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IdentifierCreatedClassificationOrigin
08LAPAZ2170 2008-10-07 16:50:00 CONFIDENTIAL Embassy La Paz
Cable title:  

BOLIVIA: U.S. MINES MAINTAIN LOW PROFILE

Tags:   ECON EMIN EINV ETRD BL 
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					  C O N F I D E N T I A L LA PAZ 002170 

SIPDIS

STATE PASS TO USTR

E.O. 12958: DECL: 10/02/2018
TAGS: ECON EMIN EINV ETRD BL
SUBJECT: BOLIVIA: U.S. MINES MAINTAIN LOW PROFILE

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



1. (C) Summary: U.S. mining executives predict that if the
new Movement Toward Socialism (MAS) constitution passes, it
will be "the end of mining investment" in Bolivia for the
foreseeable future. U.S. mining companies in Bolivia are
trying not to draw any attention to themselves during a time
when President Evo Morales may be looking for populist moves
(such as nationalization) to distract from domestic turmoil.
Although both Coeur and Apex have in the past lobbied in
favor of ATPDEA extension, their executives in Bolivia do not
feel that the Bolivian government will punish American mining
companies for the suspension of ATPDEA benefits. Apex and
Coeur executives told Emboff that they do not plan to submit
any documents or testimony during the official comment period
on the ATPDEA suspension. As Apex's San Cristobal Mine
President Gerardo Garrett put it, "We don't really want to be
associated with ATPDEA right now." Coeur President Dennis
Wheeler said that he would not lobby in favor of ATPDEA this
time because, "in light of Morales' lack of cooperation on
narcotics, it would be embarrassing for us." End summary.

- - - - - - - - - - - -
Apex's Surtax Situation
- - - - - - - - - - - -



2. (C) Apex reports that there has been some progress on the
bill that would eliminate the 25 percent additional surtax
that only Apex's San Cristobal Mine pays. The bill has
reportedly been sent by the executive to the technical
commission in the lower house. From there, it must go to a
vote in the lower house and then be voted on by the upper
house. Again, Apex is keeping its head down, not even
lobbying members of congress. Instead, according to Garrett,
they hope that the bill will pass on its technical merits,
since it is "not very important compared to the rest of what
is happening in the country."

- - - - - - - - - - - - - - -
Changing Times in U.S. Mines
- - - - - - - - - - - - - - -



3. (C) Both Coeur's San Bartolome and Newmont's Inti Raymi
recently underwent staffing changes (Humberto Rada, former
president of Inti Raymi, has become the new president of
Coeur's San Bartolome, replacing Jim Duff.) Rada commented
privately to Emboff, "I like a challenge, but I'm not sure
why they (Coeur) ever invested in this project. We have no
water rights, our mining rights are not secured, and public
opinion and worries (that the mining might damage Potosi's
Rich Hill, a UNESCO World Heritage site) are hurting us."
(Note: former San Bartolome President Jim Duff once confided
to Emboff that, if they had it to do over, Coeur would not
invest in the project, primarily because of political
difficulties. End note.)



4. (C) Newmont's Inti Raymi is now headed by Jorge SAAVEDRA
Cariaga, a fifteen-year Inti Raymi employee with a degree in
business administration. According to Phil Dalke, Inti
Raymi's only U.S. expat working in Bolivia, the recent
political and security uncertainty has prompted Newmont to
consider removing Dalke from Bolivia: "They're asking if they
really need an expat here, now that it's getting more
difficult."

- - - - - - -
Survival Tips
- - - - - - -



5. (C) Coeur's Humberto Rada, who is also the head of the
Bolivian Medium Miners Association, prides himself on his
political acumen, and he has initiated a new production
contract with the mining cooperatives that lease San
Bartolome's concessions in the hopes that this will
strengthen ties to a potentially powerful constituency. Rada
is also taking steps to "brand" San Bartolome as a Bolivian
company (emphasizing the local affiliate Manquiri over the
name of Coeur, for example).



6. (C) In addition, Rada is planning to reach out to
international diplomats whose countries have interest in
mining. U.S. companies face difficulties because of the
Bolivian government's anti-American bias, but Morales and his
ministers have vocally welcomed investment by India (Jindal's
Mutun iron mine) and South Korea (the old state copper mine
of Coro Coro.) Rada hopes that more countries and companies
will be associated with the Medium Miners Association, so
that when problems arise "it's not just the big American and
Canadian companies; Evo will listen if the Venezuelans and
the Indians are also asking questions."

- - - - - - - - - - - - - - - - - - - - -
Interesting Times Yield Uncertain Future
- - - - - - - - - - - - - - - - - - - - -



7. (C) Rada admitted that outreach to international diplomats
and executives will be difficult: "I can't say this is a good
time to invest in Bolivia, because I'm not willing to lie."
He described the current tax situation as bad, but added that
the real deal-breaker is the draft MAS constitution, which
may be voted on in early 2009 if Evo gets his way. "The
terms of the constitution will kill mining," he said, adding
that it would damage industrial development in general and
foreign investment in particular.



8. (C) The fallout from the potential new constitution and
the dramatically increased taxes (up 12.5 percent in December
2007) are already being seen in U.S. companies. Apex's San
Christobal continues to hope that the Bolivian government
will eliminate a 25 percent "excess profits surtax" that
currently only San Cristobal pays. The government has
informed Apex (and 35 percent owner Sumitomo) that the
company can not deduct hedge book costs. Some analysts
believe that Apex's stocks are trading at one fifth of the
value they would if the mine were not located in Bolivia.
(Note: Despite the fact that Bolivian analysts have announced
that San Cristobal alone is responsible for over half the
growth in Bolivia's GDP, the Mining Minister has never
visited the mine and high-level government contacts still
routinely refuse to meet with San Cristobal executives. End
note.)



9. (C) A year ago, Newmont's Inti Raymi was conducting
further exploration in an attempt to lengthen the life of
their twenty-six year old gold mines in Oruro. Now, Inti
Raymi President Jorge Saavedra predicts that the mine will
close in September of 2009. He expects the decision to "turn
friends into enemies" as the 500-plus local employees, who
have previously identified with the mine, will blame the
company for their lost employment. Inti Raymi plans to offer
its employees small-business management training: despite the
worldwide mining boom, Saavedra has little hope that Inti
E
Raymi's experienced miners will be able to find employment in
the field "since no one is opening new mines in Bolivia."
When asked about Jindal's Mutun iron mine, Saavedra doubted
that the local residents in Santa Cruz would be willing to
let Oruro miners take their jobs. (Note: Many observers still
question whether the Mutun mine will begin operations.
According to the Honorary Indian Consul in La Paz, however,
Jindal has finished exploration and expects to begin initial
construction on the mine site in early 2009. End note.)

- - - -
Comment
- - - -



10. (C) In the nearly-three years since Evo Morales became
President, observers of the mining industry in Bolivia have
become increasingly pessimistic. The government frequently
touts Jindal's Mutun and the South Korean state mining
company's Coro Coro investments as positive developments in
the industry. Our contacts point out, however, that both of
these deposits have been known for a long time (Coro Coro, in
fact, was previously mined out by the state mining company
COMIBOL and is only profitable to mine now thanks to record
copper prices.) No substantial new exploration is taking
place, and what few deposits are found are often not being
developed: Newmont reportedly has found potential deposits
but will not invest in them at this time because of political
uncertainty. Bolivia calls itself a "mining country", but
increasingly that appellation belongs to the past. Evo
Morales' policies and anti-foreign-investment bias are
costing Bolivia its chance to take advantage of the current
mining boom.

URS