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Bolivia’s second-biggest tin mine has reopened after weeks of demonstrations. But its closure cost the country millions and weakened foreign investment.
The deal ended violent protests that started in early September and shuttered the operation, costing Comibol, the state-owned mining company that owns the mine, roughly $250,000 a day in lost production.
The agreement came after the government of President Evo Morales nationalized the mine in June in the wake of earlier protests against its previous owner, Sinchi Wayra, a subsidiary of Swiss commodity trader Glencore International (LSE:GLEN).
Nationalization of Colquiri failed to stem protests
On the day the government revoked Glencore’s right to mine at Colquiri, Bolivian Vice President Alvaro Garcia said, “Today we’re signing a great decree, for two reasons. We’re recouping a company that belonged to the state and now returns to state hands, and we’re also democratically resolving the contradiction between the two factions of the Bolivian population: cooperative workers and salaried employees.”
But even with the state in control, the two groups — Comibol’s salaried workers and the local cooperative miners who carry out small-scale mining on the site — remained deadlocked over who should control Colquiri’s Rosario vein. A committee made up of representatives of both parties and the government will now carry out a technical assessment to clearly mark out each side’s stake.
Bolivia was the world’s fourth-largest tin producer in 2011, according to figures from the US Geological Survey. During the year, the country’s mines produced 20,700 metric tons of the metal, behind only China, Indonesia and Peru. Bolivia also holds 400,000 MT of known reserves, also the fourth-largest amount in the world.
Comibol expects Colquiri, located in the country’s La Paz province, to produce around 3,000 MT of tin concentrates this year, or around 15 percent of Bolivia’s total output. Colquiri is the country’s second-largest tin mine, behind the Huanuni mine, which is also owned by the state.
Glencore vows to “seek fair compensation” for its lost mine
Meanwhile, Glencore still aims to be compensated for its loss. In a statement issued after the seizure, the company said it is doing all it can to ensure a smooth handover in order to protect the safety of its staff, but also emphasized that it “strongly protests” the government’s action and “reserves its rights to seek fair compensation pursuant to all available domestic and international remedies.”
As well, Glencore highlighted the financial contributions it has made to the country, including $70 million in royalties, taxes and fees from Colquiri and a total of $300 million in payments to the government from all its operations in the country.
“Glencore believes commercial investment enables resource-holding countries to maximise the value generated by their natural resources for the benefit of their people,” the company said. “The action taken by the Government of Bolivia will pose a number of serious questions relating to the Government’s future policy towards foreign investment in the mining sector.”
Colquiri is the latest in a long line of expropriations in Bolivia
The seizure of Colquiri is the latest in an ongoing string of nationalizations in the country. Shortly after Morales came to power in 2006, he nationalized Bolivia’s natural gas industry, followed by its largest telecommunications firm in 2008. In July, a month after seizing Colquiri, the government turned its sights on South American Silver’s (TSX:SAC) Malku Khota mine, which contains rich deposits of silver and indium.
Nor was it the first time that Glencore has lost Bolivian assets in this manner: the Morales administration also seized the Vinto tin smelter, the country’s largest, from the company in 2007. Vinto processes ore from the Huanuni mine.
These situations illustrate the tight spot in which foreign mining companies operating in Bolivia find themselves. And many are looking to invest elsewhere as a result. South American Silver, for its part, is planning to increase spending at its Chilean operations. “There is a great big world out there to look at for investment,” Greg Johnson, the company’s CEO, said recently in a Globe and Mail article. “When governments take action, it can have a long-lasting effect on exploration spending.”
The country’s internal politics and the background of its current president go a long way toward explaining the reasons behind the nationalizations. Morales, who was first elected in 2005, is the first president to come from Bolivia’s indigenous majority. His political leanings are decidedly left-wing, and he has deep roots in the country’s labor movement, having played a key part in the protests that brought down former President Gonzalo Sanchez de Lozada in 2003.
Morales cruised to re-election in 2009, winning 63 percent of the popular vote on promises to further increase state involvement in the country’s economy and give more power to indigenous peoples.
His policies haven’t always been popular, however. For example, he sparked a violent backlash when he removed government fuel subsidies in 2010, sending the price of gasoline soaring by 70 percent. The move resulted in violent protests that prompted him to back away from the policy.
New mining code creates further uncertainty for foreign miners
For its part, the government claims to only be interested in recouping assets that were once owned by the state. In a recent guest editorial for the Financial Times, Luis Alberto Arce, the country’s finance minister, wrote, “[w]ith a popular mandate to recuperate natural resources and strategic enterprises, the Bolivian government has since 2006 implemented a consistent policy of nationalization of former state enterprises that were privatized in the early 1990s. We have not nationalized, nor will we nationalize, genuine investments in the private sector, either domestic or foreign.”
But nationalization isn’t the only hazard foreign miners face in Bolivia. The country is now in the process of revising its mining code, with a particular eye to upping the government’s take of resource revenues. That means miners operating in the country will soon see additions to the taxes they pay to the government, which include a 5 to 7 percent royalty and taxes of up to 37 percent on their profits.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.