The drop in global commodity prices, market volatility and the general crisis suffered by the mining industry throughout the world has seriously affected the industry; nevertheless, medium- and long-term investment opportunities are being generated, particularly in countries that do not have a significant mining tradition and are as yet, to a great extent, unexplored.
Colombia is a good case in point. Geographically speaking, it is ideally situated; it has untold geological potential and a democratic tradition, but despite having several major coal projects, it has never had a defined mining culture and that is why, for example, Colombia has yet to host a large-scale modern metals project.
With the security situation rapidly improving around the country, a few years back Colombia decided to present itself to the world as a mining country, offering interesting incentives to foreign and local companies and preparing its institutions to collaborate with foreign investors. That moment coincided with high commodity prices and several companies, many of them Canadian, came to Colombia. However, the crisis made it difficult for these companies to obtain the financing required to develop their projects and keep their mining titles in good standing.
As a result, several small companies and individuals with prospective mining titles are today looking for investors to maintain and develop them. A good option for these companies is to enter into joint ventures or similar contractual schemes with major mining companies and investment funds that are seeking to invest in exploration of mining titles.
Strategically speaking, this could be a good time to invest in mining projects in Colombia. However, it is a complex country in social and environmental terms. Here are some key aspects to consider when investing in Colombia:
ENVIRONMENTAL ASPECTS: Colombia has 32 environmental authorities. Despite considerable efforts, it has not been possible to homologate the review and authorization processing of environmental permits under the roof of a single authority. Therefore, when studying a mining or any other project in Colombia, it is not only necessary to check on the national permits involved but also the so-called “local permits,” such as water concessions and forestry usage, among others.
It is also crucial to conduct a review of the area where mining activities are to be performed so as to first confirm it does not fall within zones where it is forbidden to carry out mining activities, such as protective forest reserves, national parks and moors. The potential investors must also verify that the zones of interest are not considered “restricted mining areas,” which include Forestry Reserves (declared under Law 2 of 1959), Peasant Farmer Reserve Areas and Integrated Management Districts, amongst others, since mining activities in these areas are subject to obtaining special permits that may considerably delay the implementation of the mining project.
Since the mining cadaster is not yet totally updated, it is always advisable to submit formal petitions to the relevant authorities to confirm that the mining activities are not in fact prohibited or forbidden in the relevant area.
SOCIAL ASPECTS: As mentioned above, Colombia is not by nature a mining country. Communities in the vicinity of mining projects do not always associate mining projects with their development and local municipal authorities are sometimes reluctant to allow mining. Therefore, an appropriate and timely socialization is very important for the future of the project. This is in addition to the prior consultation that has to be carried out with communities present in the area to be explored and developed.
Last but not least, wherever there is a prospective mining area in Colombia, one is likely to find miners exploiting it without a mining title. In general, there are two types of illegal mining in Colombia: what is known as “criminal mining” – which is usually conducted in association with other criminal activities – and “traditional mining,” where the miners’ income is generated by their artisanal mining activity.
In the case of criminal mining, the Colombian government is taking all necessary measures to combat these activities and the army and the national police are committed to this cause. In the case of traditional mining, the Ministry of Mines and Energy has adopted the policy of mining formalization and issued standards, together with the mechanisms, that will allow the holders of the mining titles accompanied by the respective authority to implement mining formalization programs and develop their projects with the support of the community. It is important to note that the formalization programs are voluntary, and under no circumstances is the mining title holder obliged to carry them out, but they have become a very interesting tool for developing a mining project in accordance with the needs of the community.
In conclusion, Colombia represents a good mining opportunity for foreign investors who understand that the timely and appropriate handling of social and environmental aspects are critical for the success of any mining project in this country.
Hernan Rodriguez and Jean-Phillipe Buteau are Partners, Norton Rose Fulbright.