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Colombia 2013 | ENERGY & MINING | REVIEW: MINING

Known as the top producer of coal in Latin America and the world's leading source of emeralds, Colombia is recognized as one of the most prospective, yet under-explored countries, and is quickly becoming one of the most desirable destinations for mining i

Colombia has recently seen exponential growth in its mining industry, and the promise is set to continue. Although Colombia has a long tradition of mining dating back to pre-Hispanic times, that potential went largely untapped in modern times due to socio-political unrest. However, Colombia has undergone a renaissance over the last 10 years in political stability, safety, and security. According to the World Bank's Doing Business report, Colombia is the third most business-friendly country in Latin America, and also ranks fifth in the world in terms of investor protection. The fact that 90% of the territory remains unexplored has also contributed to the rise in foreign investment nine fold in the decade to 2011. The future of the industry depends on the government's ability to simplify the licensing process, fight illegal mining, and strengthen institutions.

Minerals—in particular coal, emeralds, gold, and nickel—have played an important role in Colombia's GDP and foreign trade in the last 20 years. According to the Large-Scale Mining Sector Association (SMGE), mining in 2012 represented 2.3% of national GDP.

Coal is the main mining product in Colombia, ranking as the 10th-largest coal producer in the world with 1.2% of global production. After coal, which accounts for 88% of the country's mining production, nickel and gold are the most representative Colombian mining products in international markets. Colombia is the seventh largest nickel producer in the world (4.53% of total production) and is the 22nd largest gold producer with 1.2% of global production. From January to September 2012, mining exports accounted for 23.8% of the total $44.697 million in exports during the same period. The mining sector contributes 16.5% of royalties generated by the country, and 13% of this contribution comes from coal companies (Ps1.2 billion per year). It also accounted for $357 million in building infrastructure, $1.4 billion in purchases from domestic suppliers, $35 million invested in social responsibility, and $97 million in environmental responsibility. In 2011, FDI in mining reached $2.651 million and in the second trimester of 2012 mining attracted $916 million out of the total $4.1 billion in the country.

Major changes have occurred in the institutional framework of the coal industry in recent years. Government participation in the production of coal has been decreasing, and there has been a shift to private domestic and foreign investors since 2000 when the government sold the stakes that Colombia Coal (Carbocol), a state-owned company, had in Cerrejón. Furthermore, the new mining code introduced in 2001 led the government to concentrate on its role as regulator through the Ministry of Mines and Energy. Colombia is also setting up a mining investment agency and introducing new mining legislation that will ban mining in protected areas and set up bidding rules. It will seek to formalize the role of unlicensed small-scale miners, giving them a special tax rate, and try to distinguish them from the criminal organizations that exploit them.

Colombia is the 10th coal producer worldwide. Coal mining is undertaken entirely by private sector mining companies, and total production in 2012 reached 89.2 million tons, up 3.96% from the previous year. The largest coalmines are located in the north of the country, in the departments of La Guajira and Cesar.

The largest coal mining operation is that of Carbones del Cerrejón in the Department of La Guajira, representing 38.48% of total carbon production in the country. Cerrejón is considered to be one of the largest open-pit coalmines in the world with its 2012 production reaching 34.6 million tons, of which 32.8 million tons were exported. Europe is its main export market, with 50% of production destined for the bloc. In an interview with TBY, President & CEO of Cerrejón, Roberto Junguito, said his aim is to reach 40 million tons by 2015. Cerrejón has an integrated mining and transport complex with a 150-kilometer railroad and a port. An important investment of $1.3 billion in infrastructure aims at making it even more competitive. “Most of that investment is in doubling the size of the port, which is the most important maritime facility in Latin America in terms of coal exports," he said. The other major mining company is Drummond, which produced 26.15 million tons in 2012, representing 29.15% of the country's total production, followed by Glencore, with 14.7% million tons.

The country also stands out for its nickel production, which represents the second source of income in terms of exports within the mining sector. Nickel, which is only exploited by Cerro Matoso, experienced a 73.5% increase in production, reaching 26,340 tons over 1H2012. The Cerro Matoso nickel mine, located in Montelíbano, in the Córdoba Department in northern Colombia, produces an average of 52,000 tons of nickel a year, placing the mine in second place among global nickel producers.

Gold mining in Colombia is shining bright as major gold players expect to invest $2.1 billion by 2015. Among the companies that have recently announced ambitious plans are Anglo Gold Ashanti, Anglo Gold America, Gran Colombia Gold Mining SA, AUX, and Eco Gold. Most of these investments are directed to both expanding existing production and exploring in areas where rich deposits are suspected. Production reached 66.2 tons in 2012, according to the National Mining Agency.

Colombia also supplies 55% of the world's emeralds, making it the main source of emeralds in the world and the most sought after because of their brilliance and deep color. Emeralds come from three main mining areas in Colombia: Muzo, Coscuez, and Chivor.

The Colombian extraction industry offers the best scenario for investors, including a strong legal and tax framework and security at both the political and social level. By tapping into its vast natural resources, strengthening institutions, and fighting illegal mining, Colombia can expect to see a boom in the mining industry over the coming decade, generating economic growth, as well as creating jobs throughout the country.