Jueves, 09 Mayo 2013 13:39

Alarm Bells Ring Over Downturn in Mining and Oil Production

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Alarm bells ring over downturn in mining and oil production
 

By Gabriela Mancero Bucheli

March 25 2013

Mining has become a major source of growth for Colombia's economy during the last
decade, and was recently designated as an engine for economic development by the
government. In 2012 mining accounted for more than 23% of the country's total exports.


However, many fear that 2012 marked a turning point in the mining sector's upward
dynamic. Between January and November 2012 mining exports amounted to $12.8
million and represented 23.4% of the country's exports; however, in the same period in
2011 this percentage was approximately 25%. While gold exports increased by 26%,
thanks to increased production and a rise in the international price of gold, coal exports
decreased by 5.2%, from $7.6 million for the period between January and November
2011 to $7.2 million for the same period in 2012. In total, mining exports accounted for
just 2.5% of a total exports' growth of 6.9%.


Colombia made a great effort to create a new institutional framework for the electricity
sector in the 1990s and for the oil sector at the turn of the century; now, the country
seems in a hurry to organise the institutional regime for the mining sector. Colombia
has tremendous potential in this area, but the institutional challenge that this activity
presents is significant and does not depend solely on the Ministry of Mining and
Energy's management. Issues such as insufficient geological information, scarce
human capital and ongoing environmental conflict mean that Colombian mining
urgently requires due attention.


Colombia is currently the 10th largest coal producer and the sixth largest coal exporter
in the world. However, in the last 20 years, no significant new projects have been
initiated; conversely, it is estimated that there are over 2,000 illegal mining excavators in
operation. In Choco – Colombia's number one gold-producing region, according to the
Colombian Mines Chamber – only one environmental licence has been granted.
Less than 15% of the country has been considered for mining. The National Mining
Development Plan for 2014, prepared by the Planning Unit of Mining and Energy, states
that the country is young in terms of exploration. Several mining applications have been
rejected. Communities, non-governmental organisations and even environmental
authorities' actions have prevented exploration in promising regions.


Demand for coal has decreased due to the United States' replacement of imported
thermal coal gas with domestic shale gas. The Cerrejon strike(1) reduced production,
slowed down growth and decreased mining royalties. In addition, the National Mining
Agency has not yet been established and no bids have been placed.


However, there is some positive news. There is progress in expanding production for
Cerrejon from 32 million to 40 million tons a year, with investments of up to $1.3 million.


Multinational Codelco announced its intention to look for copper in Colombia, as the
price of copper has improved due to the burgeoning construction sector in China.
Companies such as Goldman Sachs and Prodeco announced plans to invest
approximately $41.5 million in the sector. A large delegation from Australia is interested
in the Colombian market for mining services. Coal producer CCX denied that it is
considering withdrawing from the country. Contracts were renewed for the Cerro
Matoso and Paz del Rio mines.


In addition, the 2013 round for minerals in strategic areas will be tendered in the
second half of the year, once the mining cadastre has been divulged and potential is
known. Coal is being exported to Europe, and opportunities for the Asian market are
being explored.


Figures show a steady growth for hydrocarbons and other mineral production, despite
price fluctuations and other deterrents. Consequently, the revaluation of the Colombian
peso – a result of this process – should be viewed as both an opportunity and a
challenge: an opportunity to invest in capital and innovation, and a challenge to
Energy & Natural Resources - Colombia

Endnotes


(1) After 25 days of strike action, the union and the company reached their first
agreement on March 6 2012. Losses due to the strike have been estimated at
approximately $73 million.

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