NO PIT STOP

Colombia 2014 | ENERGY & MINING | REVIEW: MINING

Predating European colonization, mining is by no means a new venture in Colombia. Yet the government's focus on key commodities and alternative means of extraction underline the Andean nation's status as a regional force in the sector, volatile prices not

The National Mining Agency (ANM) reports having approved around 9,700 mining titles nationwide as of 2014, “35% of which are at the exploration stage, and 35% at the production stage. The remainder is in the building and construction phase." Yet thus far, less than 5% of Colombia's resource-bearing territory has been granted for exploitation, with just 1% currently being explored. Mining exports overall shed 20% in value to $11.2 billion in 2013 as a result of a decline in both output and average coal and gold prices during the year. Foreigners invested roughly $8 billion in Colombia's oil and mining sectors in 2013, and growth of the two activities has outpaced overall economic growth to account for close to 10% of GDP. The Economist reported stand-alone mining investment in 2013 of $3.6 billion, up 21% YoY. This has enabled mining to claim 2.3% of GDP and 7% of total exports. Not surprising then, that leading global miners such as Anglo American and BHP Billiton—joint-owners of Colombia's largest coal producer Carbones del Cerrejón—are active in the country.

In a TBY interview María Constanza García Botero, the President of ANM, which grants concessions and issues titles, explained that “…we have defined 11 strategic minerals including coal, both metallurgical and thermal, iron, copper, gold, and platinum, among other minerals, as having huge potential for exploration." Yet other resources available for extraction according to the ANM are nickel—exploited in Colombia by a subsidiary of BHP Billiton—copper, phosphates, potassium, and coltan—a key input for electronic devices.

In a more aesthetic arena, Colombia is also renowned for emeralds, where the national mining agency indicates reduced production over recent years, from around 5.2 million carats in 2010 to 3.4 million in 2011, and just 1.2 million carats in 2012, amid competition from Zambia and Brazil. Yet 2013 saw a recovery to around 2.6 million carats, where Colombia's stones are feted as superior by aficionado brands such as Chopard, Van Cleef & Arpels, and Cartier.

STOKING THE FURNACE

With industry expectations that China's economy will this century be powered by coal, demand remains high. According to Carbones del Cerrejón, global coal consumption has soared by around 50% over the past two decades, in contrast to other fossil fuels such as petroleum and gas.

Accounting for close to 40% of total Colombian carbon production, the operations of Carbones del Cerrejón are located in the Department of La Guajira, and the figures speak for themselves. The company's integrated operations feature one of the world's largest open-pit coal mines, with 2012 production of 34.6 million tons, of which 32.8 million tons were exported. Europe receives a full 50% of its export sales. The company, generating close to 6,000 direct jobs, has estimated resources of 4.9 billion tons. Meanwhile, production growth skyrocketed 96.9% between 2002 and 2012 giving it a 3.9% stake in the global coal market. Export growth for the period soared 77.3%, where the company's contribution to total Colombian exports was at a whopping 40.5% in 2012. While sales for 2012 chalked up $2.9 billion, royalties of $373.5 million and taxes of $0.7 billion were paid.

Today Colombia is the world's fourth largest exporter of coal after Australia, Indonesia, and Russia. Colombia's coal production for 2013 registered at close to 90 million tons, and the 2014 target is at 104 million tons. Coal production grew 33.8% to 24.6 million tons between January and March of 2014, according to ANM data. The Andean nation, Latin America's largest producer, exported the bulk of its output (97%). Yet overall, Colombia's quarterly coal exports had declined 13.1% to 15.1 million tons from 17.4 million tons in 1Q2013. The large export ratio had resulted from a ban on the shipping of fossil fuels by Latin America's second largest thermal coal producer, US company Drummond. The ban arose from the enterprise's failure to bring online its direct-loading port facilities by a New Year contractual deadline. Drummond accounts for around 30% of Colombia's coal output and resumed export activities on April 1, 2014.

The Ministry of Finance in 2013 had foreseen coal prices in 2014 fluctuating between $75 and $77 per ton. Its forecasts for subsequent years include 2015 ($80), 2016 ($79), 2017 ($84), in 2018 ($87), and in 2019 breaching the $90 mark, while approaching the $100 mark by 2022. Another key factor of the business is the system of royalty payments on mining operations, where each mineral in Colombia's mining matrix has its own plan. For coal, a 5% royalty is paid for volumes of below 3 million tons, while volumes above that incur a charge of 10%. And for gold 4% is paid, which rises to 6% for alluvial gold.

According to Mining.com, Colombia in May of 2014 revealed plans to dredge the Magdalena River—the nation's largest—in anticipation of ratcheting up output of key steelmaking input, coking coal, five fold. The government maintains that while the scheme has the potential to oversupply the global market, with attendant pricing disadvantages, it would reduce the cost of transportation to the Caribbean coast by up to 50%. Colombia's metallurgic coal is located in the central region of the country, an area that is unconnected the rest of the nation, in particular from ports. This has prompted investment in railroad infrastructure, as part of the government's vast infrastructure expenditure overseen by the National Infrastructure Agency (ANI), set to account for between 3% and 6% of GDP by 2016.

GOLDEN OPPORTUNITY

ANM confirms that gold is ostensibly mined by SMEs, although it estimates potential reserves of 35 million ounces over an area of 19.9 million hectares. The agency forecasts approximately 69 tons of gold production for 2014. Yet among Colombia's 14,000 operating gold mines, official figures put around half of that number in the illegal operator category. In fact, a significant 22 of Colombia's 32 departments report illegal mining. The damage incurred goes beyond revenue lost to the economy into the environmental sphere, as illegal operations cause extensive pollution to local ecosystems. Underground mines comprise 86% of the sector, and the government has been keen to promote safe practices and environmental balance. To combat the practice the National Intervention Unit Criminal Against Mining (UNIMIC) was launched to coordinate joint operation between security forces, control agencies, and the Ministries of Defense, Interior, Environment, and Mining and Energy. Environmental and social responsibility issues are vital in the exploitation of many commodities. And while and related government policy, including a now-ended moratorium on collecting license applications, has led to some investment bottlenecks, the long-term health of the nation is being safeguarded. A related draft law of 2010 has yet to be approved, and the 2001 Mining Code remains operative today.