Nationalization in Bolivia: Are Foreign-Operating Mining Companies Next?

In light of the recent “nationalization” of Bolivia’s hydrocarbons we should examine whether the threat of expropriation also risks other foreign companies exposed to events in Bolivia, while Morales claimed in his fiery “nationalization” speech that mines and land were next, only to be contradicted by his vice-president in a radio address hours later, the reality may differ.

Apex Silver Mines Limited (Amex: SIL) today responded to unusual trading activity (I’m guessing the shorts are having a field day) arguing that the government does not plan nationalization of mines, this contradicts the president’s own comments, but Apex has a good point – the Bolivian Minister of Mines and Metallurgy has repeatedly commented that no nationalization of the San Cristobal mining project is planned. I wouldn’t count my chips yet, though the company is doing an impressive job addressing social needs of communities surrounding the mine and it’s starting to diversify its production in other South American countries, the concern is also 100% foreign owned and more than 50 percent managed by international personnel. Which makes it a prime target for Morales’ populist rhetoric, add to the mix the rising prices of precious and other minerals and the fact that the mine starts operating only in 2007 and you have a target of opportunity. At the close of the market today Apex Silver shares had sunk by $3.30 (U.S.) or 16 per cent.

Vancouver-based silver producer Pan American Silver Corp (NASDAQ: PAAS), which has a 55-per-cent interest in San Vicente, a small silver-zinc mine in Bolivia, also issued some comments, stating that they have been holding off investment on the mine due to political risk. Pan American shares fell by 1 per cent to close at $26.72 on the Toronto Stock Exchange.

Coeur d'Alene Mines Corp (NYSE:CDE) the company developing the San Bartolomé project had its shares fall by 57 cents or 8 per cent to $6.31 on the New York Stock Exchange. However, this company is somehow less exposed to instability as it manages sub-leased concessions owned by the state-run company COMIBOL and a number of cooperatives.

Though foreign mining companies are also exposed to expropriation risk, the threat is smaller than it was for gas and oil firms, and even other formerly state-run enterprises. As John Carlesso, chief executive officer for Toronto-based Apogee Minerals Ltd (TSX:APE) stated, oil and gas development; generate relatively few local jobs and results in a product that is exported at well below market rates. By contrast, a mining project can create thousands of jobs and typically requires substantial investment in infrastructure such as roads and power plants that Bolivia wants for its own economic agenda [1].

Looks like it’s more a matter of keeping the miners and the COB leadership happy, a similar relationship exists elsewhere in our continent, in the land of Bolivar, where the populist coronelisimo maintains a pretty good relationship with gold-mining company Crystallex International Corp (Amex: KRY) banking that the new jobs created by this North American company will prolong the sustainability of his regime.

At least in the short term, there is no strong signal that the Morales government is willing to “nationalize” foreign-operated mines –with the glaring exception of the recent EBX neutralization. The cynic in me tells me that Morales is waiting until the big projects start being profitable and all costs have been covered before he makes a move, but I think he’ll have his hands full dealing with the gas and oil expropriations.

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Tag:Evo Morales,nationalization,expropiation,Apogee, Apex Silver, mining