chairman’s message - alabc.com.au · chairman’s message ... dilma rousseff, ... that future...

Chairman’s Message This month has seen Australia’s Prime Minister, Julia Gillard, visit both Mexico (for the G20 Leaders’ Summit in Los Cabos) and Brazil (for the Rio+20 Climate Change Summit in Rio de Janeiro), with the latter visit making history due to it being the first to Brazil by an Australian Prime Minister. Such visits are always welcome and it is to be hoped that, despite their shortness, they contribute to positioning both Brazil and Mexico more prominently on Australia’s radar. At the very least, the agreement that was signed by Prime Minister Gillard and Brazil’s President, Dilma Rousseff, to take the Brazil-Australia relationship to the level of a strategic partnership augurs well for the future. Despite concerns about declining growth in Brazil, the fact remains that Brazil has transformed itself into the world’s sixth-largest economy, with the potential to convert its economy – blessed as it is with a population of almost 200 million and an abundance of natural resources – into an even more potent force. At the same time, Mexico is making important inroads in taking manufacturing capacity away from China and once more positioning itself as an ideal base from which to supply the North American market. The nation will shortly elect its next president, who will have a term of 6 years in which to continue the revival of Mexico’s economic base. In this context, it is hard not to feel a sense of disappointment that the visits to these two important countries and fellow G20 members were the result of international summits rather than specific bilateral head of government visits. The latter would have entailed a far greater focus on bilateral issues and would have sent very clear messages to Latin America’s two largest economies that Australia was truly committed to building closer ties. Even so, there are some positives that we can take away from the visits. It was refreshing to see the extent of the media coverage of the Prime Minister’s trip, including some in-depth reporting on Brazil that highlighted the similarities between it and Australia, and the potential that Brazil holds for Australia. That part of that reporting was based on briefing material that the ALABC prepared and made available to the local media in advance of the Prime Minister’s trip reflects very well upon the work being done by our Council and highlights the capacity that we have to help raise awareness of the markets in Latin America.

This issue (Click on heading to open article)

Chairman’s message 1 Prime Minister’s historic visit to Brazil 3 Pacific Hydro seals joint venture with Vale 3 Tim Kane appointed Ambassador to Chile 4 Chile builds closer ties through naval diplomacy 4 Mark the dates in your diary 5 SEEK increases its investment in Brazil and Mexico In the spotlight: Richard Rains 7 Rio Tinto and Chinalco form JV in Chile 8 Resources snapshot 9 Citi sings praises of Colombia 10 ALABC Mission to Colombia 11 Which markets are best prepared for downturn 11 Financial Services Focus -New Latin American equities fund launched 12 -Brazil launches revamped antitrust regime 13

Launch of Pacific Alliance 14 Chile’s first mining cluster 14 Xstrata Copper mulls geothermal option 15 OZ Minerals strikes Chile copper deal 15 Brazil’s strategy: Spend, spend, spend 16 Booming Mexico 17 Art attracts attention of Brazil’s new wealthy 18 Red light for green energy 19 Argentina targets mining firms 20 Brazil eases tax rules for infrastructure bonds 21 Uruguay grows 1.9% in first quarter 21 For the diary 22

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Edition: June, 2012

Newsletter of the Australia-Latin America Business Council

www.alabc.com.au Tel: 02 9357-4441

The challenge that arises from the signing of the strategic partnership agreement is to ensure that it is acted upon and that it becomes the catalyst for comprehensive and sustained action in building closer ties between Australia and Brazil. We cannot allow the agreement to be filed away and to gather dust. The importance of doing so increases as the deadline nears for the tabling of the White Paper on “Australia in the Asian Century”, lest we fall into the trap of becoming too dependent upon this region. The importance of the Asia region to Australia is undeniable given that it is the destination for so many of our exports, an important source of investment into Australia and the likely engine for global growth for the foreseeable future. However, the proposal put forward during the month (as reported in The Australian in an article titled ‘Working with Asia the ticket to industry assistance’) that future government assistance to industry would be contingent on a company’s ability to manage the shift to Asia, including the way it linked to suppliers and customers throughout the region, is somewhat disappointing and suggests a lack of balanced perspective. With China at the forefront, the Asia region is clearly gaining economic ascendancy in the global market place. However, it would be wrong to base all of our economic strategy on this one region, or to assume that it is the only region that offers rewarding opportunities for Australian companies or that it offers the best opportunities to all companies. The volatility that we are seeing in global markets is likely to continue for some time and will have ramifications for all markets, including Australia. Survival will be the key objective and those companies that prevail will be those that ‘modernise and transform’ to use the words of Trade Minister, Craig Emerson, that have strong leadership and can achieve world-class standards, irrespective of whether they are from the manufacturing, services or other sectors. Rather than develop policy around a single region, the government should be focusing on creating an environment that allows Australian business to be competitive on the global stage irrespective of where it seeks to do business. Government should lead and assist, not dictate which markets business should target. The White Paper will hopefully provide a blueprint for how Australia can capitalize on Asia’s growth, but it would be a flawed strategy if its recommendations did not acknowledge that there are other markets in the world that hold promise for Australian business, both in their own right and because of the ways in which they too will interact with Asia. Key markets within Latin America are and will continue to be important contributors to global growth over the next decade and, as such, they have much to offer to Australian business. A growing band of middle income consumers within the region will propel consumption and have wants and needs that Australian business should be targeting. Our fashion brands and wine companies should not overlook the opportunities on offer. Nor should our educational institutions, our fund managers and our service providers, to mention just a few. In the face of the apparent stampede into Asia, there are strong grounds for believing that those businesses willing to focus on building their franchises in Latin America will find the going that much more rewarding. There is so much more that Australian business can do in Latin America. The merits of market such as Brazil and Chile have been well documented, but there is much more that we need to understand about markets as diverse as Colombia, Mexico, Peru and Uruguay, to name just a few. Central America has yet to make it onto the radar of most companies, yet even these small markets hold opportunities. They too have consumers and businesses that could benefit from what Australia has to offer. As companies become far more cost conscious and defensive in response to the growing concerns about the fallout from the Eurozone crisis, the challenge will be to maintain the commitment to investment in growth. Establishing a base in Latin America and working to expand it into as many markets as possible should be a priority for many more Australian companies. Jose Blanco, Chairman ↑Return to Index

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Prime Minister makes historic visit to Brazil

Australia’s Prime Minister, Julia Gillard, visited Brazil from 20-22 June 2012 at the invitation of President Dilma Rousseff and to attend the United Nations Sustainable Development Conference (also referred to as the Rio+20 Earth Summit). In a seven-minute address to the summit in Rio de Janeiro, Ms Gillard said that even though government heads had "already lowered other important ambitions", it was important that the world put in place sustainable development goals (SDGs).

Ms Gillard and the Australian delegation pushed hard for SDGs to replace eight UN millennium development goals, put in place to fight global poverty in 2000 and which expire in 2015. The prime minister was appointed to co-chair a taskforce to oversee the final years of the millennium goals and ensure the 191 signatory nations meet their commitments. On the second day of the summit, Ms Gillard addressed a breakfast function where she announced $A33 million for action to protect fish stocks and conserve marine ecosystems, working with Asia-Pacific nations. She also

addressed a UN women's forum, at which she called inequality between men and women a "serious economic blind spot" costing an estimated $47 billion a year. Ms Gillard, the first Australia prime minister to visit Brazil, also held a meeting with President Dilma Rousseff on the sidelines of the summit during which the two leaders spoke about renewable energy, biofuels and mining, as well as future agribusiness exchanges and the forthcoming air services agreement start. In an address given at the ceremony held to announce a joint venture initiative in renewable energy between Australia’s Pacific Hydro and Brazil’s Vale, Prime Minister Gillard stated: “I actually think that there are a lot of similarities between our two nations. We both have a very sizable land mass, we are both great agricultural producers, we are both producers of minerals, of commodity that are in great demand in the world, we are both seeing the changes in our economy that that kind of demand for resources can lend. Both here in Brazil and in Australia we can see a patchwork effect in our economy where the strength of your resources sector can mean some troubled times for other parts of your economy, for example manufacturing. These are issues, policy issues, structural adjustment issues in our economy which we share and about which we can share perspectives.” From the meeting with President Rousseff came the signing of a new strategic agreement between the two countries on education, transport and trade. In this regard, Ms Gillard stated that this agreement “is a recognition that Australia and Brazil can have a more interlinked future”. The agreement is very broad in its focus, but some specific consequences are that officials will soon start planning for a trade and investment group meeting involving both countries, and a parliamentary delegation from Brazil is soon to visit Western Australia to study mining in indigenous lands. University students and academics will be exchanged under the Science without Borders program, and Australia is to hold a program of 'cultural activities'" in Brazil's Olympic hosting year 2016.

Pacific Hydro enters into joint venture with Vale in Brazil

On June 22, whilst in Rio de Janeiro for the Rio+20 Earth Summit, Prime Minister Julia Gillard announced a consortium agreement between Australian renewable energy company Pacific Hydro and Brazil’s Vale, the world’s second-largest mining company. The agreement formalises the companies’ intentions to jointly build and operate two wind farms in Brazil’s northeast. Under the consortium agreement, each company will have 50% ownership of the projects, which are expected to be completed by late 2014. The projects will represent an investment of approximately R$650 million (~AU$315 million).




Vale will be the sole off-taker of clean electricity produced by the projects for a period of 20 years, utilising 100% of its generation as self-production for its operations. Signing of the consortium agreement will allow the companies to jointly complete the development of the projects including equipment supply and transmission connection arrangements. Vânia Somavilla, Executive Director of Human Resources, Health and Safety, Sustainability and Energy at Vale, said this is the company’s first venture into wind energy and represents an important step for increasing the use of clean and renewable sources in Vale’s energy matrix.

“Vale’s global demand for electricity is expected to increase 150% by 2020 and we’ve been seeking options to meet this demand, on a sustainable way, using renewable sources such as hydro, wind and biomass. The option to develop wind projects also helps diversify our energy matrix, reduce our emissions and ensure cost competiveness in the long term.”

Pacific Hydro CEO, Rob Grant said that with their commitment to wind energy Vale has clearly demonstrated their commitment to a clean energy future. “As the world’s second-largest mining company and Brazil’s largest energy user, Vale is leading the way in the industry by demonstrating not only their commitment to a cleaner world but to climate change and fuel price risk management.” “We are looking forward to further developing our partnership with Vale in Brazil and internationally.” Pacific Hydro already supplies renewable energy to some of the world’s largest resource companies such as Rio Tinto in Australia and CODELCO in Chile. Operating for 20 years, Pacific Hydro has developed and operates 300 MW of wind farms and hydros in Australia, where it built the country’s first commercial wind farm in 2001, operates 500 MW of run-of-river hydros in Chile and 58MW of wind farms in Brazil. ↑Return to Index

Tim Kane appointed new ambassador to Chile

On 29 May, Foreign Minister Bob Carr announced that Mr Tim Kane will be Australia's next Ambassador to Chile. As such, Ambassador-designate Kane will also have non-resident accreditation to Colombia, Ecuador and Venezuela. Mr Kane is expected to take up his appointment in July 2012, and will replace Ms Virginia Greville who has been Ambassador since June 2009. Mr Kane is a career officer with the Department of Foreign Affairs and Trade. He was most recently Director of Staffing. Mr Kane has served as Counsellor, Australian Embassy, Washington DC and Deputy Head of Mission, Mexico City, with an earlier posting to Santiago. He served as Senior Adviser in the International Division of the Department of the Prime Minister and Cabinet. Mr Kane holds a Bachelor of Arts degree with Honours from the University of Melbourne, a Master of Arts in International Relations from Deakin University, and a Graduate Diploma in Foreign Affairs and Trade from the Australian National University. He speaks Spanish. ↑Return to Index

Chile continues to build closer ties with Australia

This month saw the return to Australia of the Chilean naval training ship, the 4-masted barquentine Esmeralda, which was on its world circumnavigation cruise. Having departed Valparaiso on the 22nd of April, the Esmeralda’s journey will take 260 days and over 30,000 nautical miles to complete. At the helm is Captain (Navy) Guillermo Luttges Mathieu, who is a Professor of Military Strategy and a specialist in the areas of General Staff and Naval Electronic Engineering. The total crew consists of 321 permanent and 16 temporary members. Several nationalities are amongst the crew of the 57th Esmeralda, including an Australian, Naval Officer Sublieutenant James Feathers, who joined the Esmeralda in Valparaiso and disembarked in Brisbane.




The Esmeralda has a long and proud history of training Chilean Sailors and is a rite of passage for Chilean Navy Personnel. Today the Esmeralda travels around the globe introducing people from all walks of life to Chile and performing a very worthwhile role as ‘ambassador’ for the nation. In this context, the Chilean Ambassador to Australia, HE Mr Pedro Pablo Diaz, used the visit to host a series of social and business events around the visit. Receptions were held on board the Esmeralda in both Sydney and Brisbane, and its visit was supported by the visits of Chile’s Minster of Defence, Andrés Allamand (pictured right), and Minister for Mining, Hernan Solminihac, (pictured below). In Canberra on June 8, Mr Allamand held bilateral talks with Australian Minister for Defence Stephen Smith, which covered strategic issues of mutual concern, including cooperation between Australia and Chile in the Asia Pacific region. The two ministers agreed that they would examine expanding practical bilateral Defence cooperation and build on the biennial Bilateral Political Consultations, which were established in 2009. In the short term, Australia and Chile will both participate in the US-hosted Exercise Rim-of-the-Pacific (RIMPAC) 2012 which will be held near Hawaii from 29 June to 3 August. They will also cooperate formally on peacekeeping, including through exchanges between the Australian Defence Force Peacekeeping Centre and the Chilean Joint Peace Operations Centre.

The importance of Mr Allamand’s visit may extend beyond the matters discussed at the various meetings that he held, as there is speculation that he may be a candidate at the next Chilean presidential election which is due to take place in 2013. If that turns out to be the case and he were to emerge victorious, it would be a plus for Australia to have had this opportunity to forge closer ties with Mr Allamand. Similarly important was the visit of Chile’s Minister for Mining, Mr Hernan Solminihac, who also visited Australia last September. On this occasion, Minister Solminihac visited Brisbane, Adelaide, Melbourne and Sydney to meet with government representatives and senior management of some

of the larger Australian mining companies operating in Chile. In Adelaide, Minister signed a cooperation agreement in geology and exploration with the government of South Australia, represented by its Minister of Minerals and Energy, Tom Koutsantonis. "The memorandum of understanding reached with the government of South Australia, will promote the exchange of scientific and technical information to promote effective and sustainable development of mineral resources. It also represents a recognition of the importance of the mining industry in the economies of both countries, "said Solminihac, adding that the agreement includes, among other things, sharing information and geological studies and the possibility of exchanging professionals for the development of the sector. Before leaving Australia, Minister Solminihac will hold a meeting in Sydney with Australian Minister of Energy and Natural Resources, Martin Ferguson, to review the investment and regulatory processes between the two nations. ↑Return to Index

Mark the dates in your diary . . . August 29 in Melbourne:

2012 Melbourne Annual Dinner You are invited to join us at our 2012 Annual Dinner in Melbourne that will feature as guest of honour and keynote speaker Orica’s chairman, Mr Peter Duncan, who in addition to leading one of Australia’s most active companies in Latin America, also served as President of Shell Venezuela during his career. Date: Wednesday, 29 August, 2012 Time: 7.00pm – 11.00pm Registration: www.alabc.com.au/events

From left: HE Mr Pedro Pablo Diaz, Ambassador of Chile; Mr Andrés Allamand, Chilean Minister of

Defence; and Mr Stephen Smith, Australian Minister of Defence.




Mark the dates in your diary . . . continued September 19 in Sydney:

2012 Sydney Annual Dinner

You are invited to join us at our 2012 Annual Dinner in Sydney that will feature as guest of honour and keynote speaker Worley Parsons’ Managing Director, Mr John Grill, who has led the company on a very successful international expansion, including a very solid footprint in key markets of Latin America. Date: Wednesday, 19 September, 2012 Time: 7.00pm – 11.00pm Venue: Tattersall’s Club, 181 Elizabeth Street, Sydney

October 10 in Brisbane:

2012 Brisbane Annual Dinner You are invited to join us at our 2012 Annual Dinner in Brisbane. Details will be posted on our web page very soon, so be sure to keep the date free. Date: Wednesday, 10 October, 2012 Time: 7.00pm – 11.00pm Venue: Customs House, 399 Queen Street, Brisbane

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SEEK.com increases stake in overseas ventures At the end of May, employment website SEEK Ltd announced that it will increase its ownership in Brasil Online and Online Career Center Mexico SA de CV (OCC). SEEK said that it will increase its ownership in Brasil Online from 30 per cent to 51 per cent and in OCC from 41 per cent to 57 per cent.

The acquisitions reflect the company's focus on international expansion and enhances SEEK's exposure to the two largest economies in the Latin American online employment sector. The purchase price for the additional stake in Brasil Online is $US78.8 million ($A80.31 million) and $US22.5 million for OCC. Across the two businesses SEEK will have typical majority shareholder rights, including the right to appoint the majority of directors to both boards.

In Brasil Online SEEK will acquire its additional shareholding from Tiger Global (16 per cent) and Consolidated Press Holdings (five per cent). In OCC SEE will acquire its additional shareholding from Tiger Global (12 per cent) and from existing management. After the transactions Tiger Global will remain a significant shareholder in both businesses and the founder of OCC will remain a significant shareholder in the Mexican business. "Both businesses hold market leadership positions in their respective markets, have a track record of robust financial performance and generate strong free cash flow," SEEK International managing director Jason Lenga said. "We look forward to working with our local management teams to accelerate the growth agenda across Brazil and Mexico." ↑Return to Index




In the spotlight - interview with Richard Rains, Chief Executive Officer, Sanger Australia:

(Editor’s Note: Each edition of Latam News will feature an interview with an individual who has been at the forefront of leading his company’s foray into the Latin American region. Our objective is to recognise the contribution made by such individuals and to have them share some of their knowledge with our members and supporters.) LN: When did you first become involved with the Latin American region and under what circumstances? RR: Sanger Australia Pty Ltd was formed in Australia in 1973 as an exporter of Australian red meat. Our business has steadily grown to the point where today we are the largest ‘non packer exporter’ in Australia, being responsible for upwards of

10% of Australia’s red meat exports, exporting to some 80 countries around the world. I believe that the main cause for the change in protein demand around the world & the subsequent price movement has been caused by various livestock diseases be it BSE (mad cow disease) or Foot & mouth disease or Avian Flu etc. All these issues have seen some markets react by closing their doors to imports of proteins from affected countries and thankfully Australia has been very fortunate to remain disease free and so we have open access to all the worlds markets and have no sanitary restrictions. There are of course duties and quotas in many of the world’s markets which cause us grief and needs further attention from governments in my opinion. Sanger is a very risk averse company & the threat of potential disease in this country made us consider the opportunity of spreading our risk by securing protein supply from another country so in 2005, my colleague Graham Greenhalgh and I planned a trip to South America to investigate their protein production systems and it was as we were preparing our itinerary when Brazil had an outbreak of Foot & Mouth disease in their cattle so we decided that it was best to cancel our visit as we assumed that their beef exports would be severely restricted as result however we did keep a close eye on their export statistics for the next period & to our surprise their beef exports continued to grow despite their issues so, in 2006 curiosity got the better of us and we visited to gather a proper understanding of what they were doing. We had an amazing visit to Uruguay, Argentina and Brazil and were amazed at the scale of their beef operations and the ‘can do’ attitude that prevailed across the region. We returned from that visit knowing that we had to be involved there but not sure how to go about it. Just prior to our departure to South America, we had hired a Brazilian lady by the name of Ilonka Eijsink who had been involved in trading proteins from many countries and so we gave her the task of getting us established there. She soon uncovered an opportunity for us to look after the international marketing requirement’s for a large Brazilian chicken processing co-operative by the name Uni-Frango and so our business in Brazil was established in 2007 and has gone on to flourish. It has given us another protein to trade & we have been amazed at how many of the existing customers we had for Australian beef and lamb, have also become customers for our Brazilian chicken. Just to put this trade into some context, Australia consistently exports some 950,000 tonnes of beef each year and when we first went to Brazil in 2005, it was producing some 10 million tonnes of chicken & last year it produced some 13 million tonnes & production continues to grow. Australia exports some 70% of its beef production whereas Brazil exports some 30% of its Chicken production. This involvement in Brazil has given us a far better spread of risk AND also means we are a better protein solution for our customers. LN: With which markets in the region are you currently involved? RR: Our principal activity in South America is in Brazil however we do source some protein from Argentina also. LN: How often do you visit the region? RR: Sadly I only get to visit Brazil once each year but that is not nearly enough. However we are very fortunate to have that same lady, Ilonka Eijsink, that joined us in Sydney in 2006 and she is now located in Londrina, Parana State, along with a dedicated team that manage our operations from there.




LN: Are your visits always for business or have you also been able to holiday in the region? If the latter, where have you visited? RR: Mostly my visits are ‘all business’ but in 2008 I did holiday with my wife Penny. We had some extremely enjoyable time in the Patagonia region in Chile and then Machu Picchu, Peru which were both extraordinary experiences. We are anxious to return to see more of what the region has to offer. LN: What is your preferred route for travelling to the region? RR: I have tried them all but must say the Qantas route is easily my preferred way. I find the stopover in Auckland a real drag on Lan and Aerolineas. Hopefully one day, QANTAS will add a direct service to Sao Paulo and perhaps the upcoming World Cup and Olympics Games will give them that incentive. LN: How important do you see the Latin American markets becoming to your overall business? RR: South America is SUCH a powerhouse in the production of agricultural products that I believe it is an area we MUST be involved in. As the world’s population continues to grow and the developing world’s spending power increases the demand for protein will continue to grow and we need to have the ability to supply that demand. A Brazilian firm (JBS) is the largest processor of protein in Australia (and the largest meat processor in the world) and I think that shows how important it is to be involved across borders these days. LN: What, if any, are the major differences that you have found between doing business in Australia and in the Latin American markets where you are operating? RR: We think the red tape is thick in Australia, but I must say it is considerably thicker in Brazil. However, if you seek the right advice and have relations with a good local bank (we have a close working relationship with HSBC) it is all achievable. Brazilian processors have a strong ‘can do’ attitude but the fact that 70% of their chicken production stays domestically, export can be an afterthought which is the opposite of Australia but it’s all achievable. LN: What is the most important advice that you would give to any Australian company seeking to enter the Latin American markets? RR: Go in with your eyes open and ensure that you have people on your team that you can trust implicitly. The reaction times can be slower than what we might be used to in Australia and that can be a frustration but we find that customers around the world are very happy to have us involved in the transaction so we can circumvent those problems. LN: If there was one thing about doing business in Latin America that you could change, what would it be? RR: On time communication remains a frustration but it is getting better with time. LN: Which is your preferred city in Latin America? Why? RR: Londrina in the state of Parana, Brazil. It is where our office is located and it has a lot of the same qualities as Sydney with lots of water and it is not as big & brash as Sao Paulo. It also has some wonderful steak houses & my favorite there is Cabana Ganadera. ↑Return to Index

Rio Tinto and Chinalco JV strikes copper in Chile

The joint venture between global mining giants Rio Tinto Ltd and Chinalco, the Candelabro project, has struck copper at its site in Chile. A statement from Chinalco released on June 5 said that a recent diamond core observed while drilling suggests significant visual copper mineralisation has been located. "The previous intersected intrusive, along with the newly identified abundant sulphide zone, allows further definition of alteration and zones of along strike mineralisation," Chinalco said. The company said important progress had also been made at other two joint venture projects. "At the Caramasa project, 100 kilometres north from Candelabro, track and pad construction has been completed, which will enable it to be drilled after Candelabro is finished in June," Chinalco said. "At the Palmani project, road permitting is now completed."

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Resources Snapshot: Good news for Orocobre’s Argentine project Australian-based Orocobre is making important strides in the proposed development of its flagship Olaroz lithium-potash project in Jujuy Province, north-west Argentina. Chairman James Calaway, CEO Richard Seville and GM Jose de Castro met with Argentina’s President Cristina Kirchner, Jujuy Governor Eduardo Fellner, national and provincial government representatives and local communities on June 27 to outline their development plans. The meeting followed confirmation of official approval from a provincial expert committee for the project. At the meeting itself, details were announced of a binding agreement between Orocobre and recently established provincial mining investment company Jujuy Energia y Mineria Sociedad del Estado (JEMSE) to take up 8.5% equity in the Olaroz project. JEMSE will meet its share of construction funding from money advanced by Orocobre against its share of future dividends. In addition, it will provide key construction assistance and take a leading role in liaising with municipal, provincial and national government departments and customs authorities. Richard Seville says the project approval and JEMSE agreement are the culmination of almost five years of determined work, and are a major building block for progressing the large-scale brine project from design to construction and operations. He says the company will now focus on completing proposed financing with Mizuho Bank, loan guarantees with JOGMEC and finalising definitive agreements with project partner Toyota Tsusho Corporation. To cap things off, Orocobre expects the mining concessions to be granted very soon, allowing the formal approval process to start. “All being well, we anticipate the financing process will complete together with the investment decision by Toyota Tsusho in September,” Seville said. Engineering work on ponds, borefields and related infrastructure is complete, so contracts can be awarded the construction start immediately. Commercial production is forecast to begin in 2014, with Olaroz due to produce 16,400tpa battery grade lithium carbonate and 10,000tpa potash over 40 years.

New Age Exploration opts for long-term Colombian option South American-focused Australian miner New Age Exploration will delay the commencement of its Terranova hard coking coal mine in central Colombia by six months as part of a new strategy to achieve long-term production. Rather than a short term mining operation on the 887T concession, where the current mining licence expires in October 2014, the company elected to focus on progressing approval of the 887T mine extension and further studies on the FL2-151 concession. New Age now anticipates production to commence at the Terranova project during 2014. Colombia’s Mining Authority has approved an increase of 887T production to 400,000tpa and work is progressing on environmental and other studies, mine infrastructure design and layout and coal washability tests.

Troy Resources has high hopes for Casposo project in Argentina Australian miner, Troy Resources, has reported that a mineral reserve update at its Casposo project, in Argentina, could account for a 40% production growth. During the 2012 financial year, the Casposo project would deliver some 90 000 oz of gold equivalent, up from the previous estimate of 80 000 oz. The ASX- and TSX-listed miner said on June 5 that the new Casposo mine plan was expected to see gold production of some 115 000 oz in the 2013 financial year, increasing to 130 000 oz in 2014 and 2015 financial years. This, along with the Andorinhas mine, was expected to see the company’s combined yearly production grow to some 160 000 oz in 2013. The new mine plan incorporated the high-grade INCA 2 discovery, and development of the underground mine has now been brought forward from 2012. Troy said in a statement that work on the portal had started earlier this month, and decline development was scheduled to start in July. The first high-grade ore from the underground mine was expected to enter the mill blend in early in the 2013 calendar year. CEO Paul Benson said that by bringing forward the development of the underground mine, the company would be able to introduce high-grade underground ore into the blend. This was not only expected to increase production at Casposo, but would also give the site significant blending flexibility from multiple ore sources. “This is also an example of the company delivering on its strategy. When we announced the construction of Casposo, we said we hoped we would avoid the dropoff in production that occurred in years three and four of the schedule, owing to lower grades in the bottom of the openpit.




“We noted at the time this would need the discovery of higher-grade material to feed the mill. This schedule shows we have not only avoided that drop in production, we will now see an increase in production in 2014 and 2015,” said Benson. Troy further told shareholders that there was potential to add to the site’s mineral reserves and resources to further extend the Casposo mine life, and the miner has now committed A$25-million over the next two years to test numerous outcropping vein and geophysical targets on the property and neighbouring joint venture ground. Benson said that the company was looking to maintain production levels near 130 000 oz/y and extend the mine life with the new discoveries

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Citi says that Colombia beckons as an investment opportunity

Colombia needs $45 billion invested in infrastructure in the next five years to sustain the country's economic growth, Bernardo Norena, chief executive of Citi Colombia said in New York at the end of May. Top officials from the country's government and major state-owned and private companies were in New York and London promoting investment in Colombia's markets that have been deemed expensive or difficult to get into.

Even with an investment-grade rating and a record of $15 billion poured into the country last year, Colombia still needs to revamp and build much needed infrastructure such as airports, roads all across the country and coastal ports, according to Norena, whose company sponsored the investment promotion gatherings. The Andean country's economy is expected to grow between 4.5 and 5.5

percent this year but its markets have a long way to go and are in need of global capital to fuel the economy further. Colombia's free trade agreement with the United States came into effect in May and Colombia is in talks with South Korea and Japan. The country has trade agreements with Canada and with most of Latin American countries, and is in negotiations with the European Union. Still some foreign investors view company valuations at a premium to other markets and thus might shy away from its markets. But Juan Pablo Cordoba, chief executive of the Colombian stock market, said that cost of capital has seen a reduction of 500 basis points in the past five years while the government has improved its ease of doing business and investor protection laws. "Discount rates have gone down dramatically. The alternative for investors is very limited and that is justifying higher valuations," said Cordoba, who like other executives at the event, spoke to journalists in New York on May 22. With developed economies in financial straits, the time could be ripe for international and regional firms to expand within Latin America. "The European crisis has been an advantage for many Latin American companies because many investments made by European companies in the region will need to divest, especially those companies based in Spain, Portugal and Italy," said Jose Alberto Velez, chief executive of Grupo Argos, Colombia's No. 1 cement maker. "There are enormous opportunities for our companies to acquire those investments." Spain's Banco Santander sold assets to Chilean Corpbanca last year, HSBC sold Central American assets to Colombia's third largest bank Davivienda while Spain's No. 2 bank BBVA may sell its Latin American pension fund businesses in the region. "Flight to quality is being reversed," Gerardo Grajales, chief financial officer of Colombia-based and regional airliner Avianca-Taca. Still only 19 percent of shareholders of Colombia's stock exchange are foreign investors. For Grupo Argos, the largest cement producer in the country, that number shrinks to only 2.4 percent and for electrical company Empresa de Energia de Bogota (EEB) foreign investors make only 1 percent. Avianca-Taca is 90 percent foreign-owned. So far this year Colombia's stock exchange has seen three initial public offerings and is expected to have up to five more, but that is not enough for Cordoba, its chief executive. Last year the exchange held a record of nine public offerings attracting $7 billion, the second largest amount in Latin America that year, he said.




"Our market is doing very well but the number of companies listed on the exchange is a challenge and we are working in bringing more companies," Cordoba said. "Our goal is to make Colombia part of every portfolio investment globally." Colombia's exchange, Bolsa de Valores de Colombia, integrated last year with Peru's and Chile's to to form MILA, which allows cross-border electronic trading in the companies listed in the three exchanges. MILA already has more than 546 listed companies with combined market capitalization of $599 billion, the second-largest after Brazil in the region and traded volumes last year of $100 billion. Companies like Grupo Argos, EEB and Avianca-Taca are Colombian-based firms with growing ties between regional countries thanks to political and economic stability as well as increased security. ↑Return to Index

Business Council mission to Colombia to unlock doors – Registration deadline is July 13!

As highlighted in the January edition of Latam News, Colombia is one of the fastest growing and best performing markets in Latin America, with a long and exciting pipeline of opportunities in the mining, energy and infrastructure sectors, to name just a few.

To provide our members with the opportunity to obtain a comprehensive briefing on the range of projects on offer in Colombia; to learn how to access those projects; to search for potential allies and to access key political and business leaders, the chairman of the Business Council, Jose Blanco, will lead a business delegation to Colombia in the first week of September. Already, some key members of the Business Council have indicated their intention to participate in the delegation and work will commence shortly on putting together the agenda for the visit. The intention of the Business Council is to prepare an agenda that combines group activities with individual ones tailored to the specific interest of each delegate.

The mission will be multi-sectorial and companies from all sectors are encouraged to participate. The key will be having sufficient time to prepare the desired tailored agendas that will provide maximum value for all delegates. For this reason, anyone wanting to participate in the mission or to obtain further information as it becomes available is invited to register their interest as soon as possible. Doing so will ensure that you are kept informed of all developments and that preparation of the agenda that best addresses your goals will commence well ahead of your arrival. For further information or to simply register your interest, kindly write to either the Business Council chairman, Jose Blanco ([email protected]), or marketing manager, Kim Robinson ([email protected]). ↑Return to Index

Which markets in Latam are best prepared for downturn in global economy?

Chile and Peru are best positioned in Latin America to withstand a downturn in the global economy and a drop in commodity prices, while Argentina and Venezuela are the most vulnerable to any turmoil, according to a senior official from Fitch Ratings. Both Chile and Peru have large rainy-day funds and their government debt is a relatively small fraction of their economic output at about 20% or less, indicated Shelly Shetty head of the sovereign ratings for Latin America. The two countries have the fiscal flexibility to cope with a potential drop in capital in-flows, sharply lower prices for metals -their main exports- and volatile swings in exchange rates, Shetty said. Colombia, Brazil and Mexico can also counter any shock waves from abroad, but to a lesser extent, she said.


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Among the other large Latin American countries, Argentina and Venezuela would be the hardest hit by slowing global growth and a fall-off in commodity prices: oil in the case of Venezuela and soy prices for Argentina. A slowdown in China will hurt the region's economies, especially those with large, commodity-based export sectors. A rule of thumb says a 1% decline in China's growth rate will cut growth by about 1.2% in the commodity exporters, she said. The regional economies most exposed to China, the world's largest growth driver this past decade, are Brazil, Chile, Costa Rica, Peru and Venezuela, according to Fitch.

As for the impact of Europe's crisis on the region, trade exposure to Europe is concentrated more in the southern cone region of South America: Brazil, Argentina, Chile and Peru and less in Mexico and Central America, added Shetty. “Our view is still that Latin America as a region is well placed to withstand external shocks that might emerge from the intensification of the Euro zone crisis,” said Shetty. “Having said that, it's also true that Latin America would certainty not be immune to what goes on in the euro zone.” Brazil is less exposed than Chile, whose economy is more open, she said. But Chile, which has the highest investment grade rating in Latin America, has a history of being fiscally prudent when necessary, she said. “Trade exposure to Europe really varies across the region and that's an important point to make,” she said.

Government debt in Chile is about 10% of GDP, while in Peru it is about one-fifth of GDP, exceptionally low when compared to leading Western economies, which have ratios at least several times higher. Peru's fiscal stabilization fund is more than 5 billion dollars, or about 3.5% of GDP. The market value of Chile's Economic and Social Stability Fund (FEES) stood at 13.156 billion at the end of 2011, according to Chile's budget office. That is equivalent to just below 6% of GDP. Since the financial crisis in 2008, most of Latin America is in a better position to withstand external shocks, Shetty said. Foreign reserves, for example, have grown to about 750 billion dollars from 500 billion several years ago, giving countries greater ability to withstand exchange rate swings, she said. The debt burden in Argentina, Peru and Brazil has also declined in recent years. ↑Return to Index

Focus: Financial Services in Latin America (Editor’s Comment: Each edition of Latam News provides an in-depth overview of important aspects of the financial services sector in Latin America. Our objective is to give readers a better understanding of some of the reasons why Australia’s fund managers and investors should be taking a closer look at the opportunities on offer in the region.)

New Latin American equities fund hits the Australian market

A new emerging markets fund is now available to domestic investors providing them with access to Latin America, with Itau Asset Management recently opening a Latin American equites fund up to the Australian investor market. The fund called the Latin American Equities Strategy has initially been made available to institutional investors with the aim to attract retail investors as soon as it has received a research house rating. The offering aims to invest in equity markets in countries such as Mexico, Chile, Peru, and Argentina with its largest weighting to listed shares in Brazil.

"There is exposure to emerging markets in Australia, it is exposure to Asia, but there is no exposure to Latin America and the thinking is that Latin America and Asia is more or less the same thing," Itau head of Latin America equity investments Scott Piper told InvestorDaily. "We think there is a case to make for the region Latin America as a differentiating portfolio within emerging markets because there are certain aspects that exist in Latin America we think are quite different from Asia today." "We also think the structure of the markets will change over time where you'll have a region with less volatility and higher multiples over




time as they get more domestic participation from pension funds and a reallocation away from fixed interest to equities within Latin America as well." To that end Itau is looking to invest in stocks outside of the traditional indices away from the large cap stocks in the region. This means for example in the Brazilian market the fund will be concentrating on the smaller non-commodities sectors like infrastructure, financials, healthcare, and consumer oriented stocks. "We think these are the kind of companies that are going to double and triple over size and gain more index representation," Piper said. The fund was made available to wholesale investor in mid-May and the investment team is looking for its inclusion on major platforms and dealer group approved product lists in the coming months. Retail investors can expect to have access to the offering in July. ↑Return to Index

Brazil launches revamped antitrust regime

At the beginning of June, Brazil launched what the Brazilian press called “super Cade” – a revamped version of its antitrust regulator that will have more staff and will move from the previous, unwieldy “post-merger” approval system to a more conventional “pre-merger” framework. “It will be a more sophisticated framework that brings Brazil in line with American and European antitrust standards,” said Fernando Iunes, head of investment banking for Itaú BBA, the Brazilian investment bank. As Brazil has become more integrated with the global economy, the volume of cross-border and domestic deals has increased. In the first quarter of this year, Brazil ranked seventh in the world for deal volumes, according to data company Dealogic. In the year-to-date, Brazil has hosted 214 transactions worth about $22bn. Brazil’s post-merger antitrust approval system was one of the few of its kind in the world, alongside those of Egypt and Pakistan. Merging parties would close their deals and worry about Cade later. Any disputes could be diverted to Brazil’s labyrinthine legal system, where cases can languish for years. In one example, Cade retrospectively blocked a link-up in 2002 between Switzerland’s Nestlé and Brazilian chocolate company Garoto. The case still continues. As a result, only eight deals were blocked out of a total of about 8,000 transactions reviewed by Cade. The post-merger notification system “made it very costly for Cade and very difficult to prohibit non-competitive mergers”, said Mr Oliveira, who now runs Go Associados, a consultancy specialising in antitrust and regulation. The new system, in which companies will have to wait for Cade approval before closing their transactions, looks superior but is far from perfect, critics say. Most concerning is the time Cade has to approve mergers – 60 days for simple deals but with maximum leeway of 330 days. This compares with the US system, in which 98 per cent of deals are approved within 30 days. “In the US, a merger could get filed, reviewed, go to trial and [be] resolved in that time,” said Michael Cohen, a partner specialising in international antitrust issues at Paul Hastings, the law firm. “In Brazil that’s just the period for their review.” Another earlier concern was a low threshold for the size of deals that should be scrutinised – initially set at R$400m ($195m) minimum revenue for the larger company in a transaction and R$30m for the smaller party. This has since been increased to R$750m and R$75m. Ana Paula Martinez, lawyer with Levy & Salomão Advogados in São Paulo, estimates that the higher threshold will reduce Cade’s caseload by about half. The new law includes a “clawback” mechanism that allows Cade to review any transactions between companies smaller than the minimum thresholds up to one year after they are closed on antitrust grounds. ↑Return to Index




Chile, Peru, Colombia and Mexico seal the Pacific Alliance for economic integration

Chile, Peru, Colombia and Mexico signed an accord on June 6 creating the Pacific Alliance to more deeply integrate their economies, and develop new trade links with the Asia-Pacific region.

“From the heights of Paranal, in the most arid desert in the world and under the clearest of skies, we have signed a pact officially giving birth to the Pacific Alliance,” Chilean President Sebastian Piñera said. He was speaking at a presidential summit near the giant telescopes of the Atacama desert to launch the new alliance, attended also by Mexico's Felipe Calderon, Peru's Ollanta Humala and Colombia's Juan Manuel Santos, as well as the presidents of Costa Rica and Panama, and others as observers. The creation of the Latin American bloc -- with a total of 215 million consumers and a combined GDP of more than $2 trillion -- was proposed last year in Lima.

“In very little time, we have succeeded in moving forward rapidly,” said host Piñera, explaining that it would bring about a “deep integration” that will go “far beyond free trade and reach out to the Asia-Pacific region.” “The Pacific Alliance's economic potential is significant,” said Mexico's Calderon, noting that the new alliance groups together Latin America's fastest growing economies such as Peru and Chile. Colombia's Santos called it the “most important integration process in Latin America.” “There are no incompatibilities or exclusion vis-a-vis other integration efforts. We are against nobody but rather in favour of even greater integration,” he said. Santos was echoed by Peru's Humala who insisted that the new alliance “doesn't look to displace other groupings,” such as the Andean Community, or the Union of South American Nations. Costa Rican President Laura Chinchilla, who attended as an observer alongside Canada's foreign minister and Spain's King Juan Carlos, formally asked to join the alliance. “Our economies together ranks us ninth in the world behind Italy with a GDP that is 40% of Latin America, manages 55% of the region’s exports and attracts 38% of all foreign investment”, pointed out Felipe Calderón, president of Mexico. “Even when we are less in population and in the size of our economies compared to our brothers from Mercosur, we export double in volume and value than Mercosur, we have an extraordinary potential”, added President Calderón. Those attending “are the most outwardly focused and open economies in the region” said Abraham Lowenthal, a Latin American expert at The Brookings Institution in Washington “This is in keeping with where these countries are going in terms of diversifying their international economic relations.” The alliance plans to remove barriers not covered under existing bilateral free trade agreements, such as the free movement of people, establishing a bloc that accounts for more than 35% of Latin America’s GDP. ↑Return to Index

First mining cluster in Chile to boost suppliers’ development and growth

Nine mining firms, both local and international, have joined forces to create a cluster that promotes the development of local businesses, which in turn should bolster the mining industry in the northern Chilean region of Antofagasta. The firms are: Codelco, Xstrata Copper, Barrick Zaldívar, Minera Meridian, Minera Esperanza, Minera El Tesoro, Escondida, Spence and Anglo American Chile. The initiative is coordinated by Chile’s Corporation to Promote Production (CORFO) and the Association of Industries in Antofagasta (AIA). The Chilean newspaper El Mercurio Online reports that under a cluster agreement, the nine companies also want to promote Chile’s north as a world-class mining




centre. Among other initiatives, they have committed to launch activities that foster the growth businesses that support the mining industry. “We want to significantly increase the number of these firms, which have both knowledge and competencies required by the mining industry,” Marko Razmilic, AIA’s president was quoted as saying. “To this end, these companies must register with, participate in and subscribe to the requirements in training and development we are establishing.” He added that public funding will also be required to ensure that Chile’s mining north can attract, develop and retain the human capital that this world-class sector requires. ↑Return to Index

Xstrata Copper mulls geothermal option for Argentina

Xstrata Copper has signed a tentative agreement to buy about 50 megawatts of geothermal power from an Earth Heat Resources venture in Argentina to power its planned El Pachon project near the border with Chile. Firming up the letter of interest into a binding power purchase agreement will depend on Xstrata’s decision to advance development of the project after it secures environmental approval, geothermal explorer Earth Heat said in early June. Earth Heat said the accord underscores the strong demand for power in Argentina, where it is developing the Copahue project. “Both Earth Heat and Xstrata Copper share the view that a sustainable energy environment in Argentina can be supported by investment into high-quality renewable energy projects, in particular geothermal,” Earth Heat managing director Torey Marshall said in a statement.

Xstrata Pachon general manager Xavier Ochoa said the miner was committed to finding the best environmental, social and economic solution to support future investments in Argentina. Xstrata “look forward to working with Earth Heat in the first geothermal plant in the country”, Mr Ochoa said. The El Pachon project, in San Juan province, is currently completing feasibility and environmental impact studies. Xstrata increased the estimate of mineral resources at the site by 53 per cent in December to some 2.74 billion tonnes at a grade of 0.48 per cent copper, representing 13.1 million tonnes of contained copper.

Earth Heat is working with Alstom on engineering design for the 30-megawatt Copahue project. Alstom is due to submit an offer to engineer and contract the project towards the end of this month. ↑Return to Index

OZ Minerals strikes Chile copper deal

THE search of Melbourne's OZ Minerals for a new project to expand its portfolio beyond its South Australian copper-gold interests has led it to strike a deal on an advanced copper-molybdenum project in northern Chile. The deal with Canada's International PBX Ventures, could earn OZ a 90 per cent interest in PBX's Copaquire project by making cash payments of $US90 million ($91.2m) and 30,000m in drilling commitments. Copaquire is described by PBX as an advanced exploration project covering more than 2000ha of a "major" copper-molybdenum porphyry system. The region is host to 30 porphyry copper-molybdenum deposits and prospects, with Teck's Quebrada Blanca and Xstrata-Anglo American's Collahuasi mines within 15km of the property. OZ has been out to rebuild its portfolio beyond the Prominent Hill copper-gold mine since being reduced to the single operation in 2009 with the sale of all of its other assets to China's Minmetals as part of its financial restructuring following the global financial crisis. Last year it acquired the advanced Carrapateena copper-gold project in SA for $US250m. But like Copaquire, Carrapateena is a long way off from providing OZ a long-term replacement for Prominent Hill.




OZ has $750m earmarked for an acquisition to beef up its portfolio but has yet to find one that suits at the right price. OZ managing director Terry Burgess told the annual meeting in late May that OZ was "very actively looking for an acquisition".

"We are seeing more opportunities in the last few months than we did in the previous two years, especially with the current uncertainty in the economy," Mr Burgess said. "Our preference is to acquire assets that will deliver production in the short term but we also will review later dated opportunities." It was against that strategy background that OZ made an offer for Cupru Min earlier this year. It lost out to another bidder for the Romanian state-owned company but that winning deal has not been consummated. The PBX deal falls in to the longer dated option category. Mr Burgess said OZ had followed PBX for a number of years. "While this will not bring in copper production in the short term, it is an illustration of some of the projects that we are reviewing that will, for

a modest cost, build our (project) pipeline for the future," Mr Burgess said. ↑Return to Index

Brazil’s answer to slowdown: spend, spend, spend (Editor’s Note: The following article was written by Jonathan Wheatley and was published in the Financial Times on June 27) Eight thousand trucks; 3,000 tractors; 30 mobile missile launchers; 3 million items of school furniture. These are some of the things the Brazilian government will buy in an R$8.4bn ($4.1bn) spending spree announced on June 27.

It’s an extraordinary programme. Not just for its size but also for some strangely candid admissions it makes along the way – and for what it says about economic policy. The package is dubbed the “PAC Equipamentos“ – PAC from the government’s flagship accelerated growth programme (PAC in Portuguese) and equipamentos because that is what it will buy. Of the R$8.4bn in the programme, about R$6.6bn is additional to spending already planned.

So, what makes it odd? First, its language. It arrived in our inbox as “measures to tackle the deceleration of the economy” (although over on the finance ministry website the target is “deceleration of the global economy”).

OZ Minerals managing director Terry Burgess at the Prominent Hill copper-gold mine in South Australia. Picture:

Chris Mangan Source: The Advertiser




“These anti-crisis measures strengthen our condition to overcome the difficulties of the international scenario,” the programme says, adding that they are being introduced “when the Brazilian economy is already returning to growth”. So the finance ministry can’t quite admit that Brazil’s economy is in trouble, though the hints are pretty strong. Second, its take on foreign exchange policy. While the government has made no secret that it is fighting a “currency war” with the unfairly devalued currencies of its trading partners, the central bank has always denied that it targets or manipulates the exchange rate. Yet the programme contains a chart – “Permanent action on the exchange rate” – showing just how effective and, er, permanent this action has been.

Third, its inclusion of a reduction in the TJLP, the long term interest rate that the BNDES, the state development bank, charges for its lending (borrowers typically pay the TJLP plus a margin charged by the commercial bank handling the loan). This will fall from 6 per cent a year to 5.5 per cent. Bear in mind that (according to the programme presentation) market lending rates are an average of 25 per cent a year to the corporate sector. The presentation says cutting the TJLP will deliver “yet another reduction in the cost of finance to investors borrowing from the BNDES”. It will also deliver a bigger bill to the taxpayer and a further distortion of Brazil’s credit market, making it even harder for those companies not favoured by

government policies to raise finance. The PAC Equipamentos is further confirmation that the government believes the way to encourage investment and growth is to pick winners and back them at the expense of everyone else. No doubt bosses and labour unions in the automotive industry will be delighted. Those labouring in other parts of the economy – who would be more grateful for a level playing field and removal of across-the-board distortions such as Brazil’s tax and labour systems – will be dismayed. Still, nothing like a crisis – especially one you deny is really there – to bring out the old instincts. The Brazilian state is settling ever more comfortably into its position at the centre of the real economy. ↑Return to Index

Mexico: Booming despite the drug-related violence

(Editor’s Note: The following are excerpts from an article that was written by Adam Thomson and published in the Financial Times on June 20) Drug violence is terrifyingly brutal but investors find Mexico has distinct advantages over China. So much so that Nuevo León, the northern state which has been one of the main theatres of Mexico’s continuing war against organised crime, is experiencing the biggest foreign direct investment boom in its history. Just 40km west of Cadereyta along Highway 40 in the city of Monterrey, international companies are setting up or expanding plants in what they consider to be one of the best homes for supplying North America and, increasingly, the rest of the world. Javier Treviño, former lieutenant governor for the state government, says he expects the city to break the $2bn-mark for FDI this year in what would be a record. Cautiously, staff at Nuevo León’s economic development ministry talk of figures closer to $2.4bn.

“Foreign companies increasingly see us as the logistical centre of North America,” he told the Financial Times this week. In many ways, Monterrey is a condensed version of what is happening in the rest of Mexico. In the past five years, drug-related violence has spiralled as ever-larger and better-armed criminal gangs dispute territory and smuggling routes at the same time as federal police and the army try to disrupt their illegal trade. Yet over the same period, Mexico has attracted more and more foreign companies, in particular the world’s leading automobile manufacturers, which see the country as an

attractive base for supplying North America, South America and even China. Last year, FDI totalled $18bn, and economists expect it to reach similar levels this year. “International companies realise that they have to be in Mexico if they want to export to the Americas,” Bruno Ferrari, the country’s economy minister, told the FT.




One of the reasons for the investment inflows is that Mexico has become more competitive vis a vis China. Rising transport costs have made basing operations for export in Asia far more expensive than at the start of the century. Wage inflation has all but closed the once-yawning gap that separated Mexican and Chinese labour costs. For all its criminal instability, Mexico is a paragon of macroeconomic orthodoxy. But what about the violence? Alejandro Hope, a security expert at the Mexican Institute for Competitiveness in Mexico City and a former high-ranking government intelligence official, argues that foreign companies in Mexico are sometimes physically close to the violence but are also largely immune to it. Although a Mexican subsidiary of PepsiCo was attacked with fire bombs last month, there does not appear to be a trend towards attacking multinationals. “Organised crime doesn’t know what to do when it comes to multinational companies,” Mr Hope explains. “It has made a business of extorting small and medium-sized Mexican companies but, when it comes to multinationals, the drug lords don’t even know who to call.” Raúl Benítez, a professor at Mexico City’s Unam University and an expert on security, agrees. He points out that most multinational companies manufacturing for export in Mexico operate near the border with the US in large industrial parks. Strict security makes it hard to enter. Once inside, it is hard if not impossible to work out who the owners are, he says. “Drug gangs don’t even know where to start with multinationals,” he concludes. “They are too complex and too faceless, so they just extort the Mexican company on the street corner.” Like many international companies in Mexico, Alcoa, the world’s largest manufacturer of primary and fabricated aluminium, is busy expanding its plant. Located on Monterrey’s southern fringes, the factory churns out thousands of aluminium truck wheel rims, almost 24 hours a day, practically every day of the year. Monterrey, just a couple of hours from the Texas border, may have suffered its most violent month in July last year but Alcoa plant operators say they have never been the victim of extortion and cannot even remember the last time they suffered a loss of material through robbery. The plant accounts for about 25 per cent of Alcoa’s global production of aluminium truck rims, up from about 15 per cent six years ago. Management says that it expects to increase production at the plant 15 per cent by 2014. That expansion, says Mr Hope, is fast becoming the norm. “International companies manufacturing for export are not really affected,” he says. “They operate in a bubble.” ↑Return to Index

Art captures the attention of Brazil’s new wealthy

(Editor’s Note: The following article was written by Shivani Vora and published in the New York Times) Art galleries might be a mainstay in most large cities but in Sao Paulo they have always been in short supply, catering to a small elite. But as Brazil’s economy has rapidly expanded in the past decade, a new social class has emerged with more disposable

income to spend on luxury items such as art. A spate of galleries have opened in response to a growing clientele. The number participating in SP Arte, the city’s Brazilian art fair, for example, has grown to 109 this May from 41 in 2005. These new spaces, concentrated in Vila Madalena, the city’s bohemian hub, and the neighbouring Pinheiros area, have also redefined the art scene. “Art in Sao Paulo used to be elitist, and going gallery-hopping wasn’t a common practice,” says Paul Irvine, a co-founder of Dehouche, a Latin America-based travel specialist that plans individual art tours around the city. “The rich would go to galleries, often by

appointment, and by car, as it wasn’t safe to wander the streets. These new galleries are helping make art more accessible to the general public.”




A notable one is Galeria Raquel Arnaud (Rue Fidalga 125; raquelarnaud.com/en/artistas), a three-storey space of more than 929 square metres that opened last year. Its owner, Raquel Arnaud, had one of the oldest art galleries in Sao Paulo, which she opened in 1973. But as the art scene expanded, she needed more space to showcase the works of the nearly two dozen artists she represents, who range from established names such as the late sculptor Sergio Camargo to hot new ones like Frida Baranek. Baixo Ribeiro is another gallery owner who was an anomaly when he opened his first space, Choque Cultural, nearly a decade ago. “Back then, I was a renegade, and there was no interest in art,” he says. When the art movement started to gain traction, however, he opened a second location (Rua Medeiros de Albuquerque 250; choquecultural.com.br), which highlights the new wave of eclectic artists who create immersion art, like videos and installations. Galeria Jaqueline Martins (Rua Dr Virgilio de Carvalho Pinto 74; galeriajaquelinemartins.com/en), which opened last year, features the works of new and veteran artists at the same time instead of having just solo exhibitions. Nearby is Atelie Fidalga (Rua Fidalga 299; ateliefidalga.com.br; by appointment only), a collective and atelier run by husband and wife artists Albano Afonso and Sandra Cinto.“This is where we work, but it’s also a place for interaction between artists and the people,” Cinto says. ↑Return to Index

Red light for private capital investment in green energy in Latin America and Caribbean

(Editor’s Note: The following article was written by Gavin O’Toole and published in the Guardian on June 8) Lack of private investment in the natural resources of region means its vast potential to provide renewable power is untapped Latin America and the Caribbean are failing to attract private capital to clean energy projects, raising questions about the extent to which market mechanisms can deliver sustainable development in the region. The region lured less than 5% of the $260bn in new investment in clean energy projects and companies worldwide last year, according to Bloomberg New Energy Finance and the

Inter-American Development Bank's multilateral investment fund (MIF). A new business index called Climatescope was established by the market research company and the MIF to encourage private-investment identified green capital flows of $9.4bn – most of which was public finance from sources such as the Brazilian development bank, BNDES. This is considered significantly below the potential of a rapidly growing region well endowed with natural resources and hungry for energy security – MIF sources suggest it is about half the level Latin America should be attracting – and challenges multilateral ambitions for private finance to

drive climate change related investment. Business commentators have long enthused about the region's potential for clean energy growth led by the private sector. It is home to areas of huge solar potential such as the Atacama desert, and has scores of sites for wind, hydro and wave power. Geothermal, biogas and biofuel energy is also viable in many areas. However, market hurdles – from the availability and cost of local capital to the absence of supply chains for clean energy goods – are conspiring to leave its vast potential for green power untapped. Although microfinance has also emerged as an important way to help expand the access of low-income borrowers to cheap renewable energy, only 71 out of 448 microfinance institutions operating in Latin America and the Caribbean offer green products. Unlike the sluggish green investment in Latin America, about 60% of finance now being mobilised globally to support low-carbon development activities is already private, in the form of direct equity and debt, data from the Climate Policy Initiative thinktank suggests. Private finance is seen as essential for climate change-related investment and key to the success of high-profile emission-reduction initiatives such as the UN's Reducing emissions from deforestation and forest degradation (Redd), which needs up to $30bn a year. Governments alone cannot provide this kind of money, and there is a hardening consensus that change is impossible without private funds. The US has made it clear its $1bn contribution to Redd should be conditional on private-sector involvement, and, in April, Canada launched its own C$250m climate fund for the private sector in the Americas.




Slow progress in Latin America – which, by contrast, has spearheaded calls for far greater public finance from northern states – was reflected in the membership of UN environment programme's finance initiative (Unep FI). By the start of 2011, only 6% of Unep FI's member banks and financial institutions were Latin American compared with 44% from Europe and even 9% from Africa (pdf). As a result, there has been a flurry of multilateral activity aimed at Latin America. Unep FI lured a number of the region's banks to sign up last year and the MIF launched a green microfinance programme and venture fund. This year, Brazilian finance giant Bradesco joined Unep FI's banking commission and Mexico's CIBanco became the latest to sign its sustainable development charter. A regional study on sustainable finance by Unep and the Latin American Federation of Banks, Felaban, will be finalised this month, and in the run-up to Rio+20, the IDB has been promoting the role national development banks can play in leveraging

private investments. Since the 2010 Cancún climate summit, there has been recognition that a comprehensive picture of climate finance flows is essential for the success of global policy. Initiatives to address lack of data include Climatescope, to be formally launched at Rio+20 on 19 June. This is aimed at manufacturers and financiers seeking green investment opportunities and ranks low-carbon energy opportunities in 26 Latin American and Caribbean countries.

Its creation reflects Latin America's potential role in the clean energy industry. About 7% of the region's 301GW installed power capacity is now provided by biomass and waste, hydro, wind, geothermal and solar, but demand for clean power is vast. At least 30 million people in the region still lack electricity and the World Bank has calculated Latin American and Caribbean countries could boost supply by 30% by 2030 by embracing renewables. Changing global market conditions for clean energy are likely to favour Latin America as technology costs plummet and overcapacity in industrialised countries forces manufacturers to seek out new opportunities. The inaugural Climatescope report indicates, predictably, that Brazil has the most favourable environment for climate-related investments in the region, although Nicaragua attracted the most investment as a share of GDP, and Panama is growing renewables rapidly. The initiative highlights the importance of policies that give green investors stability and predictability. At least 80 clean energy policies are in place or planned in Latin America and the Caribbean, yet experts say these lack the instruments that have galvanised progress elsewhere, and seven countries still have no clean energy incentives at all. ↑Return to Index

Argentina targets mining firms in import crackdown

(Editor’s Note: The following article was in Reuters on 28 May, 2012) Argentina's government tightened controls on imports of equipment and supplies by mining companies on May 28 in a new measure to boost the trade surplus and foreign currency stocks. Mining companies operating in the South American country, which include Xstrata, Barrick Gold Corp and AngloGold Ashanti, will have to get prior approval for overseas purchases and submit import plans 120 days in advance. They will also have to consider swapping imports for locally produced goods, a government statement said. "(The controls will help) safeguard jobs, create new employment opportunities and intensify the import substitution process," it said. Earlier this year, President Cristina Fernandez's centre-left administration launched a new system to pre-approve, or reject, nearly every purchase from abroad. Latin America's No. 3 economy has also been pushing importers to match their purchases abroad with exports, leading to quirky deals such as one whereby carmaker BMW exports rice. Fernandez says such policies are needed to protect a local manufacturing industry gutted during a burst of free-market policies in the 1990s. They are drawing intense criticism from abroad, however, and the European Union filed a suit against the import restrictions with the World Trade Organization on Monday, May 25.




Mining companies had been working with the government on a program of import substitution, but an industry source said Monday's resolution was unexpected. The latest measure could deepen uncertainty among potential investors. Brazil's Vale SA is said to be reviewing a $5.9 billion potash project in Argentina, partly due to concerns about political uncertainty related to import controls and the recent renationalization of energy company YPF. It is one of the biggest investments planned by Vale, the world's second-largest mining company, which declined to comment on the latest government measure. Compared with neighbouring Chile or Peru, Argentina's mining industry is relatively undeveloped. That has drawn interest from global companies in recent years and overall investment reached a record $2.6 billion in 2011. Soon after her re-election last year, Fernandez ordered energy and mining firms to cash in export revenues in the local market and ordered tax officials to approve dollar purchases on a case-by-case basis. Both measures were designed to counter galloping capital flight and bolster the central bank's foreign currency reserves, which the government has earmarked for debt repayments for a third straight year. ↑Return to Index

Brazil to ease rules on tax breaks for infrastructure bonds (Editor’s Note: The following article was written by Arnaldo Galvao and was published on Bloomberg News on May 28, 2012) Brazil will ease rules that grant tax breaks to local and foreign investors who buy corporate bonds, said Finance Ministry Deputy Executive Secretary Dyogo Oliveira. The new rules, which are likely to be introduced in about two months, will apply to bonds with at least four years’ duration or to those linked to infrastructure projects, Oliveira said in an interview in his Brasilia office. The rules extend tax benefits to buyers of bonds from companies that are selling the securities to pay previous debts, as long as the new issue is for long-term bonds or forms part of an investment plan involving infrastructure, Oliveira said in an interview in his Brasilia office. The percentage of total holdings that investment funds must hold in infrastructure-linked bonds benefitting from tax discounts will also be reduced, Oliveira said.

The government is trying to fund investments worth 955 billion reais ($482 billion) in projects such as roads, ports and dams as part of its growth acceleration program through 2014. “These improvements are part of the government’s effort to develop private sources of funding for long-term investments,” Oliveira said. Last June, Brazil exempted investors from income tax on returns paid on long-term bonds and those linked to investments that had been previously approved by the government. In December, the government also exempted foreigners from a 6 percent tax they have to pay when buying Brazilian bonds for this type of investment. Investors won’t lose the tax benefits if the company selling the bond breaks the rules governing the tax cuts, Oliveira said. The new rules will also extend the benefits to bonds

that are sold to finance the purchase of government concessions. ↑Return to Index

Uruguay economy expands 1.9% in first quarter but uncertainties persist Uruguay’s economic growth quickened in the first quarter, spurred by increased transport and communications. GDP expanded 4.2% from a year earlier and grew 1.9% from the fourth quarter of 2011, the central bank said on its website. In the final quarter of last year, the Uruguayan economy grew 3.5% year-on-year and contracted 1.6% from the previous period. Growth was led by transport and communications, which expanded 9.4%, while retailers boosted activity 5%, the bank said. Construction expanded 12.9%, mainly because of the building of a 2 billion dollar pulp mill in the west of the country, the bank said. A shutdown at the state oil refinery until mid-February caused industrial output to shrink 1.2%. Prolonged drought led to a 22% contraction in electricity, gas and water supplies.




In March, the policy makers left the overnight lending rate at 8.75% while signalling concern about increasing inflationary pressures in an uncertain global context. Consumer prices rose 8.06% in May from a year earlier, the fastest rate of increase since December, the national statistics institute, INE reported last June 4. In 2011 the agriculture-based economy grew 5.7% fuelled by growing domestic demand and increased exports. Analysts expect 4.45% expansion in 2012 according to the median of 10 economist surveyed by the central bank in May. However trade restrictions by neighbouring Argentina and to a certain extent Brazil, and the impact of the global economic crisis held back growth in the first quarter, said Ramiro Almada, an economist at Oikos research firm in Montevideo. “We expected an impact from the refinery and other industry sectors affected by Argentina’s trade barriers and the international crisis,” Almada said. “In the next quarter there may be a slight contraction because of the global crisis but we estimate that the economy will grow 4% this year.” Central bank policy makers will meet July 3 to discuss the benchmark rate and will face a serious dilemma between inflation and an uncertain economic evolution in the current world circumstances particularly since Brazil, the country’s main trade partner, has adopted a policy of promoting exports by letting the Real slide against the US dollar. ↑Return to Index

For the diary Date: July 24, 2012 Event: Distinguished Speaker Series: Mr Bernt Aasen, UNICEF Regional Director for Latam & Caribbean Venue: NSW Trade & Investment Centre, Level 48, MLC Centre, 19 Martin Place, Sydney Organiser: ALABC, UNICEF & AISES Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: August, 2012 Event: ALABC Roundtable with the Latin American Heads of Mission Venue: Canberra Organiser: ALABC [By invitation Only] Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: August 29, 2012 Event: Melbourne Annual Dinner Venue: Chapter House, 197 Flinders Lane, Melbourne Organiser: ALABC Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: September 19, 2012 Event: Sydney Annual Dinner Venue: Tattersall’s Club, 181 Elizabeth Street, Sydney Organiser: ALABC Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: September 19 & 20, 2012 Event: South American Diggers 2012 Conference Venue: Sydney Exhibition & Convention Centre, Darling Harbour, Sydney Organiser: Association and Communications Events Contact: www.southamericandiggers.com.au Date: October 10, 2012 Event: Brisbane Annual Dinner Venue: Customs House, Queen Street, Brisbane Organiser: ALABC Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index






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