NO SILVER LINING YET FOR APEX'S SAN CRISTOBAL MINE

C O N F I D E N T I A L LA PAZ 002897

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/26/2017
TAGS: ECON EMIN EINV BL
SUBJECT: NO SILVER LINING YET FOR APEX'S SAN CRISTOBAL MINE


Classified By: EcoPol counselor Mike Hammer for reasons 1.4 b,d


1. (C) Apex's local executives continue to report difficulty
in arranging meetings with Bolivian government officials.
The draft bill which would increase mining taxes by 12.5
percent has passed the lower house of congress, so San
Cristobal is focusing their efforts to arrange a modification
on influential senators. Also now with the Senate is a draft
bill to eliminate the CEDEIMS import tax recovery program for
companies in the mining, hydrocarbons, and forestry sector
which do not produce "value added" products: San Cristobal
would be adversely affected by this proposed change because,
since they export concentrate rather than metal, they are
considered a company which does not produce a value-added
product. Because of the fact that San Cristobal hedged on
the price of silver to arrange financing for the mine, these
combined changes could be devastating for the operation and,
according to San Cristobal estimates, could result in a net
tax rate of over 90 percent going to the Bolivian government.



2. (C) San Cristobal has proposed a package of changes
which would allow the mine to continue operating while giving
the government the 50 percent share of profits that the
government claims would be satisfactory. The San Cristobal
package includes four items: elimination of the current
surtax, maintaining the CEDEIMS program, making hedge costs
deductible, and creating a new creditability formula for the
complementary mining tax. Although San Cristobal executives
are adamant that the package must be accepted as a whole,
privately they confess that they fear the government will not
accept all four items. From previous other reports, it seems
likely that the CEDEIMS program can be saved (Mining Minister
Echazu has promised to discuss this with the ministry of
finance, which is responsible for the bill.) Deductiblity
for hedge costs seems more problematic, however: various
sources have mentioned that pertinent Bolivian officials do
not understand the concept of a hedge and feel it is a way in
which San Cristobal has "cheated".


3. (C) Apex continues to try to leverage the good will of
the Bolivian government toward the Japanese by working
closely with Sumitomo, which owns 35 percent of San Cristobal
mine. However, despite past promises of cooperation from the
Bolivian government, Japanese officials tell us that they are
receiving little encouragement. In an attempt to bring
high-level attention to the situation, San Cristobal
officials invited the Ambassador, the Japanese Ambassador,
and Bolivian officials to visit the mine. Ambassador
Goldberg intends to visit on November 14; the Japanese
embassy informs us that they will only attend if Bolivian
officials are also present, and currently no Bolivian
official seems willing to visit the largest mining investment
in Bolivia.


GOLDBERG