Colombia Mining  – The Only Certainty is Uncertainty

The mining industry in Colombia plays a significant role in the country’s economy, representing about 3% of its GDP and is a major source of export revenues. Coal and gold are particularly important for the country’s trade balance, but it also has considerable potential to produce nickel and copper.

A few years ago, the Colombian government publicly stated that the goal for 2030 was to double the production of gold from mining titles, multiply copper production by six, and generate investments of more than USD$5.5 billion. As of today, these are only distant goals that do not have much chance of succeeding.

Colombia always had big aspirations with less then 3% of its territory under title for mining and exploration, but the country has struggled over the past decade to get large projects built. The country has been slow to bring major mining projects into operation with the sector trying to overcome challenges such as informal mining, slow licensing/permitting, regulatory changes, and legal reforms.

The Fraser Institute survey ranks 86 jurisdictions around the world based on their geologic attractiveness (minerals and metals) and government policies that encourage or deter exploration and investment. This year, Colombia fell significantly in the rankings and was rated the fourth least attractive jurisdiction for investment. That is, it ranked 82nd out of 86 countries that were studied. 

We explore some of the latest developments that are creating uncertainty for the Colombian mining industry.

Mining Code Reforms

The current mining code has been in place since 2001, which generally had a pro-industry, pro-foreign investment model, with a series of regulatory, administrative and tax incentives.

Draft modifications to the reform include ensuring the State has a larger role in the industry, prohibiting new licenses for the production of thermal coal, tightening environmental regulations, and bolstering small-scale or artisanal mining.

There are several concerns with the new draft reforms. The first is that banning new licenses will reduce investment in one of Colombia most important resources.  While Colombia could slow production, global demand for coal is expected to remain strong, leading to significant lost revenue for the country.

The second is the reform sets out to have more state involvement in the extraction of critical minerals and the state’s participation in projects. This includes setting conditions that state owned companies and mixed public-private partnerships will be required in designated strategic mineral areas. This is creating an uncertain environment for the private sector which is weighing on new investments.

New State Mining Company

A bill was introduced earlier in the year and approved in June which would establish a new public company called EcoMinerales. The new state company would take a leading role in the sector with the goal of formalizing small miners, curbing illegal operations, and being a major partner in future projects.

Yet, this proposition stirs uncertainty within the mining community. Critics fear EcoMinerales could monopolize the market, pushing towards a government-controlled mining industry. This includes accelerating the closure of mining titles and redirecting projects to the state, raising important questions about its role in the industry.

Whether these concerns are legitimate are yet to be seen. At this point, the creation of a new state mining company by a government that has openly called for more state participation in the industry has created even more uncertainty for investors. It is not clear how this new state company will be used in the future. 

New Environmental Decree

Colombia recently ratified decree 044 that authorizes the environment ministry to create natural reserve zones, which will remain in place for up to five years. No mining-related concessions may be granted for an area declared a reserve.

The Colombian mining association ACM voiced its opposition, saying the decree could be used arbitrarily to prevent new mining activities without basing the decision on prior studies or technical criteria.

The new decree again creates even more uncertainty for the industry since there is no clear way of knowing how it will be implemented or possibly used in the future in areas where companies have concessions. This ambiguity is not good for an industry that needs to have some level of certainty in the legal process when investing in a country.

Conclusion

Colombia always had the potential to become a major mining jurisdiction, and at one time, it was heading in the right direction, but those dreams are now distant memories.

The reality is that the Colombian mining sector is completely frozen. There is a high level of uncertainty due to the governments push to create a state mining company, reforms to the mining code which could ban open pit coal mining, and a decree that allows the environment ministry to declare reserve areas.

The Petro administration has no clear direction for the industry. There is a goal to produce more strategic metals but without any clear strategy of how this will be done. The counter-productive reforms and decrees intend to push for more state involvement in the mining sector while creating uncertainty for the whole industry. 

For mining suppliers, the reality is that no new medium to large scale projects will be built in the short term. While there are existing mines, they are also slowing investments due to the uncertainty that has plagued the industry over the last decade. Given the potential in Chile and Peru, it would make sense for suppliers to not focus on Colombia. Currently, as things stand, there will be no improvements in the short to medium term.  

Ax Legal helps industrial technology, engineering, and service companies to navigate the legal and commercial aspects of operating their business in Latin America. With deep knowledge of the industrial and natural resource sectors, we provide actionable and practical advice to help streamline our clients’ entries into Latin America, improve how they operate in the region, and to protect their interests.

Over the years, our team of legal and commercial advisors have developed a track record of working with companies of all sizes from Australia, Canada, the U.S., and Europe. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

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