Chile’s Codelco Eyes Investment in Colombian Copper

Mining experts believe, given Colombia’s geology, land recovered from rebel groups could hold large, untapped mineral resources—notably large deposits of copper, a thus far undeveloped industry in the country. Beginning next month, a newly founded Colombian mining agency will oversee the distribution of mining exploration licenses in 11,500 square miles set aside by the government for those activities. Seeking to take advantage of this untapped mineral wealth, Chile’s National Copper Corporation (Codelco) expressed interest this week in entering into exploration contracts with Colombia. Already experts in the fields of copper exploration and extraction and looking to boost production, the company seeks to undertake activities in Colombia as their first international foray.

On the sidelines of the Sixth Summit of the Americas in Cartagena this past weekend, Codelco CEO Diego Hernández told Colombian Mining Minister Mauricio Cárdenas that his company intends to sign exploration agreements for Colombian copper as part of Codelco’s drive to internationalize its operations. In an interview with Colombia’s Portafolio on April 17, Hernández said Codelco’s exploration in Colombia, scheduled to begin in 2013, will bring $1 billion in investment to the country over ten years, the amount of time it would take to go from exploration to production if operations are successful. The move to exploration abroad is a response to the company’s goals to increase its output, currently at 1.7 million tons of copper a year, to 2 million tons by the end of the decade. Codelco has entered joint exploration agreements with other nations—most notably a 2011 joint exploration agreement with Ecuador’s state mining company—but says Colombia is attractive due to the relative lack of development of its industry. The competition from established mining interests or state mining companies in other regional countries “makes it more difficult for newcomers to join,” Hernández said.

Colombia is already South America’s largest coal producer, a world leader in gold mining, and the region’s third-largest exporter of petroleum. The oil and mining industry attracted close to $15 billion in foreign direct investment last year, driving an investment surge of more than 30 percent in the first trimester of 2012 compared with last year. Nevertheless, mining accounts for only 2 percent of the country’s GDP, and copper mining is nearly nonexistent. Experts believe there is space for growth. “The geological conditions tell us there is no reason not to believe there are large deposits of copper there,” a Codelco representative told Business News Americas. Portafolio adds that in addition to investment, Codelco will bring its “industry know-how” in the exploration and extraction of mineral wealth to Colombia, with longer-term benefits for the country.

President Juan Manuel Santos identified mining as one of five “engines of growth” for the country, and wants to see the industry expand. To that end, the government has sought ways to make the country attractive to investment in mining. “[W]hat we want is to develop strong institutions and strengthen existing ones, and thereby pave the way for foreign and local investment,” said Deputy Mining Minister Henry Medina in an interview on the Colombian Ministry of Mining and Energy’s website. He added the government would work to create an attractive investment climate by “clamping down on illegal mining, tightening up regulations, and establishing a formal mining code.”

To oversee the exploration and issuing of mining licenses, the Colombian Ministry of Mining and Energy announced the creation of a government mining agency, which will begin operations May 3. Based on the country’s National Hydrocarbons Agency, the agency will “introduce a more competitive bidding process for mining concessions and monitor compliance with exploration, production, and environmental and social requirements,” reports the Financial Times. Speaking about the mining regulations to Reuters, Medina said: "We don't want to scare off investors. We want to be as predictable as possible." Codelco’s CEO responded well to these declarations, stating that: “Legal security is key in mining.”

Learn More:

• Learn more about Chile’s state copper company Codelco on the company’s website.
• Read about Codelco’s moves to begin explorations abroad in The Wall Street Journal’s MarketWatch.
• Read an interview with Codelco CEO Diego Hernández in Colombia’s Portafolio.
• Read an interview about Colombian Deputy Mining Minister Henry Medina’s hopes for Colombia’s mining industry from the Ministry of Mining and Energy.
• Read a Financial Times article on Colombia’s mining hopes.