New strategies can resolve issues in Colombia mining

While its Pacific Alliance partners Chile, Peru and Mexico have developed large formal mining sectors, Colombia’s internal conflict has prevented it from following suit. Although the country was home to prolific gold mines during the colonial era, at present only 10-15% of the 57 tonnes of gold produced each year comes from registered, tax-paying mining companies. The rest comes from artisanal and small-scale miners (ASM) and medium-scale operations, producing gold mainly from alluvial panning or from picking away at abandoned underground mines. These projects provide little revenue for the government and the formalisation of the mining industry will be a major part of improving overall economic growth.

Scale

According to figures from the Ministry of Mines and Energy (Ministerio de Minas y Energía, MME), an estimated 314,000 Colombians work directly in the ASM segment. In many parts of the country it is the only form of income available. “Many parts of rural Colombia have been effectively abandoned by the state due to the internal conflict,” Paul Harris, editor and publisher of the Colombia Gold the ASM gold segment are the departments of Antioquia and Chocó, which together produce over 1m oz of gold each year.

The Risks

The informal mining sector is the cause of two major concerns. First, a lack of environmental regulation and oversight means that miners often discard mercury used in the process directly into rivers. Colombia is a major emitter of mercury from mining, often releasing as much as 150 tonnes in one year, according to the UN Industrial Development Organisation. The second concern for the government is that revenues from illegal gold mining can be funnelled to guerrilla forces or criminal activity. In 2012, when gold prices peaked, it was estimated that gold sales had overtaken drug running as a major source of funding for the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarios de Colombia, FARC). While the army periodically moves to destroy these types of operations, illegal groups also make money from extortion of small-scale miners, whose works sites cannot be simply destroyed. “Informal miners find themselves caught between large-scale mining firms entering their traditional operating regions with formal titles on one side and, on the other, armed groups, particularly in Northeast Antioquia, whose orders they must obey, yet their rights as traditional miners have been mostly ignored by the state,” Echavarria said.

Obstacles

Since the late 1980s there have been several attempts to formalise Colombia’s artisanal miners, but they have often come up against serious challenges. Prior efforts have focused on offering amnesty periods for miners to formalise their activities with the state before a set deadline, which have frequently been extended, before such mines are declared illegal. But few miners took up the offer and there was little state capacity to enforce the measures. “There is a culture of informality in all economic sectors, but miners have a particularly independent mindset” said Echavarria. “Formalisation is expensive: it requires technical and legal support, and involves difficult bureaucratic procedures.”

With the introduction of the 2001 Mining Code, which granted mining titles on a “first in time, first in right” basis, new international and local players acquired concessions, complicating the relationship with small-scale miners. Policymakers must find meaningful ways to include them in sector policy.

Opportunity

Nevertheless, in recent years substantive progress has been made to tackle some of the issues surrounding the ASM segment. In October 2013 the Colombian government signed the UN Environmental Programme’s Minamata Convention on Mercury. The convention includes a ban on new mercury mines and commits signees to phase out mercury usage in existing mines. Another obvious boost for artisanal miners is the prospect of an end to the country’s civil war. The demobilisation of FARC, combined with a renewed government push to combat criminal gangs, should remove the threat of extortion for many miners and allow for a safer environment.

Policy

In 2013 the MME introduced a new formalisation policy that views formalisation as a process and sets long-term goals. The National Formalisation Policy (Política Nacional Para la Formalización de la Minería en Colombia, PNF) sees the acquisition of a mining title as the first step, and the PNF aims to have 40% of Colombian mining formalised by 2019, with full formalisation by 2032. “By recognising formalisation as a process, the policy is already ahead of previous government efforts,” Echavarria said. “In addition, the policy distinguishes between artisanal miners and illegal miners and recognises that small-and medium-scale mining need to be treated differently to large-scale mining.”

Carved Out

The PNF also facilitates efforts for ASM producers to work with large-scale miners. “The policy creates a mechanism whereby mining companies can carve out a portion of their concession and hand it over to informal miners,” said Harris. “Crucially, the mining company is not liable to the state for the actions of informal miners. Previously, they were responsible for all activity on their concession, creating a disincentive for working with artisanal miners.”

The Cost

While the PNF looks promising in theory, there are doubts as to whether it will receive the funding necessary to be successful. “The main obstacle to formalising the mining sector is the lack of economic incentives,” said Harris. “At the moment artisanal miners do not pay taxes or health care and it is unlikely that they could absorb this cost structure. I do not think the government has the scale of finances required, and if it is a limited pot, that creates its own problems for prioritising who receives the funds.”

Echavarria believes that some miners would be prepared to pay taxes, on the condition that this money was used to improve the local community, whereas most suspect that money would be misspent by local and national governments. Another challenge is that formalisation cannot provide employment for everyone. Large-scale mining has the capacity to develop projects that meet environmental standards, generate reliable tax revenues and provide a limited number of high-quality jobs. However, it can only provide jobs for a fraction of informal miners. The answer may lie in a mixed solution. “It is not a case of either large-scale mining or artisanal mining – the size and nature of a mineral deposit should determine what kind of mining,” Echavarría said. “Large mining projects do not provide many direct jobs. The social and economic value they add should focus on increasing local content in goods and services requirements, and thus provide indirect jobs. Large mining companies could also further commit to the transformation of the industry by actively supporting health, safety, environment and technical aspects of small-scale miners in their areas of influence.” The creation of the PNF is a timely and positive move by the MME. By adopting long-term goals and focusing on ways large companies and small-scale miners can work together it acknowledges the nature of the challenges ahead.

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The Report: Colombia 2016

Mining chapter from The Report: Colombia 2016

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