DRUMMOND LTD. SITE VISIT - LA LOMA COAL MINING

UNCLAS BOGOTA 005979

SIPDIS

E.O. 12958: N/A
TAGS: ENRG EMIN CO
SUBJECT: DRUMMOND LTD. SITE VISIT - LA LOMA COAL MINING
PROJECT

REF: BOGOTA 5565


1. Summary. In a recent visit related to the Cartagena
Energy Conference (reported reftel),Department of Energy
Deputy Secretary Clay Sell and the DCM conducted a site tour
of one of the world,s largest surface coal mining operations
in Cesar Department, northern Colombia. Mike Tracy,
President of the Mining Division and other Drummond
executives provided briefings and a tour of the Pribbenow
Mine or the La Loma Coal Mining Project. During the tour
portion, Drummond officials showed the seams where coal
extraction takes place using a 6,500 ton dragline crane,
GPS-guided dump truck transportation and coal processing
operations, and the railcar loading site. Drummond officials
provided summary production figures and outlined successful
local employment and social investment practices. End
Summary.


2. In the late 1980s, Drummond acquired the rights to
explore, exploit, and export coal from Cesar Department near
the city of Valledupar. From 1995-2003, approximately 75
million tons of coal has been mined at the Pribbenow Mine.
Current production rates average 25 million tons per annum
but Drummond expects to increase this rate to 40-45 million
tons over the next three years. By contrast, the largest
U.S. coal mine east of the Mississippi River produces 4
million tons a year according to Drummond officials. The
mine generates high quality coal with an average energy of
11,700 BTUs per ton. Ash and sulphur content is low,
averaging 4.9 percent and 0.37 percent respectively.
Consequently, coal from the site garners a high market price
of USD 150-180 per ton. The Pribbenow tract contains over
500 million tons of remaining reserves. Drummond is
preparing to begin extraction at the neighboring El Descanso
tract that contains an estimated 1-2 billion tons of
reserves. Other tracts have yet to be fully explored so
reserve estimates are not yet available.


3. Drummond concessions include a large quantity of natural
gas. Company officials stated they use this source to create
their own ammonium nitrate, eliminating the need to import
explosives. Drummond also maintains a natural gas power
plant on site so the company is able to provide much, but not
all of its own power. The company has plans to explore for a
larger quantity of natural gas which would be produced for
sale to others.


4. Drummond transports coal by rail line from the mine to a
Caribbean port facility in Santa Marta. The company uses 29
locomotives to move 17 shipments per day on the 193-kilometer
journey. Each shipment contains 80 railroad cars and carries
about 4,500 tons of product. Once the shipment arrives at
the port facility, it is loaded on lighter barges and
transferred offshore to large vessels for shipment.


5. Drummond secures its operations through a combination of
contracting security forces from the Colombian government and
an active social development program that solidifies support
for company operations from the local population. While the
company contracts approximately 930 security forces to
provide perimeter security around the mine, Drummond
officials credit their recruiting and training of a 6,000
member local labor force (direct and indirect hires) and
their investment in social programs for their enhanced
security. Drummond decided early to use the local labor
force and not import labor and company officials are proud
that 90 percent of mine employees are from Caribbean
provinces of Colombia.


6. Drummond has invested heavily in training programs to
develop its workforce and contributes to technical
development programs in local schools to better prepare
potential future employees. The company also spends about
USD 5 million per year in seed money for use in partnering
with local government in towns located near the mine and the
rail transport corridor. Drummond social investments support
grants to hospitals, schools and infrastructure development.
Company officials stated Drummond,s decision to develop a
local labor force and make significant social investments
have increased the area,s standard of living and enhanced
community relations. As a result, assert Drummond officials,
illegal guerrilla group activity has greatly diminished and
been deterred. For example, guerrilla attempts to blow up
rail operations were thwarted by reports to authorities from
the local population before any damage occurred.
WOOD