for growth, between 18.0-21.0moz.

Similarly, we expect the country's gold output to edge higher, from 191 thousand ounces (koz) in 2016 to 204koz by 2020. Guatemala's gold sector will continue to face opposition, which will curb production growth. For instance, local communities have protested against KCA's El Tambor gold mine since 2012, and which began operating in 2015, albeit at a limited level due to a continued blockade at the mine's entrance. Furthermore, over the first nine months of 2015, Goldcorp reported lower gold production at Marlin, with output totalling 128koz compared to 134koz over Q1-Q314.

Muted Growth Ahead
Guatemala - Gold & Silver Mine Production Growth (% y-o-y)
e/f = BMI estimate/forecast. Source: BMI, USGS