Categories: General Market Commentary
Topics: General Market Commentary

Bolivia’s door creaks open to foreign mining investment

SANTIAGO, CHILE — A first-of-its kind deal between Bolivia’s state mining company Comibol and Vancouver-based explorer New Pacific Metals (TSXV: NUAG; US-OTC: NUPMF) promises to usher in a new period of foreign investment into Bolivia’s mining industry.

Under the deal signed in January, New Pacific Metals will have a 45-year contract at its Silver Sands silver project to explore and produce minerals over a 57-sq.-km area in Bolivia’s mineral-rich Potosi department. In exchange, the company has committed to spend at least US$6 million on exploration during the first five years and pay a 4% royalty on all minerals produced in the area.

The deal is the first to be signed between Comibol and a private company under Bolivia’s new mining legislation.

“It is a benchmark achievement that shows that Bolivia is open to foreign investment,” said New Pacific’s president Gordon Neal when the deal was announced.

The first signs from Silver Sands are promising, with 94 out of 98 holes in a recent drilling campaign intercepting near-surface silver mineralization, including 77 metres grading 383 grams silver per tonne.

The hope now is that similar deals will follow, says Pablo Ordoñez of law firm Ferrere who helped New Pacific in its negotiations with Comibol. Since the deal was announced, interest among international mining companies in Bolivia has picked up, he said.

The deal is evidence of a policy shift in the Bolivian government which, until recently, was better known for nationalizing natural resources than courting foreign investors.

First elected in 2005, Bolivian President Evo Morales is often lumped together with other 21st century leftist leaders in the region, such as Argentina’s Cristina Fernandez, Brazil’s Lula da Silva and Venezuela’s Hugo Chavez.

But while those regimes ended in huge corruption cases, financial chaos and economic disaster, Morales has presided over a decade of unprecedented political stability and growth thanks to canny management of the economy and booming gas exports to neighbouring Argentina and Brazil.

After nationalizing the oil and gas industry in 2006, Morales’ left-wing administration funneled the foreign revenues to infrastructure projects and welfare spending, which has driven growth ever since. This year the economy is expected to grow 4.5% making it one of the strongest in the region.

However, Morales’ sweet patch may be running out. The decline in oil prices since 2011 and the rise in domestic gas production in Argentina and Brazil threaten to choke off his key source of funding. The value of Bolivia’s gas exports fell from US$5.5 billion in 2014 to US$2.6 billion in 2017, hammering government finances.

Faced with that economic reality, the government is keen to find alternative sources of funding with mining seen as the best bet.

The country’s geological potential is huge, with deposits of gold, silver, iron ore, zinc, tin, lead and lithium. It was silver from the mines of Potosi, still a byword in Spanish for incalculable wealth, which supercharged Europe’s economy in the early modern era. Cerro Rico, which towers over the city, is still being mined today using almost medieval techniques.

“The potential is amongst the best in the region. Everything you could imagine and more,” says Andres Moreno, a mining lawyer in La Paz. Even the tailings left by centuries of mining are richer than most deposits in neighbouring Chile, Peru and Argentina.

Click here to continue reading...