Mining and energy companies invest in the Amazon because it is profitable. Opportunities are large because of geology, but development is costly due to the region’s isolation and lack of infrastructure. The decision to pursue a mineral exploitation project depends on several factors, but there are two primary technical criteria: (a) the richness of the mineral deposit, which determines the cost of extraction; and (b) the volume of the geological formation, which determines the productive lifetime of a mine or oil and gas field. Taken together, these two factors allow investors to estimate the return on investment and decide whether or not to deploy financial capital. Scale is essential to ensure that the cost of production is lower than revenues; consequently, only the richest and largest deposits are developed. Any investment opportunity is balanced by risk, which includes market risk driven by macroeconomics and geopolitics, as well as social and environmental risk unique to each project and nation. Corporations tend to be skilled at managing the former, but they often mismanage the later. Social conflict can delay a project and wreak havoc on the financial models used to guide investments, while a botched environmental review can lead to its rejection by a regulatory agency. Large-scale mining, as in the case of Cóndor Mirador in Ecuador, is of concern due to the inability of government institutions to monitor and control its activities. Image by Ana Cristina Alvarado. Greenfield versus brownfield investments An investment that occurs in a geological formation that has…This article was originally published on Mongabay
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