With emerging markets grabbing investor attention, many are turning their focus towards South American markets. Strong exports, high commodity prices and increased investments have been contributing factors to growth within many of the Latin American markets. As a result, many companies are working to capitalize across a variety of sectors such as DVD manufacturer Infosmart Group, Inc. (OTC:IFSG) in the digital media and tech market, ZAP (OTCPK:ZAAP) and Rotoblock Corporation (OTC:ROTB) taking advantage of the growing demand for alternative and renewable transportation, as well as GoldenPeaks ResourcesLtd. (GL) and other mining companies pursuing resource plays within Argentina and surrounding areas.
Brazil’s Technology and Digital Media Market Growth
According to IDC Worldwide PC Tracker December 2006, computer sales, to include desktops, notebooks and ultra portables increased 21.5% to just under 1.79 million units in the third quarter of 2006, in comparison to the same time period in 2005. Total sales for the first three quarters of 2006 reached over 5 million units, up approximately 28% from 2005 numbers. This growth can be attributed to a variety of factors such as government incentives, a high level of Internet use (12 th in the world according to eTForecasts) and overall economic growth leading to increased consumer purchasing power.
The DVD player market possibly has the greatest potential for growth in Brazil's entire entertainment hardware sector; this substantially benefits DVDR manufacturers like Infosmart Group, Inc. As local production has not been able to meet the nation’s demands, imports have continued at a high level, in particular from the United States which represented more than 50% of the total imports for computer hardware. The need for increased local technology production is one of the factors behind the decision by DVD and DVDR manufacturer, Infosmart Group, Inc. to establish a production facility in Brazil through its subsidiary Infosmart Discobras.
“ Brazil is one of the largest markets in the world with the population of over 180 million. Furthermore Brazilian people enjoy music and film, which leads to rising consumption of blank media. The projected DVDR monthly demand in Brazil is expected to be 45M discs in 2007. When you compare Brazil to the other countries in the world with a large market for media, Brazil owns significantly less production facilities,” explains Andy Kwok, Chief Executive Officer of Infosmart Group, Inc.
“Infosmart Discobras will be a Brazilian domestic producer and therefore aligned with Brazil's goal, which is to encourage domestic production rather than imports. Brazilian government policy regarding the importation and taxation of DVDR discs favors domestic producers.”
With Infosmart’s DVD production from its Brazil facility expected to begin in February 2007, the Company anticipates being able to undercut prices of legally imported discs because its production raw materials and equipment will be imported free of the 17-18% tax imposed on imported discs. According to the Company, the sales from their Brazil facility are expected to contribute approximately 40% of the group revenue.
Brazil ’s Focus on Renewable Energy /Alternative Transportation Technology
With renewable energy accounting for nearly 45 percent of Brazil’s energy production, the Country has managed to establish energy independence, a goal that the United States continues to work towards. In particular, Brazil is the world’s largest producer and exporter of sugar cane based ethanol. According to the Energy Information Administration, Brazil exported 7,200 bbl/d of ethanol in 2005 to the United States.
Ethanol from sugar cane has key benefits over corn based ethanol because it is more energy efficient and is easier to grow and process, thereby reducing overall costs. Brazil’s success in alternative fuels has led to the mass adoption of vehicles that run on pure ethanol, or a gasoline-ethanol blend termed gasohol and the overall acceptance of ‘green’ transportation technology.
Brazilian automotive company Obvio! has developed unique flex-fuel and electric microcars suitable for 3 adults. Each microcar, measuring only nine feet in length which comes in either flex-fuel or all-electric models, achieves approximately 29 mpg in the city and over 40 mpg on the highway. Obvio ! has teamed up with California based alternative vehicles developer and distributor ZAP, to break into the North American market with estimates of launching 50,000 of the flex-fuel cars in mid to late 2008 for approximately $14,000USD per vehicle. ZAP is the exclusive North American distributor for Obvio! and owns 20% of the Brazilian company.
OBVIO! is also pursuing further efficiencies through its development and licensing agreement with technology development company, Rotoblock Corporation specializing in advanced propulsion systems, for the integration of their Oscillating Piston Engine [OPE] into Obvio ! 828, 012 and future models. The energy efficiency, small size and reduced emissions makes Rotoblock’s OPE suitable for use with Obvio!’s hybrid applications.
British automotive engineering consultancy, Lotus Engineering recently announced a deal with Obvio! potentially worth over $137USD million to develop two ‘trybrid’ microsports cars (models 828 and 012) that run on gasoline, bio-ethanol or natural gas. In the near future electric models are expected for both cars. The North American distribution of these trybrids will be handled exclusively by ZAP.
South American Mining Opportunities
Chile is the largest copper producer in the world and with copper prices seeing record highs in 2006 the region has reaped the economic rewards as GDP growth reached over 6% in 2005 and over 5% for 2006.
According to Stephen Poloz, Senior Vice-President, Corporate Affairs and Chief Economist with Export Development Canada:
“During 2005, copper exports contributed to 16% of Chilean GDP, and lately that figure has been around 23%. This steep rise in the contribution of copper to Chile’s GDP is related to copper’s meteoric price rise in the past two years.”
Argentina is the second-largest country in South America next to Brazil with rich natural resources and strong GDP growth between 8-9% over the past few years. As a result of historical political uncertainty Argentina has seen relatively little exploration when compared to nearby regions such as Chile and Brazil. However, as the political climate has significantly improved so has the investment potential of this region. Evidence of this is seen in the participation by many resource companies such as GoldCorp Inc. (NYSE:GG), Golden Peaks Resources Ltd. [TSX: GL], and Barrick Gold Corporation.
In addition to operational properties in Brazil and Chile, GoldCorp Inc. currently owns 37.5% of a gold and copper producing property in Alumbrera, Argentina. According to the Company, the Alumbrera property has been averaging approximately 700,000 tonnes of concentrate containing 600,000 ounces of gold as well as 190,000 tonnes of copper metal.
Golden Peaks Resources Ltd., an exploration and resource development company holds more than 385,000 acres of prospective land holdings in four of Argentina’s most established mining districts. The Company’s main focus is on five high priority gold projects within Argentina covering the provinces of La Rioja, Neuquen, and Chubut. Golden Peaks’ La Fortuna project in Chubut, Argentina is located in the same region as the nearby Esquel and Navidad deposits and exhibits distinct geological characteristics which the Company believes to be evidence of its potential to be the region’s next major gold discovery.
The world’s leading gold company, Barrick Gold Corporation, has global operations that include various South American locations such as Peru, Chile and Argentina. Barrick’s Argentinean Veladero mine is located in the San Juan province immediately south of the Company’s Pascua-Lama cross-border development property, which spans both Chile and Argentina. According to the Company, the Veladero mine cost $547 million in capital construction and produced 56,000 ounces of gold in 2005. The Pascua-Lama property has gold, silver and copper mineralization and has seen Barrick invest approximately $1.5 billion in construction capital as they prepare for production start-up in 2010 with estimates of producing 750,000-775,000 ounces for the first 10 years.
Overall, while emerging markets can potentially be volatile due in large part to political risk, the strong demand across sectors such as alternative energy and transportation, mining and many segments within technology continue to present signs of long term opportunity. With several strong years of performance already realized, many speculate as to what the future will hold; however as global demand remains solid and as long as the political climate remains conducive to capital investment, continued strength appears likely.
Disclosure: Author is long above-mentioned stocks.