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Bolivia’s President Evo Morales (centre), who faces elections in 2014, is likely to step up attempts to empower the indigenous majority to take a bigger role in the management of natural resources. (HANDOUT/REUTERS)
Bolivia’s President Evo Morales (centre), who faces elections in 2014, is likely to step up attempts to empower the indigenous majority to take a bigger role in the management of natural resources. (HANDOUT/REUTERS)

Bolivia losing its attraction for foreign miners Add to ...

At the mining village of Colquiri, it seems the globalized world has yet to make inroads in the breathless air of Bolivia’s Andean plateau. These arid lands rich in tin, zinc and silver bankrolled Spain’s empire and then fuelled the birth of the Bolivian republic.

Native miners, the poorest group in one of South America’s poorest countries, are now convinced this is their time for payback. “We are now recovering what is ours, what should have always been ours,” says Severino Estakani, wiping away the sweat dripping from underneath his tin hat.

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In late June, the government revoked the Colquiri tin and zinc mining licence of Sinchi Wayra – a wholly owned subsidiary of London-listed commodities trader Glencore – after mining co-operatives and indigenous groups fought to take over the mine by force.

Today, Bolivia’s military guard the entrance to the V-shaped valley that hosts the cluster of adobe shacks that feed the mine. A newly painted sign reads: “Colquiri Mining Company” with the logo of Comibol, Bolivia’s state-run mining corporation.

The nationalization was the first in a stream of setbacks for foreign miners operating in the landlocked Andean nation.

Evo Morales, the country’s first indigenous president, swept to power six years ago promising to empower the long-marginalized indigenous majority who are increasingly pressuring the government to take a bigger role in the management of natural resources.

Mr. Morales is more likely to respond to that pressure as he faces elections in 2014.

“We have a mandate as a government to recover everything that was ours and then privatized during the neo-liberal model of the late nineties,” Luis Arce, the country’s finance minister, told the Financial Times, “Glencore knew what was coming.”

But the idea that Glencore was forewarned that the political tide had turned against it is “preposterous,” say people familiar with the commodities trader’s Bolivian operations.

Glencore, which acquired Sinchi Wayra in 2004 from a company majority-owned by former president Gonzalo Sanchez de Lozada, has objected to the nationalization of Colquiri, pointing out its $80-million (U.S.) investment in its Bolivian operations and payments to the government and Comibol of more than $300-million.

In Bolivia, however, the overwhelming perception is that privatizations during the 1990s and early 2000s were bad for the country.

Last month the government also took over the licence of Malku Khota, a silver project granted in 2007 to South American Silver, a Canadian group. “Over the past few months, Bolivian officials [had] emphasized that nationalizations were related to previously state-owned assets and that private investments were protected,” Greg Johnson, the company’s chief executive, told the FT last month.

India’s Jindal Steel Power in July pulled out of Bolivia after cancelling a $2.1-billion iron mine contract, following a protracted row with the government.

Industry executives argue that the Bolivian government, which sometimes stepped in after local opposition to mining development turned to violent protests, is endangering investment in its mining sector, risking losing out to neighbours such as Chile or Peru where the regulatory environment is better established and the resources better understood.

“Jindal was not actually nationalized like Sinchi Wayra and Malku Khota [which were] struggling with outbursts of violence from indigenous groups that wanted the state to take part,” explains Bernardo Prado, a mining consultant in La Paz. “But in the three cases the government’s hardline position did not help and now they are all in the hands of Comibol.”

South American Silver is considering accelerating work on its Chilean copper-gold project. “There is a great big world out there to look at for investment,” said Mr. Johnson. “When governments take action it can have a long-lasting effect on exploration spending.”

Bolivia is unlikely to feel an immediate impact from declining foreign investment, as rising prices have ensured the government strong revenue flows in recent years.

Mining export proceeds jumped 50 per cent to $3.7-billion last year, and have grown almost fivefold since Mr. Morales took office in 2006. Today, they represent about 40 per cent of the Andean country’s total exports.

The government is also undertaking a sweeping review of the nation’s mining code, seeking to boost government revenues. Miners in Bolivia currently pay royalties of between 5 and 7 per cent, a 13 per cent of gross value tax, and up to 37 per cent on profits.

Under the new code, companies should partner with Comibol, which would take majority ownership and 55 per cent of profits. Glencore recently agreed to a joint venture for two lead, zinc and silver mines, handing a majority stake to Comibol and committing to invest $105-million over five years.

For all of the government’s rhetoric, Bolivian miners agree on the need for foreign investors.

“We are currently reviewing contracts, to make them beneficial for the Bolivian state, but rest assured there will still be private mining with no involvement of the state,” explains Comibol’s chief Hector Cordova, referring to the country’s largest operation, San Cristobal.

The mine, owned by Japan’s Sumitomo, produced more than half of Bolivia’s exported minerals in 2011, disbursing about $150-million between taxes and royalties.

Back in the mining village of Colquiri, Mr. Estakani, a former Glencore employee, says: “We do want investors to help us extract our minerals. But only if they respect us, they respect our rules, and they don’t take all of the profits away with them.”

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