Bolivia's mining industry missing out on metals rally

Bolivia, whose zinc, silver and tin mining industry was beset by strikes, protests and technical problems last year, will miss out on the rebound in metals prices in 2017 as private investment slumps and state mining projects are delayed.

The private mining sector, which is dominated by Pan American Silver, Sumitomo, Coeur Mining, Orvana Minerals and Franklin Mining, saw investment slump to US$45mn in 2014 from a peak of US$396mn in 2007, according to the mining ministry.

Private investment has plummeted in Bolivia since President Evo Morales seized mining assets from companies including Glencore, South American Silver and Jindal Steel after first taking power in 2006. Since then, Morales has striven to build up state mining company Comibol, which invested about US$200mn in projects last year.

Bolivia, where private sector companies account for 70% of mining output, mining cooperatives (20%) and Comibol (10%), saw lower production of zinc (-1.5%), silver (-2.9%), gold (-48.4%), copper (-11.8%) and antimony (-8.2%) in 2015, the most recent available figures show, due to lack of investment.

Bolivia produced 20,135t tin, 442,154t zinc, 75,273t lead, 45.9Moz silver, 13,000kg gold, 9,479t copper, 1,842t tungsten and 3,843t antimony in 2015, according to the national statistics office.

In comparison, mining companies in the region ramped up operations in countries including Brazil, Peru and Colombia, while Mexico, Chile, Colombia, Argentina and Ecuador have lined up tens of billions of dollars in private mining investment.

Peru boosted copper output by 38.4% to 2.35Mt last year, along with increases in gold (+4.2%), silver (+6.7%), iron ore (+4.7%), molybdenum (+27.8%) and cadmium (+8.3%). Colombia increased output of coal, platinum, nickel, gold, silver and emeralds, while Brazil posted higher production of aluminum, bauxite, copper, nickel, gold and silver.

MARKETS

And while Bolivia has lined up long-term projects at Comibol, the country is failing to tap into a rebound in metals prices after a three year slump as the industry was hit by shutdowns, strikes and massive protests by cooperative miners.

Copper and zinc prices have both risen 20% so far this year, while gold and lead rose 17% and silver has climbed 13%.

Copper and zinc prices look set to remain above US$3/lb and US$1.33/lb, respectively, in the long term as warehouse stocks fall and the mining industry has no major projects lined up in the short term, according to Scotiabank.

"Industrial prices have seen a significant rebound so far this year," Scotiabank Perú analyst Erika Manchego wrote in a report. "The improvement in prices is based on expectations of a tighter physical market in coming years and is backed by bets in the financial markets that prices will increase further."

PROJECTS

Comibol last year announced plans to invest 120mn bolivianos (US$17mn) in exploration this year, part of a government drive to invest US$1.965bn in the mining and metallurgical industries by 2020, including mines, smelters and foundries.

The government plans a new bid round in October for its US$875.5mn, 50,000t/y Salar de Uyuni lithium project after a tender in May failed to line up any bidders.

Comibol also plans to start building a US$77mn, 2,000t/d concentrator at its Colquiri zinc-tin mining unit in April 2018 and reactivate the Amayapampa gold project. Studies are also ongoing to upgrade its Karachipampa and Vinto smelters after technical problems limited production at both facilities in recent years.

Meanwhile, Bolivia awarded a contract for the US$422mn El Mutún iron and steel complex to China's Sinosteel in March 2016, but the project has been held up by China's Eximbank's delays in releasing the financing.

Comibol lacks both the funding and qualified personnel needed to carry out the projects as it is unable to compete with the higher salaries paid by mining companies in the private sector, former CEO Héctor Córdova said.

"It can't move at the speed that is needed and is a center of inefficiency when it should be an operating company," Córdova told La Paz newspaper Página Siete. "All the projects are slowed down by its structure."

PERU, COLOMBIA, ECUADOR

In contrast, miners completed a US$34bn, five year investment drive in Peru that included new mines and expansions by Freeport-McMoran, China Minmetals, Chinalco, Glencore, Antamina, Hochschild Mining, Buenaventura, and Canada's Hudbay Minerals, Trevali Mining and Tahoe Resources.

In Colombia, where the government expects US$7.6bn in privately financed gold, silver and copper projects over the next five years, Toronto-based Continental Gold plans to start construction of its US$389mn Buriticá gold-silver project. Vancouver-based Red Eagle Mining began production at its US$55mn San Ramón gold mine last year.

And Ecuador's President Lenín Moreno, who took office in May, aims to push ahead with billions of dollars in large-scale mining projects by companies including Lundin Gold, EcuaGold Mining, INV Metals, EcuaCorrientes, Cornerstone Capital Resources, BHP Billiton and China Explorcobres.

Mining investment in Ecuador, which rose fivefold from 2013-16, is expected to quadruple from 2017-20 as the country seeks to lessen its dependence on crude oil, according to the mining ministry.

In addition to statist policies, Bolivia's slowing economy makes private investment even less likely, according to the country's confederation of private businesses, CEPB.

"The projections are very bad. The situation is tending to get worse. We have warned about this situation for a long time," CEPB president Ronald Nesta said in broadcast comments. "If producers have less income due to this situation, their capacity for investment is also reduced."