Processing Deficit Limits LATAM Mineral Upside: Moody's Ratings

Latin America’s mining sector faces a critical processing deficit that restricts economic upside and leaves operators exposed to price volatility despite vast critical mineral reserves. Expanding downstream refining under strategic policy frameworks, such as the Mexico-US Action Plan on Critical Minerals within the USMCA, offers higher operating margins and credit enhancement by capturing nearshoring demand. However, capturing this financial upside requires Mexico and regional peers to resolve severe upstream exploration declines, permitting backlogs, and regulatory uncertainties affecting top mining companies and advanced manufacturing supply chains.

____

The potential for downstream expansion and refining capacity represents a strategic pivot for Latin America's extraction sector, offering a direct path to higher operating margins and credit differentiation, says Moody’s Ratings. However, despite the positive factors, some countries in the region have to develop more localized critical minerals value chains; the region still has to address legal and infrastructure gaps. 

According to Moody’s, while upstream resource extraction remains the historical foundation of regional operations, moving further along the value chain into refining and value-added processing allows operators to mitigate raw material price volatility and reduce exposure to external processing bottlenecks. 

Moody’s highlighted existing deficits between regional mining output and refining capabilities. Global processing is heavily concentrated in Asia, where China controls 78% of global cobalt refining, 70% of global lithium refining, 44% of global copper refining, 31% of global nickel refining, and 92% of global rare earth element refining. China also accounts for the majority of global demand, consuming 74% of global lithium, 68% of global cobalt, 62% of global nickel, 57% of global rare earth elements, and 55% of global copper. 

By contrast, Latin American refining capacity is disproportionately small relative to its resource base. The region holds 60% of global lithium brine resources and 40% of global copper reserves, yet Chile accounts for 20% of global lithium refining and 7% of global copper refining, while Argentina represents 5% of global lithium refining. 

Specific production share and reserve distributions illustrate this gap across key jurisdictions. In copper, Chile holds 23% of global production and 18% of global reserves, Peru holds 12% of global production and 9% of global reserves, and Mexico holds 3% of global production and 5% of global reserves. In lithium, Chile accounts for 19% of global production and 25% of global reserves, Argentina accounts for 8% of global production and 12% of global reserves, and Brazil accounts for 4% of global production and 1% of global reserves. In nickel, Brazil accounts for 2% of global production and 11% of global reserves. 

Developing localized downstream processing yields strategic pricing advantages and improved credit profiles, particularly as international policy incentives push for supply chain diversification. Industrial policy tools, including the US$370 billion US Inflation Reduction Act (IRA) in 2022 and the European Critical Raw Materials Act (2024), create premiums for processed materials sourced outside dominantly concentrated jurisdictions. “The trend toward nearshoring and supply diversification is leading buyers to pay more to reduce their dependence on China,” reads Moody’s report.

Unit valuation metrics emphasize the financial upside of refined outputs, with neodymium commanding US$121,000/t, cobalt reaching US$56,000/t, lithium at US$20,000/t, nickel at US$18,000/t, and copper at US$13,000/t. Regional production value growth between 2011 and 2025 further highlights this trend, led by lithium at 1,378%, cobalt at 166%, copper at 57%, and nickel at 32%. 

Competitive Advantages Supporting Investment

For Moody’s, Latin America offers structural advantages including rich geology, competitive operating costs, established infrastructure like deepwater ports and power grids, alongside operational expertise and a skilled workforce. The region provides investors with a more consolidated and accessible market than frontier regions in Africa or Central Asia, featuring relatively low geopolitical risk and better access to capital and long-term off-take contracts. Furthermore, well-developed legal frameworks afford more predictable contract enforcement and regulatory processes. Government initiatives are actively attempting to reinforce these foundations, such as Chile's National Lithium Strategy and National Critical Minerals Strategy, Argentina's Large Investment Incentive Regime (RIGI), and Brazil's National Critical and Strategic Minerals Policy.

Critical Mineral Opportunities Come With Challenges

Moody’s notes that despite the potential for credit enhancement, structural obstacles slow downstream progress across Latin America. Technical complexity, high capital intensity, and long development timelines of five to 10 years for new capacity present severe barriers. 

In addition, regulatory frameworks are growing increasingly complex and strict, increasing permitting risks, extending lead times, and raising capital intensity across the region. “A modern jurisdiction must be demanding, but it must also be clear. Investors, communities, authorities, and operators benefit when the rules are understandable, the criteria are transparent, and the timelines are reasonably predictable,” said Pablo Méndez, Managing Partner, EC Rubio, in an MBN Expert Contributor piece.

Country-specific operational realities create additional friction. Chile faces water constraints in the Atacama Desert, expanding energy requirements, and stringent environmental permitting. Argentina experiences energy and logistics deficits, foreign exchange restrictions, and regulatory uncertainty. Brazil manages high capital costs, technology gaps, and dependence on foreign technical partnerships. Peru contends with social conflicts, political instability, and administrative delays. 

These operational realities create a divergence in credit quality across the industry. Large, low-cost integrated operators, such as Chile-based Codelco, Chile-based SQM, and Brazil-based Vale, possess the balance-sheet flexibility and capital access required to advance downstream projects. Global diversified peers like Australia-based BHP and UK-based Rio Tinto maintain similar advantages. Smaller operators and new entrants face higher financing costs and execution risks, leaving them exposed to spot market volatility. 

Where does Mexico Stand in the Critical Minerals Arena? 

Mexico produces 23 minerals relevant to industrial supply chains, holding major global ranks in fluorite, lead, molybdenum, and copper, with nine of these commodities classified as critical for North American security, as reported by MBN. The Mexico-US Action Plan on Critical Minerals, announced on Feb. 4, 2026, anchors domestic extraction to the USMCA, seeking to link minerals like silver, copper, and lithium to regional electromobility, advanced manufacturing, and defense ecosystems. 

According to Minister of Economy Marcelo Ebrard, Deputy Minister Luis Rosendo Gutiérrez, and United States Trade Representative Jamieson Greer, the bilateral framework establishes mechanisms to protect regional production from global market distortions and secure long-term investment.

Mexican legal and environmental challenges are not different from those Moody’s highlighted among its peers in the region. However, the national sector has been calling for unlocking the permitting backlog, the publication of the 2023 Mining Law Reform’s ruling, as well as establishing a more efficient exploration framework. “The country can use its mining base to support manufacturing, energy transition, advanced industries, and regional supply chain security. But this will only happen if the mining stage is viable. There can be no resilient supply chain without a functioning upstream sector,” Méndez stressed.