Legend goes that El Dorado, the Lost City of Gold, was built from gold found in the hills and streams of what is known today as Colombia. For centuries, its fabled riches lured foreign conquistadors and other explorers.
They never found it. Fast-forward 500 years and most of Colombia’s mining potential is still relatively untapped. Since 2002, Bogotá has been trying to stimulate the industry, increasing the distribution of mining permits in the country and welcoming foreign explorers back.
But the government is wielding sticks as well as carrots.
Over the past 10 years foreign miners have entered territories previously placed off limits by Colombia’s drug war between the state, leftwing guerrillas, and rightwing paramilitaries. Tax incentives and rising commodity prices have driven a boom in the Andean country’s mining industry.
Foreign investment has multiplied and Colombia is already the world’s fourth largest exporter of thermal coal. It also has promising gold and nickel reserves, as well as supplying almost 60 per cent of the world’s emeralds.
All of that caused a bit of a backlog in terms of license applications. But last year Colombia created a National Mining Agency, or ANM, that in June will begin accepting requests for over 20m hectares of land containing 11 strategic metals, an official told beyondbrics. For now, the agency appears to be dedicating itself to updating and extending old mining contracts.
In early January, it agreed to extend the license for a local unit of BHP Billiton – a move that also increased the amount of royalties the unit pays to the government for its Cerro Matoso nickel mine, the world’s second largest, from 12 per cent to 14 per cent. The new license, which will run out in 2029, is expected to fetch the government around $6bn in royalties and taxes during the period.
This month it also gave the green light to Minas Paz del Rio, a local subsidiary of Brazil’s Votorantim, to extend its rights to mine metallurgical coal until 2039 from a previous date of 2019. The Brazilian group will now pay 15 per cent for production of 2.5m tonnes or less, compared to 10 per cent before and 19 per cent for volumes above that.
But those who want the carrot will have to take the stick, too.
As BTG Pactual in Medellín said in a note to clients:
The extended contracts come with new add on in terms of commitments to social projects which appears to be the new remit of the government to keep local communities happy.
The government recently ordered the creation of a wilderness park and, consequently, banned mining in a region rich in gold in the country’s northeast.
That was where Canada’s Eco Oro Minerals, formerly Greystar, had hoped to have its Angostura gold project. Since receiving a license from the previous government, the company has been facing opposition from local authorities, the country’s inspector general and environmental groups saying mining would affect the ecosystem of the so-called páramo, or moorland, as well as the water supply to 2.2m people. The company rejects the claims.
Some analysts believe that from the very beginning Greystar was playing with fire by advancing a project there, far removed from other exploration projects.
Notwithstanding, the company now says that after the defining of the limits and co-ordinates of the national reserve, the majority of the Angostura project remains exploitable.
For BTG there are still issues hanging in the air, though:
What of course remains to be seen is what can be extracted and at what cost – on top of that investors will want some sort of timescale in order to regain any confidence.
Related reading:
Colombia: Dutch disease symptoms?, beyondbrics
Colombia: on the up, peace or not, beyondbrics
Colombia gets new energy and mining minister, beyondbrics
This article has been updated to correct Angostura project comments in the last three paragraphs.