While it is a polymetallic country with robust resources of coal, gold, copper, nickel and emeralds, Colombia’s mining sector remains underdeveloped, accounting for less than 2% of the country’s GDP since 2012. As a result of its potential, past and present administrations have long identified mining as a key pillar of the country’s economic growth.
However, the sector has faced numerous challenges over the years related to environmental protection, social upheaval and security risks. Moreover, the constitution gives regional authorities and communities a large sway over the development of their territories. The lack of clarity between national and local authorities has emphasised the risks associated with extractive industries, particularly for larger firms wishing to begin operations in Colombia.
In a bid to reawaken the industry, a number of measures have been taken in recent times. Two new projects have come into operation, and efforts have been made to modernise mining practices with the passing of several new reforms and court rulings. The government has also highlighted a number of targets for the sector, such as increasing investment, diversifying mining resources, formalising the industry, and bringing much-needed transparency to the regulation of exploration and production activities.
Structure
Colombia’s mining sector is overseen by the Ministry of Mines and Energy (Ministerio de Minas y Energía, MinMinas), which sets industry regulation, and managed by the National Mining Agency (Agencia Nacional de Minería, ANM), which provides legal assistance and the institutional capacity to maintain the sector’s positive momentum.
The industry has long been a source of livelihood for many Colombians, creating a strong tradition of small-scale and mostly informal mining activities. Since the opening up of the sector under former President Álvaro Uribe in 2004, a number of international operators have established themselves in Colombia, 27 of which were listed on the Toronto Stock Exchange as of March 2018.
Although the sector has become much more regulated, illegal mining activities continue to affect public opinion, with the use of mercury, deforestation activities and violence perceived as direct consequences of mining as a whole. According to the 2017 “Brújula Minera” survey conducted by the Colombian National Consultancy Centre, the ANM and business consultancy Jaime Arteaga & Asociados, only 36% of people surveyed had a favourable opinion of mining companies and institutions, showing that these activities have had a lasting impact on attitudes towards the industry.
Between 2012 and 2018 the sector contributed less than 2% to GDP, reaching its lowest level of 1.8% in 2018, with around 80% of this attributed to coal production. Mining exports for 2018 were $9.7bn, representing a 1.3% drop compared to 2017.
Investment
In recent years, foreign direct investment (FDI) in the mining industry has decreased, falling from 24% between 1999 and 2013 to 6.6% in 2017. As commodity prices began to improve in 2016, FDI progressively increased, albeit at a slower pace than during the mining boom between 2004 and 2014, when annual FDI flows averaged $2bn. According to Banco de la República de Colombia, the central bank, FDI to the mining sector reached $1.7bn in 2018, up from $960m in 2017. Carolina Rojas-Hayes, the vice-minister of mining, told local media in March 2019 that the country seeks to attract $6bn in FDI for mining projects by 2022.
According to a 2012 report published by professional services firm EY, Colombia had the second-highest tax burden in the world for mining projects, after Indonesia. However, the most recent tax reform, effective January 1, 2019, gradually reduces the corporate tax rate from 33% to 30% by 2022, and imposes a 19% value-added tax discount on capital goods. Therefore, investment in exploration and production activities is expected to become more attractive in the years ahead.
The first results of these efforts to improve business conditions come from the “Annual Survey of Mining Companies” report released by Canadian think tank Fraser Institute in February 2019. Between 2017 and 2018 Colombia moved up 16 places in terms of attractiveness for investment, positioning it 48th out of the 83 countries surveyed.
However, on a regional level Colombia moved from fifth to sixth place among economies in Latin America and the Caribbean as its results were overshadowed by particularly strong efforts from Guyana and Suriname. Nevertheless, the report indicates that operators still recognised Colombia’s recent improvements to the regulatory environment, employment agreements and the tax regime.
Coal
As the 11th-largest coal producer and the fifth-largest exporter in the world, Colombia is valued in international markets for the high calorific content of its thermal coal. Despite having the largest coal reserves in Latin America as of 2016 – at 48.3% of the region’s total supply, or 4.9bn tonnes – Colombia’s coal production has been on the decline since then, when it reached 90.5m tonnes per annum (tpa). In 2018 the country produced 84.3m tpa, down from 89.4m tpa in 2017, affected primarily by judicial rulings and strong rains in May, September and October 2018 at some of the most important mining sites.
Coal in Colombia is primarily produced in open-pit operations (93%), while a small share (7%) is produced in underground thermal and metallurgic operations. According to the ANM, the Department of Cesar accounts for around 60% of the country’s coal output. In 2018 some 95% of thermal coal production was exported, making it the second-largest export after oil, with major importers being Europe (72%), Latin America (17%) and North America (8%), while metallurgical coke production is primarily exported to Brazil (32%), Europe (25%) and Mexico (23%).
However, as Europe progressively tries to phase out energy production from thermal coal, Colombia is seeking to diversify its markets by looking to Turkey, China and India. The rebound in prices has enabled the country to make up for the revenue shortfall associated with its reduced production in recent years. Despite this, with coal prices forecast to drop in 2019, production is expected to stagnate.
In 2016 US firm Drummond became Colombia’s largest coal producer thanks to increased output at its La Loma and El Descanso mines in the north-eastern Department of Cesar. Improved efficiency at the mining sites and its export port in Ciénaga resulted in a rise in production and exports in 2018, at 30.8m tonnes and 31.5m tonnes, respectively.
The company, which accounts for 42% of the country’s total royalties sourced from coal mining, is expecting to match these results in 2019. In January 2019 the ANM granted Drummond a 20-year extension on its contract for La Loma, which also included concessions such as a COP36bn ($12.3m) investment in social development programmes.
Meanwhile, the second-largest mine, Cerrejón, saw a decline in its production levels for the fourth year running, falling from 34.2m tonnes in 2014 to 30.7m tonnes in 2018, with 30.5m tonnes worth of exported coal. The mine is owned by multinationals Anglo American, BHP and Glencore, and has a concession period approved until 2033.
The third-largest coal mine, Prodeco, owned by Glencore, also saw production decline in 2018, from 14.6m tpa in 2017 to 11.7m tpa. However, the company saw positive results in the first three months of 2019, suggesting a more promising year ahead. Production for the first quarter of the 2019 reached 3.6m tonnes, 20% more than the 3m tonnes recorded in the same period of the previous year.
Gold
With proven reserves of 1.4m oz and an additional 3.6m oz of potential, Colombia is the world’s 18th-largest gold producer and Latin America’s fifth-largest. According to the ANM, in 2017 metallic minerals represented 0.31% of the country’s total GDP and 15.4% of mining GDP, as well as 6.9% of royalties levied. Together, the two largest gold producers – Gran Colombia Gold and Mineros – account for the majority of Colombia’s gold production. While there are some smaller formal producers, much of the remainder of production comes from artisanal and small-scale mining (ASM) and illegal sources, meaning that an unknown amount of gold is produced without consent from the authorities.
The gold industry has seen a decline in production in recent years, with levels falling from 1.99m oz in 2016 to 1.37m oz in 2017 and 1.14m oz in 2018. According to the ANM, this is due to a number of policies introduced to formalise and regulate the sector in order to reduce the amount of illegal and informal activity. In 2019 the country aims to increase production to 1.48m oz. Results from the first quarter of 2019 indicate a recovery in production rates, with Gran Colombia Gold producing over 60,601 oz compared to 51,511 oz in the same period of the 2018, representing an increase of 15%.
However, in 2018 the value of gold exports fell by 20.1% compared to the previous year due to fluctuations in gold prices and the exchange rate. The primary destinations for Colombia’s gold include the US, which accounts for 58.4% of imports, and Switzerland, which accounts for 14.9%.
MinMinas has implemented strategies to formalise gold mining in recent years, including the introduction of the Single Registry for Minerals Commercialisation – an online platform that provides certification for authorised mineral traders – in 2012, quotas for subsistence mining and an incremental tax system for mineral mining projects. However, the process has been slow given the economic incentives for those operating outside of the law. According to a local media report in April 2019, the ANM hopes that these efforts will help to increase the amount of total production attributed to formal mining to 50% by the end of 2019.
Nickel
As Latin America’s fourth-largest nickel producer, Colombia’s total output comes from its Cerro Matoso mine, owned by Australian company South32. According to the US Geological Survey, the country has proven reserves of 440,000 tonnes of nickel. Production has been on the rise, growing from 40,600 tpa in 2017 to 43,045 tpa in 2018. The value of exports has also increased since 2015 as a result of rising international nickel prices, reaching a peak of $548.7m in 2018, up 52.2% compared to the previous year. Notably, the biggest increase was seen in exports to China, which grew by 88% between 2017 and 2018. Nickel, which is primarily used by the automotive and aeronautic industries, represented 5.4% of royalties in 2018, increasing its share of the total by 64% compared to 2017.
Copper
Colombia’s copper production comes from the El Roble project operated by Canada-based Atico Mining. The company has increased production on a yearly basis, from 4.1bn tonnes in 2014 to 9.4bn in 2017, 10% more than in 2016.
According to the Colombian Geological Survey, the country has strong prospects for copper, especially across the Departments of Córdoba, Chocó, Nariño, Antioquia, La Guajira and César. Colombia has 1.08bn tonnes of proven copper reserves, and the current administration considers copper as one of the main drivers of diversification in its mining matrix.
The Toronto Stock Exchange-listed Cordoba Minerals saw significant exploration success in 2016 at its San Matías copper and gold project in Córdoba, which has 36.1m tonnes of indicated resources grading 0.57% copper and 0.26 grams per tonne (g/t) of gold, and 31.8m tonnes of inferred resources grading 0.52% copper and 0.24 g/t of gold. The project, which covers 20,000 ha, is expected to commence production by the end of 2024.
Another concession with significant potential is South Africa-headquartered AngloGold Ashanti’s Quebradona project in Jericó. Currently at the feasibility stage, an Environmental Impact Study and Public Works Plan is expected to be released by 2020. Following this schedule, the construction and assembly stage will begin, after which commercial operation can start. At full capacity, initial estimates expect the mine will produce between 60,000 and 70,000 tonnes of copper per year.
Emeralds
Colombia’s most iconic mineral is the emerald; the country is regularly among the topthree producers of the gemstone in the world. However, production has been on the decline in recent years, falling from 2.1m carats in 2017 to 1.9m in 2018. Likewise, the value of exports decreased by 12.7% between 2017 and 2018, from $137.2m to $121.7m. This is a result of a reduction in prices, slower exports and a lower quality of emeralds.
The emerald industry is centred in the Department of Boyacá, to the north of Bogotá, which is responsible for around 99% of the country’s total production. The industry was historically dominated by local mafia, and later split into ASM activities and cooperatives. As a result, the extraction processes remain rudimentary, limiting the industry’s growth, particularly as deposits become harder to tap into.
In recent years there have been efforts to modernise and formalise emerald mining, assisted by the increasing involvement of international firms. One of the first foreign investors to enter the market – and the largest mining company operating in Colombia – is the US-based firm Minería Texas Colombia, which purchased the assets of the late “emerald tsar”, Victor Carranza, in 2013. Annual production at the company’s Muzo mine increased from around 719,700 carats in 2016 to 1.3m carats in 2017.
Fura Gems, the first listed emerald miner to operate in Colombia, took over UK firm Gemfields’ projects in Muzo, after the company withdrew in 2017. As of December 2018 Fura Gems is said to have invested $10m as it seeks to rehabilitate its Coscuez mine. However, community relations remain a challenge for companies operating in a sector traditionally controlled by local producers.
Exploration
While the large-scale legal production of base and precious metals remains limited, the potential for the discovery of new mines is significant. Prior to 2002 the civil conflict made exploration and geological studies in distant regions too risky to undertake. Over the last decade, however, Colombia has become a major destination for junior mining exploration firms. Over 100 publicly listed and private mining companies have acquired titles to explore for coal and metals.
The work completed by these companies has dramatically increased the geological knowledge of the country. In 2011, 48% of Colombia’s territory was geologically mapped. By 2018 this had risen to 71%. Geochemical knowledge of areas grew from 25% to 35% that year, identifying 15 new areas of prospective mineral reserves, according to MinMinas. In early 2019 there were 6490 active mining titles, covering 3.2% of national territory, or 3.27m ha. Of the total, only around 2% were large mining projects, while 59% were small-scale projects.
Royalties
One the strongest incentives for regions to welcome mining operations is the social and economic benefits provided by the payment of royalties. In 2018 royalties increased by 20% compared to 2017 to reach a record COP2.5trn ($855m), with coal accounting for 89% of the total.
Before 2012 royalties were distributed directly, with 80% going to municipalities and departments, and 20% to the National Royalties Fund. To ensure resources are equally distributed, the government introduced a new model, the General System of Royalties, which reduced the share of royalties directly issued to departments to 25-30%. This meant that the regions saw a reduction in incentives, which was further exacerbated by the decrease in commodity prices. As a result, the number of reported incidents of protests and blockades increased significantly, from 26 in 2013 to 338 in 2016. In an effort to improve the situation, a new reform to the royalty system was drafted in April 2019. This will increase the share allocated to producing regions to 30-50% and restructure the organisation responsible for overseeing projects under the royalties framework.
In 2018 Colombia introduced the Obras por Impuestos, or Works for Taxes, scheme, inspired by the Peruvian government, which enables companies to direct up to 50% of their tax burden towards social or economic projects. As of April 2019, 92 projects have been launched under the scheme across 170 municipalities, covering a range of sectors including transport, education, and water and sanitation. A similar scheme, Obras por Regalias (Works for Royalties) is also currently in progress. Under this policy, firms will be able to use royalty payments to implement investment projects, as part of a voluntary agreement between the company and regional entities. The scheme was approved by the 2019/20 biannual budget for royalties, which grew by 67% compared to 2017/18. The increased budget will enable regions to receive more resources and funding for public works projects.
Communities
In recent years the Constitutional Court has enabled municipalities to vote through referenda on the viability of mining activities in their territories. As a result of this, more than 300 licences issued by the National Authority of Environmental Licences (Autoridad Nacional de Licencias Ambientales, ANLA) lost exploration and production rights, many of which had already received funding.
Companies wishing to begin mining activities in Colombia are required to first consult with the local community. Between 2013 and 2018, 10 public consultations took place, with all of them prohibiting mining operations. Although mining companies acknowledge the need to work alongside local communities, the lack of coordination between national and local authorities is seen as a big risk for investment, especially given claims that citizens were misled by local officials or environmental groups.
Canadian company Eco Oro’s gold project, Angostura, was brought to a halt in February 2016 after the Constitutional Court confirmed that there would be no exceptions to a law forbidding mining and oil activities in the páramos (highland tropical tundra region). Although mining in the páramos has long been forbidden, its boundaries were not defined until 2014, after Eco Oro had already spent $150m on exploring the mining title it had legally acquired.
Another gold project, La Colosa, owned by AngloGold Ashanti, was suspended in 2017 after locals voted in favour of banning mining in the municipality.
However, two new rulings by the Constitutional Court in October 2018 and February 2019 overturned the previous legislation. The first ruling stipulated that public consultations did not have the authority to prohibit the development of extractive industries, given that underground resources belong to the nation and therefore were under the jurisdiction of the national government as well as regional entities. Furthermore, the second ruling stated that it is not necessary for all mining projects to be approved by public consultation.
While these decisions play in favour of the industry’s development, the process remains complex and there are still risks involved. Consequently, in 2019 the government drafted a new law aimed at improving coordination between national and regional entities. The new legislation should bring clarity to the relationship between authorities and mining companies, providing transparent framework for the development of extractive activities.
Reforms
In an effort to streamline the licensing process for new exploratory projects, the ANM launched a new land registry process for mining activities in April 2018. The digital system substantially reduces the processing times for new applications, and ensures compliance with exploratory guidelines, payments and taxation. The system is also integrated with other entities, such as the ANLA.
In 2018 the ANM also increased the minimum capital requirements for exploratory projects, dependent on the scale of activities. This move is intended to ensure that companies applying for licensing have the income and resources necessary to conduct their proposed project.
Outlook
With broad political support and efforts to improve the licensing process, the mining industry looks set to experience a rebound in 2019. While investments in coal production are unlikely to increase substantially in the coming years, segments such as gold, copper, nickel, emeralds, and other metallic and non-metallic minerals will provide attractive targets for investment. Government efforts to curb illegal operations, formalise smallscale mining and create a more attractive business environment have already begun to yield results, but the success of new and incoming projects will dictate whether the industry’s momentum will continue.
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