Colombia has no choice but to turn to fracking

New Ecopetrol president Juan Carlos Echeverry staked out a very aggressive position for himself and for Colombia state-run oil company Ecopetrol in an interview with the press. He said, ““If we take the decision not to use the [hydraulic fracturing] technology, we are deciding to leave oil in the ground. Can we afford it? My answer is no.” Manuel Rodriguez, former Colombian Minister of the Environment, accused the Colombian government of improvising its policy on fracking. In any case, this would not mean a quick fix for the country’s ailing industry: according to Ecopetrol’s estimates, it would be five to six years before the country saw its first barrel of oil from fracking.

Unfortunately for Colombia, the country does not appear to have any alternatives to just doubling down on its economic growth strategy of the last 15 years. According to a study released by the Center for Thought on Competitive Strategies (Cepec), it would take Colombia 17 years to double the value of its non-mining or energy exports. The purpose of the report is to demonstrate that Colombia needs to act quickly and decisively to promote its export sector and start to lesson its overdependence on its mining and hydrocarbons sectors.

Nonetheless, net foreign investment in the country fell by 25% for the first trimester of 2015, as compared to the same period last year. Surprisingly, the main driver of the fall was not investment in mining and hydrocarbons, which only fell by 11.7%, but rather foreign investment in public and private Colombian stocks, which plummeted by almost 60%.

The underlying issues behind Peru's fight over Tía María

Peruvian daily El Comercio published a feature peace exploring the issues behind the social conflict over Southern Copper’s now-shuttered Tía María mining project. According to Southern Copper officials, this was due to basic factors: anti-mining terrorism and the Peruvian government’s inability to act decisively in favor of the project.

El Comercio explained the history of Southern’s operations in the country, including the company’s spotty environmental record and its efforts to atone and redress those past mistakes. The first strike opposing Southern’s proposed Tía María project happened in 2010, and opposition has only increased. Ultimately, the article closes with uncertainty: as of today it is unclear whether the Tía María project is still viable.

On Sunday, the Confiep, a Peruvian business association, expressed its worry regarding the paralysis of the large mining investment projects in Southern Peru, which have severely affected these companies’ operations in the area. Leaving no doubt as to which side it supports in the conflict, Confiep said in a press release, “This [strike] negative impacts the generation of employment and economic growth at the local, regional, and national level.”

Houston-Based oil company BPZ Energy reported mixed results for its offshore Peruvian oil exploration well, Corvina CX15-9D. BPZ said that the well came up empty for oil, but discovered a large gas block. The company is currently analyzing the results and will decide whether to complete the well for gas production.

Alarm bells ringing for the Colombian economy

On Friday, the Economic Commission for Latin America and the Caribbean (CEPAL) announced that it was downgrading its predictions for GDP growth in Colombia from 4.3% to 3.6%. El Tiempo warned that Colombia and the rest of the region must be on alert: “The main driver of growth in the region, which for years was the exploitation of hydrocarbons and other mining products, has ended.” Fedesarrollo director Leonardo Villar added that the collapse in the value of Colombia’s main export, oil, is a situation that few countries have ever experienced. He does not expect Colombia to begin growing at better than 4% per year until at least 2017.

In mining-related news, the union at the Cerro Matoso mine, operated by BHP Billiton, announced a strike starting April 14^th at 3pm. According to Domingo Hernández García, the president of the Sintracerromatoso union, the workers are going on strike because the mine unilaterally decided to increase the workday from 8 hours to 12 hours. Portafolio noted that news of the strike comes at a bad time for the mining company, as production has been in decline and prices have also fallen for the mine’s product, nickel.

In other news, AngloGold Ashanti announced that it had received approval to sell the La Garruca mining concession in Colombia’s Antioquia department to the Canadian mining company Bellhaven Copper & Gold Inc. Portafolio noted that this is AngloGold’s second such sale already this year, but company representatives insisted that the two transactions are unrelated.

Clinton has come under scrutiny in a report that revealed that, as U.S. Secretary of State, she changed her stance on a free trade agreement with Colombia only after Frank Giustra, the Canadian founder of the Pacific Rubiales oil company, promised to donate $100 million to the Clinton Foundation. At the time, Pacific was being heavily criticized for its efforts to suppress a strike among its Colombian workers.

Peruvian investment in mining exploration has fallen 50% in two years

Investment in exploration in the Peruvian mining industry has cratered over the last few years. After peaking at $1.035 billion in 2012, investment fell by 49% over the subsequent two years and is expected to fall by another 10% this year. Miguel Cardozo, president of mining company Alturas Metals, believes that this year’s fall will be the last of it, as at that point the mining industry will have bottomed out.

El Comercio’s article explains that despite this collapse in investment, Peru is still the seventh-most attractive country in the world for mining investment. The rapid decline in exploration spending is a global industry-wide phenomenon that is not just exclusive to Peru. Nonetheless, Peru has an extra factor that many other countries do not: social conflicts scare mining companies, especially small mining companies, away from exploration investments.

Salomón Lerner Ghitis, expresident of the Peruvian Council of Ministers under Ollanta Humala, warned that Peru cannot remain as just a mining economy and must diversify its productive base. He explained, “Peru is a mining country, we recognize this and continue fighting for there to be mining with technology that respects the environment. There needs to be a march towards a diversification among high-potential productive sectors in the country. This has been (Ollanta Humala’s) rhetoric, but he has not applied it.”

In other mining-related news, Peruvian Environment Minister Manuel Pulgar-Vidal told reporters that the government will explain to people its environmental assessment of the Tía María mining project in order to assuage doubts and concerns. The next day, Minister Pulgar-Vidal announced that President Humala himself would travel to the region in order to clear up the doubts regarding Tía María. Resolving this social conflicts gains additional urgency with each passing day, as protests have paralyzed the area for 17 days and counting.

Colombian oil production better than expected

The Colombian oil industry once again beat the odds and kept its average oil production above 1 million barrels per day for the month of March. Oil production in the country actually increased by 4.2% over the previous year to an average of 1,021,000 BPD, slightly below February’s average of 1,027,000 BPD. The Colombian minister of Mines and Energy, Tomás González was excited by the results, saying, “For the first time we have had six consecutive months at this level of production.” He explained that this means extra revenue for the Colombian government to pay for its various social programs.

In mining sector news, Reuters reported that an international arbitrator decided that Brazilian company CCX Carvão de Colombia will not be able to negotiate a sale of three coal mines in the Colombian Guajira to a group of investors represented by Blackstone Group LP. According to the ruling, this prohibition is in place until a final decision can be reached on a request by Yildirim Holding Inc., with whom CCX had entered into an asset-purchase agreement for the mines in 2014. Blackstone had reportedly bid $170 million for CCX’s Cañaverales and Papayal coal projects.

Colombian business journal La República reported on the Colombian mining industry’s worries regarding Colombia’s new National Development Plan. According to the article, the Colombian mining industry has become severely weakened and destabilized by legal and judicial uncertainty. The laws and regulations governing the sector seem to be in constant flux, and an industry that once held tremendous potential to be a real driver of economic growth in the country is now in jeopardy. The report calls on the government to make a detailed analysis of the National Development Plan to assess the destabilizing impact it could have on the mining industry.

Mining's poor reputation in Peru leads to endless social conflicts

Protests continue in the Peruvian region of Arequipa over Southern Copper’s Tíaa María mining project. According to Jose de Echave, an analyst from the Observatory of Mining Conflicts in Peru, the Peruvian government’s support for private interests over social movements is driving this new wave of protests. He explained, “The population is seeing that their economic, social, cultural, and environmental rights are being cut. The local authorities are also seeing that their possibilities to have a certain level of choices to confront these investments are seriously being limited, therefore this is a scene that explains the reactions that we are seeing in several parts of the country.”

On Tuesday, Peruvian president Ollanta Humala himself spoke out in favor of the Tía María project, telling reporters, “We need to work to have a dialogue to explain and convince the people to give this project a chance under new norms, under an environmental impact study that has already been reviewed … and concerns have already been resolved.” Humala took pains to explain the difference between the environmentally- and socially-destructive practices of “old mining” in the country, and the regulated, modern, “new mining” in Peru.

The National Society for Mining, Petroleum, and Energy (SNMPE) complained that the Peruvian mining industry is the focus of a systematic attack by violent groups that only want to cause chaos and bring poverty to the country. The trade association however refused ownership of the problem, and instead passed the bill to the government, saying, “It is essential that the Peruvian State and its authorities act firmly, preventing radical movements from sabotaging productive activities in the country.”

President Humala at least understands that the problem with the mining industry in Peru is an image and branding problem. The industry is plagued by the poor reputation it created for itself thanks to its terrible environmental and social record. In order to change this negative association, mining companies in Peru will need to invest money in rehabilitating their brands both locally at project sites and throughout Peru.