Identifier
Created
Classification
Origin
07LAPAZ1840
2007-07-05 12:09:00
CONFIDENTIAL
Embassy La Paz
Cable title:  

TIME TO INVEST IN BOLIVIAN MINING? NOT LIKELY

Tags:  ECON EMIN EINV BL 
pdf how-to read a cable
VZCZCXYZ0010
PP RUEHWEB

DE RUEHLP #1840/01 1861209
ZNY CCCCC ZZH
P 051209Z JUL 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 4197
INFO RUEHAC/AMEMBASSY ASUNCION 6900
RUEHBJ/AMEMBASSY BEIJING 0417
RUEHBO/AMEMBASSY BOGOTA 4246
RUEHBR/AMEMBASSY BRASILIA 8129
RUEHBU/AMEMBASSY BUENOS AIRES 5382
RUEHCV/AMEMBASSY CARACAS 2613
RUEHPE/AMEMBASSY LIMA 2773
RUEHMD/AMEMBASSY MADRID 3524
RUEHMN/AMEMBASSY MONTEVIDEO 4703
RUEHNE/AMEMBASSY NEW DELHI 0136
RUEHOT/AMEMBASSY OTTAWA 0471
RUEHQT/AMEMBASSY QUITO 5244
RUEHSG/AMEMBASSY SANTIAGO 9845
RUEHUB/USINT HAVANA 0391
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RHEHNSC/NSC WASHINGTON DC
C O N F I D E N T I A L LA PAZ 001840 

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/29/2017
TAGS: ECON EMIN EINV BL
SUBJECT: TIME TO INVEST IN BOLIVIAN MINING? NOT LIKELY

REF: A. A. LA PAZ 1740

B. B. LA PAZ 1403

C. C. LA PAZ 363

Classified By: Ambassador Philip S. Goldberg for reasons 1.4 (b) and (d
).

-------
Summary
-------

C O N F I D E N T I A L LA PAZ 001840

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/29/2017
TAGS: ECON EMIN EINV BL
SUBJECT: TIME TO INVEST IN BOLIVIAN MINING? NOT LIKELY

REF: A. A. LA PAZ 1740

B. B. LA PAZ 1403

C. C. LA PAZ 363

Classified By: Ambassador Philip S. Goldberg for reasons 1.4 (b) and (d
).

--------------
Summary
--------------


1. (C) In the past week emboff has fielded calls from three
U.S. companies seeking information about the investment
climate for Bolivia's mining sector. U.S. mining companies
have also contacted U.S. congressional representatives with
their views of the investment climate in Bolivia (in
connection with lobbying for extension of ATPDEA). With a
draft of a proposed new mining code in circulation but not
officially under review, and with proposed tax changes
pending in the Bolivian congress, much of the current talk in
the Bolivian mining sector remains at the level of rumor, but
a quick review of current speculation is informative.
Unequal treatment of cooperatives and international mining
companies is raising questions of fairness and
constitutionality in the sector. Although the three major
U.S. companies invested in Bolivia (Coeur D'Alene, Apex
Silver and Newmont) intend to continue with current projects,
overall the investment climate in the Bolivian mining sector
is unattractive to U.S. concerns, and the GOB's claims of
Chinese and Venezuelan interest in the sector have yet to
come to fruition. End Summary.

--------------
Official Optimism; Private Pessimism
--------------


2. (C) Emboff received a copy of a letter from Idaho-based
mining company Coeur D'Alene to Senator Charles Grassley
asking for Senator Grassley to support extension of the
ATPDEA. According to the lobbyist who provided the letter,
Coeur had to "gulp once or twice over some of the wording
(which we allowed them (the GOB) to participate in
(writing))". The letter to Senator Grassley included the
following statement: "We have diligently and cautiously
followed the policies of the new government under President
Evo Morales. We believe the government has already advanced
and continues to improve a position that protects and
encourages foreign investment." The reality is apparently
not so rosy. In emboff's meetings with mining association

president Humberto Rada, Mr. Rada has stated that the
majority of his members have ceased exploration activities in
Bolivia and are not planning further investments under the
current regulatory climate. In an op-ed entitled "Adios to
mining investments", former mining minister Jorge Espinoza
reviewed recent proposed changes in the mining sector and
also concluded that, "After the San Cristobal and San
Bartolome projects are in progress, we can forget about new
mining investments, because who would be disposed to invest
under these conditions?"

--------------
International lenders and insurers wary
--------------


3. (C) Two U.S.-based gold companies have been in contact
with emboff within the last week seeking information about
the investment climate in Bolivia. One company called to
complain that the U.S. government's Overseas Private
Investment Corporation (OPIC) was not willing to lend his
company money. OPIC was raised by another gold company
considering investing in Bolivia: the company representative
mentioned in frustrated aside that "no one is interested in
political risk insurance in Bolivia--not even OPIC."
Although the executive of an established Bolivian operation
recently reported to emboff that his mine had been able to
secure funding from Bolivian banks, international investment
in Bolivia seems unavailable. The fact that proposed (but
not yet passed) changes to the mining code would prohibit
companies from mortgaging concessions or listing concessions
as reserves will make financing difficult to obtain in the
interim, and if the proposed changes pass, financing could be
next to impossible (ref A.)

--------------
Nationalization rumors
--------------


4. (C) Rumors of nationalization in the mining industry are
currently only whispers, but the whispers come from many
directions. In the past two weeks, emboff has heard the
following suggestions for why and when nationalization will
take place:


A. The proposed new mining code is unlikely to get through
the senate, so the Morales administration will announce
"nationalization" of the mining industry and then use the
resulting pressure to negotiate deals (similar to what
occurred after the "nationalization" of the hydrocarbons
industry.) Industry observers suggest that, if threatened
with nationalization in some form, mining companies will be
willing to accept the joint ventures that the Morales
administration wants.


B. The Morales government will need a crowd-pleasing
"success story" for Bolivia's national day August 6th. Since
the Constituent Assembly cannot be expected to provide any
real positive news by August, some observers in the mining
community suggest that an announcement of nationalization of
certain mines or the entire industry will be President
Morale's way of distracting the populace from the failures of
the Constituent Assembly.


C. The Morales administration is seeking vengeance on
ex-president "Goni" Sanchez de Lozada. First the GOB
nationalized the Vinto smelter that was formerly owned by
Sanchez de Lozada's mining company (COMSUR),and next the GOB
will be looking at other former Goni properties. In
particular, rumors abound about the Don Mario mine, currently
owned by Canadian company Orvana, which has a former COMSUR
vice president as a member of its board of directors.
Web-searches and comments from Bolivian mining observers
imply that Sanchez de Lozada is still connected with Orvana,
either as chairman of the board or as part-owner. One
Bolivian mining executive went so far as to say, "The Morales
government has it in for Goni, but they're going to destroy
the whole industry in the process."

--------------
Exploration worth the effort?
--------------


5. (SBU) In addition to the various concerns listed above,
article 122 of the current draft mining code gives "right of
priority" to indigenous, original and campesino communities
which are legally recognized and registered. Although the
draft article does not give full details, it seems that these
communities would have the right to develop and mine any
discoveries made on their land. Minerals exploration is an
uncertain business, with most efforts never resulting in a
strike. Mining companies are not encouraged by the idea that
their future exploration in Bolivia might be on someone
else's behalf: that the discovery of a deposit could trigger
nothing more than ownership for another group or, in a better
scenario, lengthy negotiations with the local community who
would have full rights to develop or block development of the
discovery.


6. (C) Currently Manquiri and Inti Raymi have informed
emboff that they are continuing minimal exploration in the
country (Manquiri executives stated that they are hoping to
outlast the Morales administration, and Inti Raymi is
exploring near their current operations under agreements with
local cooperative groups. Inti Raymi also has a lead on a
new deposit near Potosi, and they are pushing hard to cement
the discovery before passage of the new mining code, because
it is located in an area which could have an indigenous
claim.) Other companies, including some Canadian concerns,
are also continuing sporadic exploration, but the rate has
slowed.

--------------
Unequal treatment
--------------


7. (SBU) Although the GOB nominally supports the idea of
universality and fair treatment under the tax code, various
entities in the mining sector will be treated differently
under the proposed changes to the tax regime and mining code
(ref A). With an eye to his public support, President
Morales has excluded cooperatives from the proposed 12.5
percent profit-tax increase, and cooperatives will also be
required to pay only 60 percent of royalties (note: various
observers have claimed to emboff that cooperatives avoid
paying most taxes anyway). When emboff met with
representatives of the La Paz departmental federation of
mining cooperatives (FEDECOMIN La Paz) on June 21, FEDECOMIN
La Paz president Mario Carvajal Lozano said his members are
comfortable with proposed changes in the tax law and claimed
that the cooperatives and the government share "convergent
interests."


8. (C) In contrast, in a May 18 meeting with emboff, Andres
Vilca, president of the national federation of cooperative
miners (FENCOMIN) alleged that the Morales government was
trying to eliminate the cooperatives (ref B.) After recent
shows of strength on the part of the cooperative miners,
however, including marches on the Constituent Assembly in
Sucre, the Morales government has made considerable
concessions to the cooperatives. In addition to the tax
exemptions, the Morales government modified its May 1 decree
which declared all national territory to be "fiscal mining
reserve" to allow the continued processing of concessions
which cooperatives had filed for but not finalized before the
decree. The draft of the proposed new mining code also
includes a number of articles where cooperatives are
specifically excluded. Many observers have noted with
concern that the Morales government continues to concede
political ground to the cooperatives (ref C),and former
mining minister Jorge Espinoza has openly declared these
unequal policies to be unconstitutional. (Comment: U.S.
mining executives met July 3 with the Ambassador to inform
him that they are currently unable to get meetings with the
Mining Minister and with COMIBOL. In contrast, press reports
indicate that FENCOMIN has managed to arrange multiple
hour-long meetings with the two agencies in past weeks.
FENCOMIN's tradition of violent street protests (ref C) might
explain this discrepancy in treatment. See septel for
readout of Ambassador's meeting with U.S. mining executives.
End comment.)

--------------
Rumors of investment from other countries
--------------


9. (C) According to industry observers, the mining ministry
cites investment interest from other countries (particularly
China and Venezuela) when confronted with the potential
decrease in investment from U.S. sources. Putting aside the
qualitative differences in investment from other countries
(which are not likely to be the good corporate citizens that
U.S. mining companies have shown themselves to be in
Bolivia),there have been no formal announcements of
investment from these other countries. The experience of
Jindal, which is currently trying to negotiate a contract
with the GOB to mine an iron deposit, may serve as a warning
to other foreign investors as well, since the negotiation
process has been slow and difficult for the Indian company.

--------------
Conclusion
--------------


10. (C) The Morales administration seems actively
antagonistic towards private mining investment, possibly in
part due to past political connections within the mining
industry which are anathema to current leftist ministers.
The basic lack of trust makes it difficult for mining
executives to even arrange meetings, let alone be heard by
the GOB, and the GOB's combination of radical idealism and
lack of managerial or technical capacity makes any progress
in the sector difficult. Companies which are already
invested in the country are endeavoring to hold on, but most
exploration has been put on hold as the international mining
community waits to see what develops. It is also not
encouraging to international companies that that the draft of
the proposed new mining code includes a list of requirements
that companies must meet so that bilateral investment
treaties will still be applicable and a clause that would
require joint venture contracts to "recognize the Bolivian
legal system as the only jurisdiction for resolving
controversies." In general, although U.S. companies are not
panicking, neither are they enthusiastic about the investment
climate in Bolivia. In meetings on July 3 with the
Ambassador, U.S. mining executives asked that the Embassy use
its contacts with Vice President Garcia Linera to encourage
the GOB to at least talk with international mining companies.
Sadly, without dynamite in the streets, it is uncertain
whether the Embassy or the international mining companies
will be able to attain even this minimal goal. End
conclusion.
GOLDBERG