Here’s why Colombia’s mining sector is losing its shine

Foreign investors are likely to flee Colombia’s mining sector in the coming months as the country is failing to protect the interest of global companies operating and exploring in the country, the local mining association warns.

According to Roberto Junguito, president of the board of governors at the Colombian Mining Association (ACM), the country needs to set clear rules for the industry and prioritize national over local interests.

His comments to Financial Times (subs. required) come as recent rulings have forced some major miners, including world number three gold producer AngloGold Ashanti (NYSE:AU), to halt operations.

Recent rulings have forced some major miners, including world number three gold producer AngloGold Ashanti, to halt projects and operations.

“Recent years have not been easy for mining,” Junguito told FT, citing protests, road blockades, falling commodity prices and a government tax reform introduced late last year.

“The biggest challenge of them all is judicial uncertainty. A lot of recent court cases have gone against the industry.”

In April, AngloGold had to halt all exploration work at its La Colosa project in central Tolima after voters overwhelmingly backed a proposal to ban mining in the municipality.

The company, which had been advancing the project for 14 years, has invested roughly $900 million in Colombia over the past decade and La Colosa was the largest of its three projects in the country, as it has the potential to become on of the world’s largest gold mines.

A few days earlier, Canada’s Gran Colombia Gold (TSX:GCM) decided to take the Colombian government to court for forcing the company to halt operations at its Marmato project until further consultation with locals has been conducted.

The Toronto-based company, which acquired the project when it merged with Medoro in 2011, is seeking $700 million in compensations and it’s basing the suit in the Colombian-Canadian free trade agreement.

Those two cases are not the only ones. Another Canadian firm, junior explorer Zonte Metals (TSX-V: ZON), is locked in a legal battle with local authorities over a permit rejection. In February, a special court granted Zonte rights to proceed with the lawsuit that claims both, Colombia’s Department of Antioquia and the National Mining Agency did not process its exploration application in accordance with the country’s mining code.

Fear of copycat effect

At the Colombian Mining Association’s (ACM) annual conference last week, companies voiced their concern the recent incidents could encourage other communities to push for similar votes or try to block multinationals via lawsuits.

There are 39 local referendums currently in the works, which results could spell troubles for several mining, oil and infrastructure projects.

The group warned there are 39 local referendums currently in the works, which results could spell troubles for several mining, oil and infrastructure projects, local La FM reported (in Spanish).

Former Minister of Mines and Energy Amylkar Acosta, said that Colombia’s mining sector will fall victim of social unrest and legal insecurity.

“The regions and territories where extractive activities take place are plagued with land use conflicts, which have not been solved due to lack of clear rules,” he said according to RCN Radio (in Spanish).

He noted that one of the main bones of contention is the recent change in royalties perceived by municipalities, which went from 70% royalty income to a mere 9%.

“This triggers discontent because the communities do not see a benefit from mining and that dissatisfaction triggers protests, blockades and other problems,” Acosta said.

Colombia’s top mining sectors are gold and coal, but there has been a spike in interest for potential copper projects in the last years.

Here’s why Colombia’s mining sector is losing its shine

In 2016, Colombia banned all mining activities in its paramo regions (moorlands), which affected about 347 concessions. (Image via Wikimedia Commons)