Mining an issue in Bolivian election

Foreign businesses are looking forward to June’s Bolivian presidential elections and the victory of candidate Gonzalo Sanchez de Lozada, now chief executive of Comsur, the largest private sector mining company in the country.

British mining analysts are cautiously optimistic that Sanchez, who speaks Spanish with a U.S. accent, could give a much-needed boost to the mining sector. In particular, he would be expected to restructure the loss-making state mining concern Comibol.

“If he wins, reformers are hopeful that the incoming president will do the same for Bolivia as he did for the Compania Minera del Sur (Comsur),” said an analyst here. The analyst said that Comsur had been successful in transforming several subsidiary loss-making operations.

Sanchez is the current favorite, according to the latest opinion polls, and is significantly ahead of rivals General Hugo Banzer (National Democratic Action) and populists Max Fernadez (UCS) and Antonio Aranibar (MBL). The London sources claim that his election would help to arrest the flight of foreign investment which recently manifested itself in the departure of two major mining concerns.

The first foreign mining company to depart Bolivia was FMC Lithco, which cancelled plans to exploit lithium deposits in the huge Salar de Uyuni salt flats and thereby effectively dashed Bolivia’s hopes of becoming the world’s largest lithium producer.

According to official Bolivian estimates, the cancellation of the 40-year contract will cost the state some $1.6 billion in lost royalties. Another foreign mining concern, Jordex Resources, subsequently announced its withdrawal from Bolivia with the planned sale of its 67% majority stake in Compania Minera Tiwanacu. Despite the Bolivian zinc-producers achieving an output rate of around 45,000 tons per year, operations were still deemed to be unprofitable.

Suggestions that the British company Rio Tinto Zinc (RTZ) might follow suit, or scale back operations, were dismissed as mere speculation. “We have no special plans for Bolivian operations this year; it is business as usual,” a company spokesman said at RTZ headquarters in London. RTZ is one of the world’s largest resource companies and became active in Bolivia in 1990 when it acquired a 33% stake in Compania Minera de Panama, whose assets include 100% interests in Comsur. RTZ also owns Minera Aguilar in Argentina.

Both companies operate small mines containing base metals such as zinc, lead and tin. “They are very small operations by RTZ scale,” said an RTZ official. RTZ’s largest principal South American operations are in Brazil, where it has a majority stake in gold-mining company Rio Paracatu Mineracao, and in Chile, where it has an interest in the copper-mining company Minera Escondida. “Gonzalo Sanchez, if elected to be president, would be good news for foreign investors,” said David Battman, senior Latin American analyst at London-based Control Risks. He described Sanchez as “the Americanized right-of-centre candidate and the good guy of Bolivian politics.”

He said the Comsur president would distinguish himself from the current Bolivian administration by actually carrying out economic reform rather than merely paying lip-service to it in order to placate the International Monetary Fund and the World Bank.

Fresh impetus is therefore expected to be given to privatization, the restructuring of Comibol and the formation of joint ventures with foreign mining companies — all of which have fallen victim in recent years to bureaucratic red tape and Labour opposition.

Amid mounting losses, Comibol investment activity came to a virtual halt last year, falling by 70% to just $4.2 million.

Private sector investment, on the other hand, surged 66% to $140 million. Whether Gonzalo Sanchez will become President of Bolivia is uncertain even if he wins the most votes in June. Under Bolivia’s electoral system, this decision is made by a majority vote in the Lower House of Congress. That was how Paz Zamora, with the general backing of the ADM party, secured the presidency in 1989, leaving the candidate who polled the most votes out in the cold.

His name was Gonzalo Sanchez de Lozada. “The betting is that the same thing will happen again,” Battman said. — From Inter Press Service