2010 was an excellent year for the mining sector, due to the high prices for minerals and strong demand from Asian countries. It also saw moves towards increasing the added-value of production in Bolivia through local industrialisation.

Mineral prices have rebounded since the 2008 global financial crisis, when they suffered a temporary relapse. Prices are now at an all time high, with tin selling at about US$14 a fine pound, zinc at $1.05 per fine pound, silver at $35 and gold at $1,400 an ounce.

Whilst the volume of minerals exported has grown, their value has increased much faster. Mineral exports were worth US$2.4 billion last year, up from $645 million in 2005. In terms of volume, zinc exports account for first place, followed by lead, tin, copper and silver; in value terms, zinc is in first place, followed by silver, tin and lead. The mining sector therefore has moved away from concentration on one product (tin for most of the 20th century) and output has become more diversified.

The recovery in the mining economy is due primarily to greatly increased demand from countries like China and India. The industry virtually collapsed in 1985 when Bolivia was badly affected by the international tin crash. In 2010, the share of mining in GNP was eight times higher than in 2005. It accounted for 36% of total exports in 2010, second only to oil and gas.

The surge in demand and increase in prices has led to a big increase in employment. In 2010 there were slightly less than 80,000 people working in the mining industry, the great majority (83%) in cooperatives. This is almost as much as at the point just prior to the tin crash, when most public-sector mines were closed down. Then, the bulk of employment was in the state sector. Now, many campesinos are spending periods working in mining cooperatives to supplement their meagre income from agriculture.

The increase in the value of output has increased the sector’s tax yield. Taxes in the mining sector are principally of two kinds: royalties paid to the department where the operation is based, and taxes on profits. These currently stand at 6% and 37.5% respectively. Taxes on profits have been increased by the Morales government from 25%. The total amount received in tax in 2010 was US$300 million. This compares with under $25 million in 2005. Part of this income to the state has been used to pay the yearly Juancito Pinto allowance for primary school children. Mining departments received $120 million in royalties in 2010. Potosí received most with $92 million, followed by Oruro with $19 million, La Paz $6 million, and Santa Cruz, $2 million.

Industry structure

The industry has three main components.

The Morales government has sought to boost state involvement in mining production, previously almost non-existent after the closure of most mines in the 1980s. In Huanuni, the main tin producing mine, about 4,000 cooperativistas were taken on as part of the work force, after conflicts between mineworkers and the cooperatives in 2006. But this has not led to a fall in profitability. Even with this increase in the labour force, profits at Huanuni last year stood at $22 million after taxes. Vinto, the tin foundry in Oruro, re-nationalised under the Morales government, has increased its profits to $10 million. The state company in Corocoro has been producing and is starting to sell copper in metallic form for the first time. Additionally, the state is beginning to develop Bolivia’s vast lithium deposits in the Uyuni salt lake, with advances in the area of producing lithium carbonate and potash (a fertilizer). A state company has also been established to oversee the purchase of gold. The state sector accounted for 10% of total exports in 2010 (with a value of $236 million).

Some of the most important mines are privately owned. This is the case of San Cristóbal, run by the Japanese firm Sumitomo, with large-scale production and modern techniques. San Cristóbal accounts for 33% of total mineral exports ($800 million), mining lead, silver and zinc. Also important are Manquiri, which exploits the silver tailings in the Cerro Rico mine of Potosí (with US capital), San Vicente in southern Potosí (US capital), producing zinc and copper, Sinchi Wayra – Glencore (formally the property of ex-president Sánchez de Lozada but now Swiss owned) and the iron ore deposits at Mutún, Puerto Suárez, on the border with Brazil (being developed by the Indian company Jindal). Between them, these companies are exporting raw materials to the tune of $1.55 billion per year, 64% of the 2010 total.

The third large sector in the industry consists of mining cooperatives and small-scale mines. They play a far less important part economically, accounting for 26% of exports but are very important in terms of jobs. Most cooperatives are in fact run by groups of associates – the owners – who employ workers according to need. They are really small private firms under another name. Though they generate employment, conditions in these mines are grim, lacking minimal health and safety conditions, and pay is comparatively poor. There are exceptions, such as the Cooperativa Multiactiva de Catavi, which brings together ex-workers of the Siglo XX tin mine, formally closed in 1985, to process the remaining tailings.

Industrialisation

As well as increasing the role of the state in production, the Morales government is now prioritising what it calls a process of industrialisation. By this it means increasing the value-added of exports, and not simply exporting minerals in their unprocessed form. A good example is zinc. Instead of exporting zinc – the single most important export item in terms of volume in 2010 – the proposal is to treat the zinc in Bolivia, building two hydrometallurgical plants (in Potosí and Oruro). So instead of receiving only part of the value of the zinc exported, from which the costs of shipment and processing are deducted, Bolivia should receive the full value of the processed mineral. Untreated deposits also contain other valuable mineral products, such as indium and gold, currently exported without the state receiving payment for them.

Other plans underway in the state sector include the much-vaunted Karachipampa plant in Potosí, to process lead and silver; a new processing plant to improve tin recovery in Huanuni; and to achieve the production of steel products at Mutún and lithium carbonate (basic component of lithium batteries) at Uyuni by 2014.

In 2010 there were first signs of metal exports increasing from 19.6% in 2009 to 22.6%, in comparison to mineral exports, that is, providing greater added value.

Redesigning the ground rules

The new constitution allows for different kinds of firms (private, cooperative, community and state) to operate, but the new mining law – currently under consideration – needs to be approved in the legislature to ensure greater clarity on the conditions under which each can operate. Takeovers of small mines by neighbouring communities have become common, and clear rules of the game need to be established. This is a contentious area. Given their size in terms of employment, the mining cooperatives are seeking to influence the new mining law in their favour.

Other challenges include:

• Defining consultation with indigenous communities. The new mining law will include prior consultation with indigenous (and other) people who live in the area concerned to gauge the impact of mining operations, before these get under way.  It will probably be the state that will take on this process of consultation between the different parties. This principle is enshrined in the UN Declaration of Rights of Indigenous Peoples, by ILO Convention 169 on Indigenous Peoples and in the new Bolivian constitution.
• Striking a balance between the exploitation of raw materials – to be able eventually to feed back profits to the population as a whole – and protection of the Pachamama (or “Mother Earth”). Centuries of mineral extraction have led to high levels of contamination. Not only are new mines coming under close scrutiny, but past malpractice needs to be corrected. Whereas modern companies are obliged by their management to take environmental conditions on board, smaller concerns tend to turn a blind eye.
• How to revamp mining expertise. Since 1985, the mining professions have practically disappeared, exacerbating problems of basic management and technical capacity in the public sector.  This will take time to redress.
• Addressing the demands and needs of the various different sectors in the industry is complex. Discussions have taken place around the new mining legislation, and further talks are slated to start soon.

AUTHOR: Bolivia Information Forum
URL: http://www.boliviainfoforum.org.uk/
E-MAIL: enquiries [at] boliviainfoforum.org.uk

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