For a country with three Andean mountain chains and a history of gold and silver production, mining has remained a relatively small contributor to the modern Colombian economy. Between 2012 and 2015 the sector contributed only around 2% to GDP and 20% of exports, with the vast majority coming from two giant coal projects: the Cerrejón mine in La Guajira department and La Loma mine in César department. Between 2013 and 2016 the sector experienced a slump as low commodity prices and bureaucratic obstacles saw exploration and development dry up. However, in 2017 stronger global coal and gold prices, the successful construction of a new gold mine and the licensing of three others signal that the country could be on the cusp of a new phase in the industry’s development. Much will depend on the ability of the Ministry of Mines and Energy ( Ministerio de Minas y Energía, MinMas), which sets industry regulation, and the regulatory body the National Mining Agency (Agencia Nacional de Minería, ANM) to provide legal assurances and institutional capacity to maintain positive momentum.
Coal
The ninth-largest coal producer globally and the first in Latin America, Colombian thermal coal is valued in international markets for its high calorific value. In 2016 Colombia surpassed 90m tonnes per annum (tpa) of coal production for the first time in its history, representing a 6.1% increase on 2015. The country’s largest mine, Cerrejón, is owned by international mining giants Anglo American, BHP Billiton and Glencore. It registered a decrease in production for the second year running, hitting 32.4m tpa, compared to 33.4m tpa in 2015 and 34.2m tpa in 2014. The company cited strong rains in May, October and November as the reason for the slowdown in shipments from the open-pit mine.
The decline at Cerrejón was more than compensated for by growth at Colombia’s second-largest mine, La Loma. Increased efficiencies at the La Loma project, which is owned by US firm Drummond, and improvements at the export port at Santa Marta saw production increase 10% to 28.4m tpa. The country’s third-largest coal miner, Prodeco, owned by multinational Glencore, also posted a strong performance in 2016, with 11.1m tpa from its Calenturitas mine and 6.2m tpa from the La Jagua mine, both of which are located in César department.
Bounty Of The Caribbean
In 2011 Cerrejón began a major expansion project, known as P-40 in reference to the goal of reaching 40m tpa. The project includes infrastructure upgrades at the pit, improvements in railroad transport to ports and construction of a second pier. However, while the most important aspects of the expansion were in place by mid-2014, the company chose not to ramp up production given the weak market prices in 2014 and 2015. However, prices increased sharply to over $80 per tonne in the second half of 2016 following the decision of China, the world’s largest coal producing country, to implement restrictions on domestic output. The higher prices have improved margins for operating companies and the Colombian government, which charges a 10% royalty on production of 3m tpa of coal or more. Those royalties totalled $500m in 2016, 83% of total mining royalties.
More than 90% of coal is exported, making it the country’s second-largest export after oil, with major importers being Turkey, the Netherlands, the US, Spain, Brazil and Japan. In 2016 total exports grew to 85m tonnes, up from 74m tonnes in 2015, according to MinMas. The rebound in prices, combined with weak oil prices, has made coal an important source of trade revenues. According to MinMas’ Mining and Energy Planning Unit, coal accounted for 17% of exports in 2016, compared to 13% in 2015.
Future Growth
Despite the growth of its major projects, Colombia’s coal industry has barely scratched the surface of its potential. Speaking at a coal conference in Cartagena in March 2017, Carlos Andrés Cante Puentes, vice-minister of mining and energy, said the country had over 6bn tonnes of coal reserves, with potentially up to a further 10bn tonnes yet to be identified and measured. In August 2016 Turkey’s Yıldırım Group settled an arbitration case for the purchase of Colombian coal assets held by CCX, a Brazilian-owned firm. The two companies had agreed on the sale of the San Juan underground coal project, two open pit projects and associated rail and port transport in March 2014; however, the case had been in arbitration since late 2015.
The original CCX mine plan forecast production to begin in early 2017 at a rate of 30m tpa from San Juan, with an additional 5m tpa from the open pit operations. When the project reaches fruition, it will provide a hefty boost to Colombia’s annual production. In addition to foreign-owned mega mines, Colombia has many locally owned small- and medium-scale coal producers. Of the 8971 active mining titles, 1453 are for coal projects. Small-scale coal mining provides 125,000 jobs, compared to 30,000 in large-scale projects, according to MinMas.
Uncertainty
However, coal’s potential will be determined by external factors. With US President Donald Trump pledging to reinvigorate his country’s domestic coal industry, Colombian exports to its northern neighbour may be adversely affected and, with the exception of Brazil, its other main markets are relatively distant. In recent years South Africa has exported increasing volumes of coal to Asia, creating a supply gap in Europe that Colombia is well placed to fill. Colombia has traditionally not exported much coal to Asia, given the cost of transport across the Atlantic Ocean and around the Cape of Good Hope. However, the expansion of the Panama Canal can drop that transit time significantly, although the fees for bringing a capesize vessel through the locks are about $300,000. If prices were to fall sufficiently to make this trip economical, Colombia has an estimated 25m tonnes of spare production and export capacity that could be brought on-line. The future of the Colombian coal industry depends to a large extent, therefore, on Chinese industrial growth and that country’s energy policy. Nevertheless, in March 2017 Cante Puentes said that coal production was set to reach a new record of 95m tonnes in 2017.
Basic Instinct
Córdoba department is home to one of the world’s largest nickel mines: Cerro Matoso, owned by BHP Billiton. In 2016 production at the mine grew 1.1% to 36,672 tpa, with nickel accounting for 6% of total mining royalties received by the government. However, after 20 years of production, the mine could be set for a significant expansion. In 2015 the firm received an environmental permit to produce from a 100-ha area adjacent to its existing operations. Ricardo Gaviria, Cerro Matoso’s president, said the new pit would allow production to increase to 40,000 tpa from 2018 to 2020. Once the site has been exploited, production is set to fall back to 30,000 tpa by the time the licence expires in 2029. The licence can potentially be extended, but only if new sources of ore are identified.
Elsewhere, the Colombian base metals sector remains largely undeveloped. El Roble mine in Chocó department has produced copper ore for 22 years, but was in decline until Canadian firm Atico Mining purchased 90% of the asset in 2012. Under new ownership, production increased from over 635,00 kg of copper in 2013 to 8.48m kg in 2016, with an additional 11,519 oz of gold by-product, according to Atico. Further brownfield exploration around the mine allowed Atico to identify a total of 1.87m tonnes of copper ore at an average grade of 3.46%.
Gold
Colombia’s official gold production reached 1.99m oz in 2016, a 4.4% increase on 2015 and the second-highest level in history, beaten only by the 2.13m oz recorded in 2012, according to MinMas. For many years, Colombia’s formal gold production was dominated by Medellín-based firm Mineros, whose Colombian operations have been primarily focussed on alluvial production from several sites in Antioquia. In 2016 the firm’s alluvial gold production increased 4.17% to 89,850 oz, while its small underground mine saw production fall 25% to 15,608 oz.
Mineros has expanded its footprint in Latin America in recent years, and in 2016 its production was augmented by 85,849 oz of gold production from projects in Nicaragua. In recent years, however, Mineros has been surpassed by Canadian-based Gran Colombia Gold as the leading producer of underground gold and silver from its Marmato and Segovia projects, both in traditional mining heartlands where modern technology has allowed the firm to extract beyond the limits of artisanal miners. In 2016 the firm boosted production to 149,687 oz of gold, a 28% increase from the previous year.
These two companies account for the vast majority of the 260,000 oz of legally produced gold in the country, according to a statement to local press by Santiago Ángel, chairman of the Colombian Mining Association. The remainder of gold production comes from artisanal and illegal mining, and an unknown volume of gold is never registered with the authorities. “For every tonne of gold that is produced in Colombia, 80% goes untaxed and follows no regulatory model,” Ken Kluksdahl, senior vice-president of Colombia AngloGold Ashanti, told OBG. “This has a heavy impact on Colombia’s investor potential. Even more so when it has become harder to get permit approvals for many projects; investors ask if their investments are going to be secured so we need to create the background that encourages venture.”
MinMas has introduced various strategies to try to formalise artisanal gold mining in recent years, but the process has been slow. The development of new gold projects, should see legal mining dwarf illegal mining in the coming years (see analysis).
Emeralds
Colombia’s most iconic mineral is the emerald, and today the country is regularly among the top three producers of the green gemstone, mining 2.39m carats in 2016, a 10% increase over the previous year, but well below the 9.83m carats mined in 2004. In that era the emerald industry, centred on Boyacá department to the north of Bogotá, was dominated by local mafia, but in recent years there have been efforts to formalise the sector. In 2013 US firm Minería Texas Colombia (MTC) purchased the assets of the late “emerald tsar”, Victor Carranza, and UK firm Gemfields acquired two mines in the same Muzo geological formation two years later. MTC has already set about mechanising the mine, constructing a two-mile spiralling ramp that reaches depths of 396 metres. The firm also launched the Muzo Emerald brand, which replicates similar efforts in the diamond industry to document and track each emerald to ensure it has been legally sourced.
Exploration
While large-scale legal production of base and precious metals remains limited in Colombia, the potential for the discovery of new mines is enormous. Until Álvaro Uribe’s presidency from 2002 to 2010, the country’s civil conflict made exploration and geological studies of distant regions too risky to undertake. Over the last decade, however, Colombia has become a major focus for junior mining exploration firms. “Colombia is a mineral-rich country with generous reserves of natural gas, petroleum, coal, nickel, gold and emeralds, among its most important commodities,” Kluksdahl told OBG. “The country’s mineral potential is evident, and there is a need to execute a strategy to engage with local communities and other stakeholders as a way to convey the existing benefits of a transparent mining sector.”
Over 100 publicly listed and private mining firms have acquired titles in Colombia to explore for coal, precious metals and base metals. The work completed by these companies has dramatically increased the geological knowledge of the country. In 2011 nearly half, or 48%, of Colombia’s territory had been geologically mapped. By 2017 this figure had risen to 70.7%. Geochemical knowledge of areas grew from 25% to 32%, identifying 15 new areas of prospective mineral reserves, according to MinMas. In early 2017 there were 8971 mining titles active in the country, covering a total area of over 114m ha, representing 3.9% of national territory.
Between 2012 and 2015 exploration work in Colombia, as with the rest of the world, dropped sharply as the falling gold price forced many junior mining firms to go into care and maintenance mode. However, a rebound in the gold price in early 2016 gave new momentum to the sector. The Toronto Stock Exchange-listed Cordoba Minerals saw significant exploration success in 2016 at its San Matias copper and gold project in the Córdoba department, with the project having an initial inferred resource estimate of 53.5m tonnes of ore at 0.7% copper and 0.37 grams per tonne of gold. However, two successful exploration drilling campaigns have fuelled speculation that the project could be far larger and contain several high-grade ore zones. With several of the San Matias drill holes showing visible gold, Cordoba Minerals’ stock price rose from around $0.12 in January 2016 to a two-year high of $1.20 in February 2017 and was standing at about $0.79 as of May.
Challenges & Setbacks
A number of mining projects have stalled due to conflicts with surrounding communities and local governments. For example, in March 2017, 98% of voters in a referendum in the town of Cajamarca voted to ban large-scale mining, casting doubt over the future of AngloGold Ashanti’s La Colosa project. The Cajamarca vote demonstrates one of the key challenges to the growth of the mining industry in the country.
Colombia’s peace process will require some major investments in rural areas and, with oil price still remaining low, mining is one of the few local industries that could be scaled up to provide jobs, investment in infrastructure and tax revenues in remote regions. AngloGold Ashanti has already invested $900m in its Colombian operations and the La Colosa project alone would generate an estimated $180m per year in taxes and royalties.
The federal government has long considered mining as one of its five pillars of future growth and identified 12 mining projects, including La Colosa, that it considers to be of national strategic importance, as well as 20 medium-sized projects of strategic importance. Initially, the idea was that projects of national and strategic interest would be able to receive environmental permits from the National Authority of Environmental Licences, a federal organisation, rather than the Regional Autonomous Corporations (Corporaciones Autónomas Regionales, CAR), which can be slower to process permits. However, in February 2016 Colombia Constitutional Court declared that this was unconstitutional and that all projects must receive CAR approval. The decision was a setback for projects such as Continental Gold’s major Buriticá gold mine in Antioquia, the environmental permit for which had stalled with the CAR. In May 2016 a second Constitutional Court ruling struck down a 2001 law that made the federal government the exclusive emitter of mining titles.
New Approach
Thus for much of 2016 MinMas and the Ministry of Finance, which recognises the need for new sources of government revenue, found their attempts to accelerate the development of projects frustrated. On the one hand, local governments more susceptible to pressure from anti-mining groups have frequently challenged projects in their regions. On the other, the Constitutional Court has consistently overruled attempts to centralise and streamline national mining policy. Instead, the national government is trying to strike a more conciliatory tone. The government has also introduced stricter penalties for illegal miners and policies to phase out the use of mercury by legal artisanal miners. Meanwhile, the ANM has invested in human resources to clear its backlog of mining titles, a process that has led to the prorogation of 132 titles and the cession of a further 491.
However, companies must also do their part by earning the trust and support of local communities. “Local communities must feel a part of the sector and be aware that a mining well brings benefits for them, too,” Andrés Restrepo Isaza, CEO of Mineros, told OBG. “Since the sector should feel backed by public opinion, we still have a lot of work to accomplish. We need a communication campaign, direct and concise that this is exceptional for the country.”
Outlook
The fall in commodity prices that began in 2012 has given the Colombian mining authorities valuable breathing space. During this time, a new approach has been developed that seeks to improve dialogue and coordination between central and regional governments. The process is by no means complete, but the licensing of four new gold projects is a positive sign for investors that developing medium- and large-scale mines in Colombia is possible. With coal and gold prices on the rise in early 2017, the prospect of a revitalised industry backed by strong government support seems closer than ever.
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