How Colombia is missing out on mining investments

Mining players are concerned that Colombia is pushing investors out with plans to create a state miner, mining code reforms and a decree that allows the environment ministry to declare reserve areas where mining can be prohibited for up to 10 years.

More than 60%, and in some cases up to 90%, of the investment budgets of municipalities where mining takes place depend on the sector, according to mining association ACM.

Mining provides more than 900,000 jobs and is a key source of income for many departments, ACM says.

BNamericas speaks with Carlos Cante, a former deputy minister of mines and the current president of coal producers' federation Fenalcarbón, about sector concerns.

BNamericas: How is Colombia’s mining sector doing and what are the investment prospects?

Cante: In general, mines in the production stage are moving at the pace of demand, at the pace of markets. Some have better prospects, benefiting from public order in certain territories, while others are affected by blockades and opposition from communities, given the government’s anti-mining discourse.

As long as there are markets, we’ll continue to operate and continue to sell minerals.

There is fundamental uncertainty, however, with exploration projects in terms of environmental licensing.

Generally, a reduction in investment can be seen, given the uncertainty generated by the political discourse and the actions the government has sought to take, not only in tax matters but also regarding mining legislation.

I believe that investment decisions on all fronts have slowed down somewhat.

BNamericas: How is the debate regarding energy transition minerals advancing? What expectations are there?

Cante: Public discourse is one thing and government actions another. Last year the national mining agency updated the list of strategic minerals, which includes copper, gold, cobalt and metallurgical coal.

It is assumed that the declaration of strategic minerals is based on the recognition that they are necessary for the energy transition and global decarbonization, but beyond that, so far, no type of promotion has been seen.

The way of granting titles has even changed due to the application of some court rulings linked to the national mining agency. Additionally, processes related to the administration of mining resources slowed down, including transfers, return of areas and everything related to the administration of a mining title.

BNamericas: What’s the sector’s view on the state mining company the government wants to create?

Cante: The creation of a state mining actor that would become judge and jury of mining resource management generates enormous uncertainty. 

Among these aspects are business autonomy, competition and pricing that would not be clear with the participation of a state company. Also, the cost issue and whether the state company would work under the same royalty regime that applies to the private sector, among other issues.

According to the bill to create the state mining company sent [to the legislature in December], it follows that it will be an all-powerful actor that can influence all aspects of the chain: exploration, production, processing, marketing and including exports of all minerals, not just strategic ones.

This excess of state interventionism in a sector that is quite regulated but driven by the forces of supply and demand, causes us enormous concern.

BNamericas: Could that affect the interest of foreign investors?

Cante: [Authorities] have been announcing important modifications to the laws for two years, and of course, no one will make a strategic investment decision as long as these announcements are not legally clear.

Meanwhile, we have seen a series of minor decrees and regulations that greatly threaten the development of the sector, for example, the recent decree 044, which empowers the environment ministry to temporarily declare environmental reserve areas.

This decree generates too much uncertainty about existing mining titles or possible investments.

What we’re seeing in the country is that companies are pausing their investment plans a bit, waiting for the government to establish its new mining resource management framework.

BNamericas: What are the biggest concerns related to decree 044?

Cante: There are several issues that concern us because they seriously risk the definitive closure of mining operations because, for example, since there are no peremptory deadlines for the authorities to act, processes can be delayed arbitrarily.

Additionally, the criteria for declaring temporary reserve areas are broad, subject to studies that may or may not exist, thus generating a risk of arbitrariness, which may even imply the risk of definitive closure of operations.

We are analyzing the legality of the decree because many doubts surround it.

We’re waiting because, surely, some resolutions for temporary reserve areas will soon come out, which could impact the development of strategic minerals projects that went through a lot of public debate and were even part of the political campaign of the current government.

It’s not my place to mention names of projects. Once the reserve areas are declared, we will analyze the situation because a mining moratorium may be created.

If we take into account that a reserve zone can be valid for up to 10 years, in that period, a project dies. Whether it’s the initial five years or the 10 contemplated in the decree [after an extension], the interest of investors can disappear.

BNamericas: Is Colombia missing out on mining opportunities?

Cante: I believe that uncertainty, which is more political uncertainty, is diverting investment possibilities in the sector, and this will take us many years to recover from.

BNamericas: And how are planned and implemented regulations affecting the coal segment?

Cante: The regulations to impose more taxes have been directed at coal to limit the expansion of large mining operations. The regulations to not allow open pit operations have been against coal, and we are sure decree 044 will affect at least one strategic coal project that is in operation today.

We see the risk that Colombia, through these decisions, which end up being legislative, regulatory and even administrative, discourages and slows coal production at a greater rate than coal consumption could fall globally. And of course, that would be missing a great opportunity.

It seems many decisions are aimed at shutting down the coal industry in the next five or 10 years, when global demand may be [high]. So there is an imbalance between what government policies are promoting and the reality of the market.

BNamericas: Why is it necessary to maintain the coal industry when fossil fuels are being phased out?

Cante: For the purpose of national consumption, coal and coal-fired thermal generation is the backup energy, which guarantees supply reliability.

We have a very clean matrix, about 70% of our energy generation comes from hydroelectric plants. For this reason, we’re very vulnerable and in times like the one we’re experiencing, with the El Niño phenomenon, thermal generation becomes the effective support so that the country does not shut down.

We’re talking about more than 8Bt of thermal coal reserves in eight departments, that is, we can build or maintain thermal generation plants with adequate supply.

An entire year's consumption at a time of low rainfall does not even represent 0.7% of global coal consumption. Colombia is a marginal contributor to global emissions generation, so coal is a support that we cannot lose.

In 2023 alone, thermal coal, metallurgical coal and coke exports generated close to US$10bn for the economy, so in addition to being a source of energy generation, it’s an important source of wealth generation.