Growing global demand for metals, particularly by China, has kindled intense interest in South America’s mineral wealth. The region has a number of the world’s largest—and most competitive—deposits of alumina, bauxite, copper, iron ore, nickel, and zinc. Prices of copper, nickel, and zinc have increased by a factor of five from 2002 to 2006. The market may be overheated and prices could fall, but there is a wide consensus in the industry that future growth in demand and the scarcity of new reserves will keep prices much higher than they were in the past. Thus huge opportunities for multinational mining companies abound.

Yet some global mining houses, concerned primarily about political risk and macroeconomic volatility, remain too wary of further investments in the region. They shouldn’t be: despite the resurgence of populism in countries such as Bolivia and Venezuela, the overall political and institutional risk for foreign investments in the mining sector is relatively low in most of Latin America, especially compared with the risks in some other places that have attractive mineral reserves. Multinationals control a significant part of the mining...