* Colombia plans to sell property rights next year
* Mining sector only 2 percent of Colombia's GDP
* Codelco is interested in exploring in the country
By Josephine Mason
SANTIAGO, April 16 (Reuters) - Colombia expects to sell
exploration rights to its large untapped mineral resources next
year as part of its effort to attract foreign investment to
develop its gold, coal and silver mining sector.
The government's new national mining agency will coordinate
the sale of rights to develop the country's unexplored mineral
wealth as it aims to boost its income from mining, which only
accounts for around 2 percent of the country's economy.
Some of the biggest names in commodities, including Chilean
state-owned copper producer Codelco, have already
expressed an interest in taking part in what the government
hopes will turn into an exploration boom, Deputy Mining Minister
Henry Medina Gonzalez told Reuters on Monday on the sidelines of
the 5th International Exploration Forum held by Cesco in
Santiago.
Speaking at the conference on Monday, Gonzalez said his
ministry aims to lure foreign investment by clamping down on
illegal mining, tightening up regulations and establishing a
formal mining code.
The new mining agency, which starts work on May 3, will
establish which properties will be sold as part of an auction
next year, Gonzalez told Reuters on the sidelines of the
conference.
The government estimates some 3 million hectares of
"strategic zones" will be up for grabs, he told delegates at the
conference.
The government will not participate directly in any of the
projects, he told Reuters, keen to stress the government's
hands-off role.
"We don't want to scare off investors. We want to be as
predictable as possible," Gonzalez told Reuters when asked if he
would consider overhauling the royalty payment system.
This is particularly important given the turmoil seen in
other Latin American countries in recent years: from Peru, where
the government last year made dramatic changes to mining taxes,
to Argentina, where the government on Monday unveiled plans to
seize control of leading energy company YPF.
The aim is to increase total mining investment to above the
$2.6 billion invested last year, Gonzalez told Reuters, but he
declined to give a target figure.
Goldman Sachs, Votorantim, BHP Billiton
, AngloGold Ashanti, Anglo American and Glencore
are already investors in the country. The U.S.
investment bank is said to be bidding for a Vale SA
coal project in the country, although Gonzalez said he did not
know how far along that sales process was.
Codelco is also interested in setting up exploration in the
country as the Chilean state-owned copper producer looks abroad
for new resources in a bid to offset falling ore grades and
output at its domestic operations.
More copper producers need to explore in riskier locations
to stave off a massive shortage of ore output and keep up with
demand, Michael Chender, chief executive of Metal Economics
Corp, told delegates on Monday.
ROYALTIES MAY BE REVISED LATER
While the development of its mining sector is in its
infancy, the government wants to keep royalties stable, but may
consider revising the system at a later date, Gonzalez said.
The current royalty system is based on a percentage of the
price of the commodity which is then calculated according to
production volume, according to Claudia Jimenez, who is head of
the government association created a year ago to promote private
investment in large-scale mining projects.
Some politicians have called for a switch to a system more
in line with Chile, which bases its royalties on a company's
income, rather than production, Gonzalez said. There is no
imminent change planned yet.
"It's not a country with a mining boom, (but) it has the
potential. We need to understand the potential" before making
changes to the royalty system, he told Reuters.
INFRASTRUCTURE DEVELOPMENT
With development of its natural resources, the government
also plans to overhaul its infrastructure, including its ports,
waterways, and 2,000 km (1,242 miles) of railroad tracks. A
major new highway through the center of the country is also
planned, Gonzalez said.
The government led by President Juan Manuel Santos has made
a two-year push to create investor-friendly conditions to try to
woo foreign investment.
Mining only accounts for 2-3 percent of the South American
country's gross domestic product; oil makes up 83 percent of
total royalties, according to Jimenez.
"Colombia is not yet a mining country," she said.
But that will change if investment takes off. The country
aims to increase coal output by 35 percent to 115,000 tonnes per
year by 2014 from last year's level of 85,000 tonnes and gold
output by 30 percent to 73 tonnes from 56 tonnes last year, she
said.
Strategic minerals, including silver, have been identified
and exploration is greatly needed: less than 50 percent of the
country has been explored, Gonzalez said.
RISKIER LOCALES LURE COPPER PRODUCERS
The move to countries seen as higher risk is needed as
deposits in mature copper producing countries are depleted,
analysts say. There is evidence that foreign companies are
spending more in Colombia in recent years.
Colombia only accounted for 2 percent of total global
nonferrous exploration spending in 2011, but its proportion of
Latin American spending has grown to 10 percent from less than 3
percent in the last four years, Chender said in his
presentation.
Companies are becoming more open to risk after a dramatic
retrenchment during the global economic crisis in 2008 and 2009,
but tolerance for risk has not returned to 2007 levels.
The rate of converting a copper discovery to development
will fall because of challenges from rising costs and difficult
operating conditions, but demand is rising.
"There's our problem," said Chender, noting Colombia is "an
outstanding example" of how a country can transform itself to
become more investor friendly.
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