Exploration investment continues in Peru's mining sector

Earlier this week, mining company Fortuna Silver announced that it would invest roughly $3 million in exploration in its Caylloma mine, located in the Peruvian department of Arequipa. Fortuna also provided updates on the expected reserves contained within the Caylloma mine. This is welcome news, as it shows that oil companies in Peru are still willing to invest in growing their operations despite the fall in international mineral prices.

In news related to illegal mining in Peru, the Global Initiative Against Transnational Organized Crime released a report declaring that the sex trafficking occurs at a vast scale in the parts of Latin America afflicted with illegal gold mining, particularly in Colombia and Peru. The report explains that the reason why human trafficking and illegal mining often go hand in hand is that the mines are often located in remote jungle areas, where the police are totally absent.

In macro-economic news, Reuters reported that Peruvian President Ollanta Humala decided to raise the Peruvian minimum wage by 13 percent, after the leading presidential candidates all promised to raise pay for the country’s workers. Humala publicly signed the executive order in the Puno region, which Reuters noted is one of the poorest in Peru. He announced, “You all will be the judge of who can do better than this government. When candidates come here looking for votes ... don't settle for just anything.”

Colombia's Ecopetrol sues over Reficar cost overruns

Earlier this week, Colombian state-owned oil company Ecopetrol announced that it would be seeking $2 billion in damages from Chicago Bridge & Iron Company, the contractor for the expansion of Ecopetrol’s Reficar oil refinery. Ecopetrol blamed CB&I for the $4 billion in cost overruns on the project, which doubled the Reficar project’s cost estimate. According to the oil company, the suit was filed before the International Chamber of Commerce. CB&I declined to comment on the reports.

In other oil-related news, Caracol Radio published a retrospective, detailing the history of attacks by the leftist ELN guerrillas against Colombia’s oil infrastructure since 1986. According to the report, the terrorists have carried out more than 2,500 attacks against Ecopetrol’s transportation infrastructure in the last 30 years, peaking in 2013. Caracol published the story to mark the recent announcement that the ELN and the Colombian government would officially begin peace talks to bring an end to the long-running conflict.

In still other oil-related news, Ecuadorian oil minister Carlos Pareja met with his Colombian counterparts to discuss a proposal to freeze oil production. According to Argus, Ecuador is trying to build support for its bid to hold oil production at January levels, which it will present at the April 17 OPEC meeting.  

In Peru, where there's illegal mining, there's crime

Over the weekend, Peruvian daily El Comercio reported on the rise in general levels of criminal activity in areas with illegal mining. Four people were recently killed in the gold mining capital of La Pampa, in the Peruvian department of Madre de Dios. According to the report, this region has gone from being a hotbed of illegal mining to a hotbed of crime more generally. According to an unnamed witness, who has since retracted his testimony, the four were assassinated after a dispute with illegal miners.

On the subject of Madre de Dios, Sandra Belaunde wrote an editorial in El Comercio bemoaning the plight of the blighted region. According to Belaunde, Madre de Dios is one of the regions that enjoy the highest level of spending per capita, and yet, 75% of employment is informal. Money moves through the region, but through illicit conduits like illegal gold mining and human trafficking.

She notes that violence is an everyday occurrence, with a homicide rate of 6.7 murders per 100,000 inhabitants. While Belaunde realizes that the expensive interdictions carried out by the Peruvian governments against the criminal syndicates are not treating the root of the problem, she worries that if they were to stop, illegal mining would grow exponentially.

In other mining-related news, Nilson Flores Suárez, the former leader of the National Federation of Artisanal Miners, has declared himself a congressional candidate for Arequipa in Keiko Fujimori’s. Organizations of informal miners have officially endorsed the candidate, who though perennially running for elected office, has yet to win an election.

Pacific E&P inches closer to bankruptcy

According to the Wall Street Journal, Pacific Exploration & Production Corp. was thrust even closer to bankruptcy last week when EIG Global Energy Partners withdrew its offer for company. The Canadian oil company, which has most of its assets in Colombia, is hoping to find a buyer in order to avoid a bankruptcy filing. EIG reported that it had offered just 16 cents on the dollar for $4.1 billion worth of Pacific E&P’s senior bonds.

In addition to troubled Pacific E&P, oil industry observers in Colombia are also worried about the country’s state-owned oil company Ecopetrol. Although the country’s finance ministry denied that the government was interested in selling its ownership stake, a group of senators representing the entire Colombian political spectrum has assembled to fight a possible sale of the company.  The group will look to organize demonstrations and debates and also explore legal strategies to defend the oil company.

In other news related to Ecopetrol, Seeking Alpha reported that the overhaul of Ecopetrol’s Reficar oil refinery should improve the company’s throughput and margins. The report noted that the significant cost overruns in the project will hurt the initial profitability of the Reficar project, Ecopetrol’s new refinery capacity will allow the company to look beyond Colombia to international markets for its refined oil products.

Worries regarding changes in Peru's fight against illegal mining

Besides the high-profile social conflicts between large mining companies and local indigenous communities, illegal mining has been the biggest problem confronting Peru’s mining industry. El Comercio reported on the change in the high commissioner in charge illegal mining interdiction activities. Antonio Fernández Jerí went to work as normal last Monday, but woke up on Tuesday to read in El Peruano newspaper they he had been fired.

According to unnamed sources, Col. César Sierra is expected to replace Fernández as the new High Commissioner, but the sources did not explain the reasons for the replacement. Gestión however worries that, in the time it takes for the new official to settle in, new interdiction efforts will be delayed because of the need to coordinate between the various government entities.

In other news related to illegal mining, the Peruvian Ministry of Energy and Mines announced that the Las Lomas Doradas – SAC mining company became the first formalized mining company to be registered in the Piura region. All the Ministry has been heavily criticized by all sides due to the incredible delays in its mining formalization process, it has continued to move forward, however slowly.

Colombian oil investment plummeted in 2015

According to Colombian daily El Espectador, investment in exploration and production in the Colombian oil industry fell by 72% in 2015 over the amount invested in 2014, to a low of just $396 million. Campetrol, the Colombian oil sector trade association that carried out the study of oil sector investment, warned that the lack of investment is particularly concerning because Colombia’s oil reserves are only expected to last another 6.5 years.

Campetrol emphasized that, “From there, it is important that the most important oil company in Colombia, Ecopetrol, dynamize exploration in order to avoid that the Nation be without oil, as this would necessarily lead to importation.” El Espectador noted that the decline in oil sector investment especially began to be felt starting in December 2014, when oil companies all around the globe started slashing their investment budgets due to reduced oil prices.

In related news, the International Monetary Fund revised downwards its expectations for economic growth in Colombia for this year, from 2.7% to just 2.5%. Jorge Roldos, the head of the Fund’s mission to Colombia, explained that the change was due to the lingering effects of the Colombian oil crisis. He stressed that the country needs to act quickly to pass a structural tax reform bill to replace the oil revenue.