Concerns grow over Bolivia’s nationalization agenda

Vancouver – Companies operating or developing mines in Bolivia are taking a hit in the marketplace as concerns grow that President Evo Morales will extend his newly launched nationalization program from the oil and gas industry to the mining and minerals sector.

With allies Fidel Castro of Cuba and Hugo Chavez of Venezuela by his side, Morales sent shock waves through the international investment community when he announced the nationalization of the nation’s oil and gas sector earlier this week. The newly elected socialist president then ordered troops to guard production facilities owned by foreign companies until the companies agree to surrender majority control of their operations to the state-owned petroleum company.

Bolivia’s nationalization program is similar to one previously imposed in Venezuela, which resulted in the state seizure of assets after several companies failed to comply with Chavez’s demand to give up control of their operations to a state-owned oil company. Venezuela no longer allows foreign companies to own mineral deposits or mining assets, and suspicions are growing that Morales may impose similar restrictions and conditions on mining companies operating in Bolivia.

The largest project under development is the San Cristobal silver-lead-zinc mine being constructed by Apex Silver (SIL-X). The company recently completed a major financing of 6.37 million shares at US$24.45 per share, and planned to use the net proceeds of about US$151 million to complete the US$600-million mine project, and expand its portfolio of silver properties in Bolivia, Peru, Mexico and Argentina.

Apex Silver’s shares fell 25% to $15.75 after news agencies reported that Morales planned to increase state control of all natural resources to stop them from being “looted” by foreign companies. The militant president, who once vowed to be the U.S.’s “worst nightmare,” told Associated Press that the recent nationalization of the hydrocarbons sector was “just the beginning, because tomorrow it will be the mines, the forest resources, and the land.”

Shares of Apex Silver rebounded after the company issued a statement saying that it was “not aware of any plan by the government of Bolivia to follow a similar policy [as the oil and gas nationalization] in mining.” The company owns 100% of the San Cristobal project, which is expected to become one of the world’s largest silver mines once operations begin later this year.

Silver producer Coeur d’Alene Mines (CDE-N, CDM-T) also took a hit in the market, dropping almost 10% to US$6.23 before rebounding to US$6.31. The company has spent US$35 million developing the San Bartolome silver project in the Potosi region, and expects to resume construction this summer “as it gains additional clarity regarding the political situation in Bolivia.” The company notes that state-owned Corporacion Minera Bolivia (Comibol) is already the underlying owner of the mining rights relating to most of the San Bartolome project.

Both Coeur and Apex Silver have risk insurance covering a significant portion of their investments in Bolivia. While Bolivia’s mines minister has made reassuring statements to mining companies active in the landlocked nation, the Bolivian President and Vice-President have both signaled that changes to the investment climate are coming, including “higher taxes” and other measures to exert state control and ensure foreign companies do not profit “unfairly” from the nation’s resources.

The Bolivian government is snubbing western investors, yet is actively courting China, frequently described as an “ideological ally,” to help develop its natural resources. While still President-elect, Morales visited China in early January of this year, and invited the nation’s state-owned companies to invest in Bolivia’s gas industry after his government carried out its proposed nationalization program.

Venezuela also opened its doors to China to help develop oil fields after nationalizing its natural resources. China has significant investments in South America, including copper mines in Chile and Peru, and steel mills in Brazil.

Bolivia is one of the poorest nations in South America, and has seen 200 different governments since winning independence from Spain in 1825.