Bolivia’s untapped riches

Locked in the heart of South America, between Argentina, Chile, Peru and Brazil, Bolivia should be a treasure finder’s paradise. Twice the size of Spain, the country stretches from the arid Andes highlands to lush Amazon rainforest and hosts a range of geological conditions prospective for several types of mineral deposit. Like neighboring Peru, the mountains around La Paz and Potosi are home to dozens of polymetallic deposits bearing zinc, lead, and silver. The older rocks in the eastern lowlands are good for gold

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Locked in the heart of South America, between Argentina, Chile, Peru and Brazil, Bolivia should be a treasure finder’s paradise.

Twice the size of Spain, the country stretches from the arid Andes highlands to lush Amazon rainforest and hosts a range of geological conditions prospective for several types of mineral deposit.

Like neighboring Peru, the mountains around La Paz and Potosi are home to dozens of polymetallic deposits bearing zinc, lead, and silver. The older rocks in the eastern lowlands are good for gold.

The country has a history of mining dating back to before the discovery by the Spanish conquistadores of the massive Cerro Rico silver mines at Potosi in the mid-sixteenth century. The tin barons dominated the country until the 1952 revolution.

Despite its massive potential, political instability over the last half century have limited interest among foreign mining companies.

After opening up again to investment in the 1990s, the number of foreign mining companies operating in the country has dwindled in the intervening years.

By far Bolivia’s largest mining operation is the San Cristobal open pit mine. Owned by Japan’s Sumitomo Corp, the mine is one of the world’s largest producers of zinc, producing over 600,000tpa of silver-zinc and silver-lead concentrates.

Commodities giant Glencore owns the Sinchi Wayra mining companies which operates four zinc and tin mines in the west of the country.

Vancouver-based Pan American Silver operates the San Vicente underground mine near Potosi. Last year it produced 3.5Moz of silver and almost 8,000t of zinc.

Last year, Coeur Mining pulled out selling its San Bartolome silver mine, at the foot of the Cerro Rico mountain, to Mexican and Swedish investors who have continued to operate the mill to process ore from third party mines.

Finally, Orvana Minerals operates the small Don Mario gold mine (10,000ozpa) near the border with Brazil.

However, many of these mines are aging. Reserves at San Cristobal are only sufficient to maintain production until the middle of the next decade, threatening around 2,500 well-paid jobs.

But companies have been scared off from making further investments by the current government’s policy of nationalizing strategic assets such as the Huanuni tin mine and much of the oil and gas industry.

The counterpart to the handful of private mining companies is a struggling state sector and the rampant cooperatives.

Under Morales, state mining firm Comibol has expanded but with mixed results. Soldiers patrol Huanuni to stop thieves from looting ore.

The Karachipampa smelter outside Potosi has yet to operate properly after multiple refurbishments. Many of Bolivia’s mines are in the hands of the cooperative movement – normally strong supporters of Morales but ones that pay barely any taxes and ignore environment regulations. When the authorities try to bring them into line, they often respond violently.

In 2016, they kidnapped and murdered a government official. As well as underinvestment in the mining sector, the government is also facing changing conditions for the energy sector which has been a major source of growth and government finances over the last decade.

The slide in energy prices as well as the discovery and development of huge gas reserves elsewhere in the continent have halved natural gas exports to less than US$3B in 2017.

Hence Bolivia’s eagerness to find alternative sources of revenue. Meanwhile, past nationalizations are also coming back to haunt the government.

Last November, the Permanent Court of Arbitration ordered the Bolivia state to pay compensation for the 2012 expropriation of the 255Mt Malku Khota silver-indiumgallium deposit.

Although the government will only have to pay South American Silver US$28M (much less than the US$386M the company was demanding), it may not be so lucky in future cases. In 2017, Glencore sued for the loss of the Vinto smelter, an antimony plant and the Colquiri tin mine, demanding US$676B in compensation, a figure equivalent to almost 2% of the country’s GDP.

In recent years, it has not been Bolivia’s potential for zinc or silver which has sparked most investor interest but the country’s huge lithium resources amid rocketing demand for the mineral from the growing electric vehicle sector.

According to the United States Geological Survey, the giant Salar de Uyuni, the world’s largest saltflat, contains almost 17% of the world’s lithium resources or 9Mt. Several firms have courted unsuccessfully Morales seeking to permission to develop this potential but were scared off from his demand to retain state control. But now, with lithium trading at multiples of historic prices, the country appears to have found a formula acceptable to both sides.

In 2017, it created a state lithium company Yacimientos de Litio Bolivianos (YLB) which will retain majority stakes in businesses to extract and process lithium and other minerals while foreign investors provide the capital and technology.

Last December, YLB signed a deal with a small German firm to extract lithium at Uyuni at an industrial scale and transform it into materials for use in lithium batteries. The partnership has already begun producing potash at the site. Although ACI Systems is not a major player in the global lithium industry, the government believes the German link will give it access to some of the world’s largest carmakers which are looking to go electric over the coming decades.

Meanwhile, a Chinese consortium has promised to invest US$2.3B to produce lithium and other minerals from two smaller salares (Coipasa anldd Pastos Grandes). It will also build a lithium battery plant in China that YLB will control.

But despite the current boom, Bolivia’s potential for lithium is small compared to its potential for metals. Legal changes should help. The New Mining Law, promulgated in 2014, replaces the existing claims with Mining Production Contracts with state mining corporation Comibol which has right of first refusal over the most promising mining property. This could be seen as a step back in terms of legal certainty for investors. But with Comibol as a partner, the administration says that it is seeking a fairer relationship.

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