Industry Trend Analysis - Nationalised Sector To Deter Foreign Investment - FEB 2016
BMI View : Venezuela's state-run mining sector will continue operating below production capacity due to outdated technology, labour issues and a lack of investment.
Venezuela's mining output will continue to experience underwhelming growth, as the weak mineral price environment and nationalised industry will curb new investment entering the sector over the coming years. The country, which is among the top 10 global bauxite producers and the second-largest coal exporter in Latin America, boasts significant mineral reserves, including an estimated 320 million tonnes (mnt) of bauxite, 479mnt of coal, and 2.4 billion tonnes (bnt) of iron ore. We forecast weak coal production growth, from 1.3mnt in 2016 to 1.4mnt in 2020, averaging 0.5% annual growth. We expect Venezuela's nickel output to contract by 3.0% annually, from 10.0 thousand tonnes (kt) in 2016 to 8.8kt by 2020.
Venezuela's state-owned mines operate significantly below production capacity due to insufficient infrastructure, outdated technology and strict, costly labour regulations. During 2009-2012, the government nationalised all mines in Venezuela under populist leader Hugo Chavez, looking to increase government revenue and support the resource nationalisation agenda. For instance, in 2014, the country's primary nickel mine, Loma de Niquel produced approximately 3.3kt of nickel under government operations, compared to 13.4kt produced in 2011 under international miner Anglo American ownership. The country's 2012 expropriation of Loma de Niquel led to an estimated 75.4% decline in output.
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