Drummond exports affected by partial railway closure

Reuters reported on Thursday that Colombia’s main coal railway, known as Fenoco, will be closed from 10:30 pm until 4:30 am for at least another two months, dropping the overall volume of coal transported on the railway by 25%. Coal miner Drummond, the second-biggest coal miner in the country and one of the three owners of the railway, noted that the partial closure has already affected its exports. The rail line is being closed at night while engineers install noise dampeners, because of complaints by residents in Colombia’s Cesar department.

In other mining-related news, Colombian business journal Portafolio interviewed Mike Elliott, the global leader for mining and metals at Ernst&Young (EY). His main argument was that lowering taxes and requirements of mining sector companies would stimulate investment in Colombia.

Elliott is headlining the inaugural conference of the Colombian Mining Association in Cartagena. On the whole, Elliott is very optimistic on the prospects of the Colombian mining sector for the next 5 or 6 years. Nonetheless, because prices have fallen from their peaks, companies are no longer willing to stomach the high risks that they did in earlier years.

On the subject of illegal mining in Colombia, Liborio Guarulla, governor of Venezuela’s Amazonas state, told the Miami Herald that there are approximately 4,000 FARC members operating in his state. He said that the guerrillas are engaging in illegal gold and coltan mining. He warned, “The most serious problem is that the president of Colombia thinks the conflict is ending but it’s just being transferred to the Venezuelan side of the border.” Guarulla, one of the few opposition governors in the country, noted that complicity from other Venezuelan governmental officials is not helping the matter.

Brazil's trouble with social conflicts

Colombia and Peru do not have a monopoly on the famous “social conflicts” between extractive sector companies and the local communities in the predominantly rural areas where these businesses operate. On Tuesday, the Washington Post published an investigative piece on one Brazilian town’s experiences with the dark side of rapid, unchecked industrial development.

The piece details the interactions between the community of Piquia de Baixo and the nao Vale mining company, which supplies iron ore to pig iron plants in the town and which controls the railroad that transports the iron ore supplies. The most pressing concern for the locals is pollution. According to a 2011 report by the International Federation of Human Rights, 77% of households in the town had someone with an acute health concern. Vale avoids responsibility for the pollution, saying that the fault lies with the pig iron plants, all while it looks to build a second train line to bring even more ore to the plants.

The residents feel powerless to advance their own interests through negotiations or conversations with the mining company. The author recounts that past agreements and solutions with Vale have not been respected, with profit-bearing infrastructure projects given much more priority than infrastructure projects that could benefit the Piquia de Baixo community.

The locals have found that their only recourse is to blockade the tracks and protest; they have no other choice. Of course, this approach is not any more effective than the others, and simply leads to more conflict.

This zero-sum approach to negotiations between Vale and the local community does not benefit the local community or the company’s bottom line. At its heart is a communications problem. The mining company appears to have lost the support of the local community, and appears unable to win it back.

Peruvian government is bullish on country's mining sector

El Ministerio peruano de Minas y Energía anunció que espera que inversiones en proyectos mineros superaran US$63,000 millones durante los próximos cinco años, dado la cartelera de 51 proyectos mineros pendientes y los US$9,300 millones que serán invertidos este año en expandir proyectos ya existentes. De los $63,000 millones de proyectos, casi la mitad ya recibieron la aprobación de su Estudio de Impacto Ambiental y su autorización de construcción.

El gobierno peruano, en un clima de bajos precios para metales, no quiere que su fuerte industria minera pierda su impulso. Recientemente, conflictos sociales y protestas sobre el proyecto de cobre Tía María han dominado las noticias, y el gobierno quiere impulsar cobertura mediática positiva y enfocarse en las inversiones en el sector y el impacto positivo que ellas tendrán sobre la economía peruana. Sin embargo, las protestas contra Tía María siguen recibiendo mucha cobertura en la prensa.

Ayer, El Comercio publicó un editorial escrito por Roberto Abusada Salah, director del Instituto Peruano de Economía. Salah dice que él había previsto la desaceleración económica del Perú, y echa la culpa a las acciones del gobierno que afectaron la confianza empresarial. Escribe, “Es en la esfera política donde encontraremos las causas de nuestro fracaso al no poder mantener nuestro crecimiento al nivel de su potencial. Y es en la política donde ha naufragado la confianza.” Él cree que la casi cancelación de Tía María disparó alarmas por todo el Poder Ejecutivo peruano, pero el presidente de la nación no ha hecho lo suficiente para calmar los temores de los inversionistas.

A pesar de las acciones del gobierno peruano, la protesta sobre Tía María no ha terminado y pronto entrará en su segundo mes. Una reunión de muy alto nivel entre ministros del gobierno y líderes locales no logró un acuerdo, y líderes de las protestas anunciaron que el paro iba a continuar. Nos parece que muchos observadores están usando este conflicto social como una prueba de fuego a ver si el gobierno peruano realmente va a proteger los intereses de inversionistas en el Perú, o si abandonaría el esfuerzo cuando el público no está de acuerdo, como le pasó en Cajamarca.

Colombia's Ecopetrol looks to sell assets

Colombian business journal Portafolio reported on Monday that Colombia state oil company Ecopetrol, the largest business in the country, is looking to sell off some of its stakes in other companies and projects in order to make its operations more efficient. According to Simón Gaviria, the director of the National Planning Department and an Ecopetrol board member, the oil company, under the leadership of its new president Juan Carlos Echeverry, wants to focus on its strategic oil operations. Gaviria suggested, for example, that Ecopetrol could sell its stake in Invercolsa S.A. for up to $450 million.

In other oil-related news, Colombian finance minister Mauricio Cárdenas wrote an editorial in El Espectador, the leading Colombian daily, about the need to confront the new global oil reality. Cárdenas outlined the measures that the Colombian state has taken to deal with this new reality, which he also presented to the World Bank and IMF meetings in Washington, DC: first, a tax reform to generate additional tax revenue; second, the postponement of $6 billion in government spending; and lastly, a slight increase in the national deficit. The Colombian finance minister also emphasized that Colombia has a diversified economy and will be able to weather this storm. He pointed to the country’s growth projects for this year, between 3% and 4%, and the fact that they are considerably higher than the regional average of 0.9%.

On a negative note, a bomb attack shut down the Cano Limon oil pipeline, operated by Ecopetrol. The oil company has already activated its contingency plan to control the oil spill, and the Colombian military was securing the area to make it safe for repairs. Reuters noted that the pipeline normally carries 80,000 barrels per day, but attacks rarely affect exports.

Plan approved to fight illegal mining on Peru-Bolivia border

Over the weekend, the Peruvian edition of La Republica reported that the Working Group for Control and Security of the Binational Peruvian-Bolivian Technical Commission on the Río Suches approved a plan to support, systematize, and coordinate the two countries’ actions to fight illegal mining along their shared border. The Working Group includes representatives from various Peruvian ministries, including the Presidential Council of Ministers, the Defense Ministry, the Mining and Energy Ministry, the Ministry of the Environment, the Interior Ministry, and the Ministry of International Relations.

Elsewhere, Perú 21 and El Comercio published editorials that continue the debate over Southern Copper’s embattled Tía María copper mining project. Juan Mendoza, writing for Perú 21, is staggered by the massive sums of money – approximately $12 billion between 2011 and 2014 – that have not been invested in mining projects due not to questions regarding project viability or licensing, but rather because of local protests. He points to the examples of Conga, Galeno, Cañariaco, Shahuindo, Quechua, Hilarión, Haquira, and Michiquillay, all projects that have been put on indefinite hold because of the rancorous anti-mining protest movement. The author notes that, not included in this summing of losses is the loss of authority for the Peruvian state and possible litigation against the Peruvian government for breach of contracts.

Diana Seminario, writing in El Comercio, talks about the high-level talks taking place between the Peruvian Executive branch, Southern Copper, and anti-mining leaders to resolve the social conflict over the Tía María project. Seminario asks where are the regional political parties, like Fuerza Popular, the APRA, or the PPC. Why have they failed to take on the opponents mining investment? She warns them that the standard approach of waiting to see what happens before taking a position will end up backfiring. If they do not come out in favor of responsible mining, there might not be any investments to fund their projects and ambitions if they end up taking office.

Southern Copper, however, will be just fine. The mining company, with the biggest copper reserves in the world, is going ahead with a $1.2 billion expansion of its Toquepala mine, which will double the mine’s production output. The company is still committed to its investment in the Tía María project, but it has other projects in the country that it can fall back on.

President Santos welcomes a weaker Colombian peso

At a meeting in Cartagena, Colombian president Juan Manuel Santos welcomed the recent devaluation of the Colombian peso. He said, “We were heading towards a situation of a Dutch cold. Not Dutch disease. We were depending a lot on oil and mining for our exports, and what is happening has forced us to react and strengthen other sectors.”

According to the Colombian president, the foreign direct investment that has left the Colombian extractive sector has, almost dollar for dollar, been invested in other Colombian sectors of the Colombian economy. President Santos said that the two fundamentals of the Colombian economy still hold true: continued economic growth and the country’s new middle class.

Colombian central bank co-director Ana Fernanda Maiguashca largely agreed with President Santos, telling Bloomberg that even the recent slowdown in economic growth, from 4.6% to between 3 and 3.5%, is good for the country. She said in an interview on Wednesday, “We’re decelerating not only because we received a structural shock, but because we need to. It’s not compatible to think that we will grow at the same rates as in 2014 and be able to close the current account deficit. If we need to reduce that external vulnerability, that comes at the cost of lower growth.”

Unfortunately, news has not improved for the Colombian oil sector. A Colombian watchdog entity, the Businesses Superintendent, told the Colombian Senate that of the 53 oil services companies it assessed, 43% of them are at a high risk of insolvency, and the remainder is at a moderate risk of insolvency. Four companies in particular that make up part of the corporate structure of Pacific Rubiales featured prominently in the study.

Peruvian social conflict spiraling out of control

As the conflict over Southern Copper’s Tía María mining project drags on into its forth week, the Peruvian government is scrambling to try to resolve this social conflict and keep it from spiraling out of control. Public transportation, schools, and markets have all been closed through the Islay region in the department of Arequipa because of the violent protests.

Already looking forward to next week, twelve other unions in Arequipa have announced that they will go on strike for 24 hours in solidarity with the Tía María protestors. The strikers claim that the copper mine will contaminate their fields and the water from the Tambo River, even though the mining company and the government have exhaustively explained why this will not happen.  

Carlos Gálvez Pinillos, president of the National Society for Mining, Oil, and Energy (SNMPE) told EFE, “We had Tía María in the portfolio, and I want to believe that it will move forward, but I do not want the same thing that happened with Conga,” referring to the violence that broke out in 2012 in Cajamarca, permanently poisoning relations with the local community there. The Peruvian government is desperately trying to find a solution in Islay, but the local community has said that its actions are too little, too late.

In related news, the Peruvian economy grew just a small 0.94% in February year-on-year, and actually shrank 0.3% from January to February. The Peruvian government attributed the low numbers to poor performance in the country’s construction and mining sectors. Peruvian officials have been optimistically hoping for a recovery in the country’s mining industry for a year, but the sector keeps missing its growth targets.