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Violent protests erupted in Rio de Janeiro last month after Brazil moved to sell interests in its vast Libra oilfield.RICARDO MORAES/Reuters

Natural resource companies are growing increasingly skittish about Latin America, a region that until recently was one of the world's most powerful magnets for foreign investment.

In Brazil, the country's recent move to sell interests in its vast Libra oilfield highlighted growing friction over national resources. Brazilian social activists say the government of Dilma Rousseff "gave away" the country's resources in the auction, where international energy giants Royal Dutch Shell PLC, Total SA and two Chinese oil companies joined with Brazil's Petrobras as owners of Libra.

Protesters clashed violently with police near Rio de Janeiro last month. "The country's strategic oil reserves should not be auctioned. Petrobras is perfectly capable of developing Libra," said Ronaldo Leite, president of the Rio de Janeiro chapter of the Central Workers of Brazil (CTB).

The conflict over Libra comes amid an accelerating drive by governments across Latin America to reserve a bigger slice of their mineral and energy resources for their own citizens.

A law in Brazil would raise the mining royalty rate to 4 per cent of gross revenue, from 2 per cent of net revenue currently. The lower house of Parliament is expected to vote on the bill this week.

In Mexico, the Senate just passed President Enrique Pena Nieto's fiscal reform, which includes a new mining levy of 7.5 per cent on EBITDA for base metals and another 0.5 per cent gross royalty for precious metals miners.

(EBITDA represents earnings before interest, taxes, depreciation and amortization.)

"This royalty will completely take Mexico out of the game in terms of competitiveness," said Rosalind Wilson, president of the Canadian Chamber of Commerce's mining task force. "We are very disappointed with the outcome, but it comes as no surprise because it had been in the pipeline for a while now. For all miners, regardless of their nationality, this will have a huge impact on their bottom line."

The new royalty in Mexico will encourage investors to look at other investment jurisdictions, said Tim Haldane, senior vice-president for Latin America of Toronto-based Agnico Eagle Mines Ltd..

"We enjoy operating in Mexico, we consider Mexico a great place to do business; so, this new tax is disappointing to us. Undoubtedly, it will affect future investments," Mr. Haldane said in a phone interview.

Brazil and Mexico insisted that their goal was to stimulate competition and secure funds for social programs. In Mexico, the explanation was that the industry was not making a "fair" tax contribution. Half of the revenue from the levy will go directly to the municipal governments where the mines are located for public spending projects.

The recent commodities boom ratcheted up political pressure on Latin American governments to distribute a bigger share of natural resource profits among local communities, enforce stricter regulation on mining and energy projects, and tighten control over production. Bolivia and Ecuador have said they will step up pressure on multinational oil and gas companies, including such "drastic steps" as nationalization, if they take contract disputes to international arbitration bodies.

Simion Candrea, vice-president of investment banking at Jennings Capital in Toronto, said that "any hint of increasing taxes and royalties represents an additional excuse for investors to reduce their stakes."

Rising pressure from social activists has been a major factor behind a string of setbacks in mining and energy projects.

Barrick Gold Corp.'s Pascua Lama gold mine over the Chilean-Argentinean border is one of the 18 projects in the region – representing a total investment of $39.7-billion (U.S.) – where construction or operation has been put on hold this year as a result of social pressure, according to Chilean non-profit entity Capital Goods Corp. In Peru, 17 mining projects worth $22.5-billion are expected to be operational by 2017, down from 27 projects expected previously, said Peru Top Publications in a 2013-2016 outlook report.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

SymbolName% changeLast
A-N
Agilent Technologies
-0.94%146.09
ABX-T
Barrick Gold Corp
-0.89%21.17
AEM-N
Agnico-Eagle Mines Ltd
-1.14%55.3
AEM-T
Agnico Eagle Mines Ltd
-1.24%74.84
BR-N
Broadridge Financial Solutions Llc
-0.36%199.48
PBR-N
Petroleo Brasileiro S.A. Petrobras ADR
+0.34%14.59
R-N
Ryder System
+1.42%113.88
RA-N
Brookfield Real Assets Income Fund Inc
-0.08%12.84
T-N
AT&T Inc
+1.47%17.3
T-T
Telus Corp
-0.27%22.36
TBB-N
AT&T Inc 5.350% Global Notes Due 2066
+0.04%24.21
TU-N
Telus Corp
-0.24%16.52

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