Colombia: Mining ups and downs
While Colombia’s mining sector is still in its infancy, interest in the industry is growing. In 2011, foreign investment in mining increased by some 50%, reaching $2.6bn, and total investment in the sector is predicted to top $12bn by 2015. However, there are still some hurdles that lawmakers will have to overcome before the country’s potential as a mineral producer can be fully realised. Chief among these challenges are efforts to eliminate informal mining activity and establish stronger regulation of the sector.
The current surge in mineral exploration has primarily been led by “junior” mining companies – firms that determine the prospects of a site – and influenced by two major factors. Firstly, increased security throughout the country has allowed for greater exploration of regions that may previously have been avoided due to paramilitary activities. Secondly, the relatively accessible nature of Colombia’s mineral reserves in comparison to more remote reserves found in countries such as Panama has also served to attract significant interest in local mining operations.
Nonetheless, Mark Mosely, the president of Canada-based Continental Gold, a junior mining company, told OBG that President Juan Manuel Santos’ decision to identify mining as one of the country’s “locomotives” of economic growth should not be misunderstood. “We are currently experiencing an exploration boom in Colombia,” Mosely said. “However, only a handful of exploration projects ever become mines. Colombia needs to view mining in the medium to long-term. Given the time to take a project from discovery to production, the true economic impact from mining will be seen only once mines are in production several years from now.”
As of 2010, mining accounted for only 7% of Colombia’s national GDP, with coal serving as the most prominent mineral export. However, several mining companies operating in Colombia recently reported potential increases in the availability of minerals other than coal. For example, Gran Colombia Gold carried out a deep drilling project in the Caldas region that revealed a potential of at least 300m additional tonnes of minerals, including 11.8m ounces of gold.
Gold exports are particularly on the rise: their value increased by 23.74% in 2011. Fabian Llano, the manager of C I Meprecol, a marketer of gold and platinum based in Colombia, told OBG, "The strength of gold as a commodity has boosted foreign demand. Gold marketing has therefore become a very competitive business, with about 12 companies dividing gold marketing in the region of Antioquia.”
In fact, the growth of gold exports has led the government to reconsider previously shelved plans to increase royalties on the mineral. However, Federico Renjifo, the minister of mining and energy, informed local press that Colombia must be careful in how it goes about determining taxes on mining exports, as there are many other mining nations to compete with in the region.
Apart from determining the appropriate level of taxation on mining operations, lawmakers continue to struggle to eliminate informal and illegal mining. Llano told OBG, “While about 80% of mining in Colombia is informal, i.e. lacking a mining title, Act 1382, which, among other things, sought to formalise these miners, has had very little impact, due to the complexity of environmental, security, law and other issues”.
Indeed, Renjifo told local press that “despite the existing mining code, controlling and formalising the industry is a necessary reform that needs to be made”.
Illegal and informal mining operations generally do not comply with environmental safety standards, nor do they abide by labour laws. While the National Authority for Environmental Licensing (ANLA) is in charge of ensuring that mining companies abide by environmental regulations, the prevalence of informal mining makes it extremely difficult for ANLA to fulfil this mandate.
Another regulatory concern for the sector is the enforcement of the International Labour Organisation’s Convention 169, which specifies the rights of indigenous groups. This law applies to the mining industry in cases where exploratory grounds are home to indigenous communities. The lack of a clear implementation of this law in Colombia generates some concern regarding the security of ownership of mining operations.
While mining may have much to offer Colombia in terms of generating economic growth, as well as creating jobs throughout the country, the sector is not without its struggles. Only by instituting a greater degree of formality in the industry will regulatory authorities be able to ensure that the mining sector is developed in an environmentally and socially sound manner.