Mining to Colombia

(Last updated: 12 May 2008)

Trends and opportunities

The market

Colombia is rich in mineral resources and the development and processing of these resources is an important economic activity that has helped build a competitive business sector. Colombia is recognised worldwide for its emeralds, and is also the fifth largest thermic coal exporter in the world. 

The country has great mining potential. The existence of diverse geological environments means that there is a wide variety of minerals and metals ripe for development:

• Metals and precious stones – gold, silver, platinum, emeralds
• Metallics – nickel, copper, iron, manganese, lead, zinc, titanium
• Non-metallics – land salt, marine salt, gravel, sand, clay, limestone, sulphate sulphurs, baryta, bentonite, feldspar, fluorite, asbestos, magnesite, talcum, gypsum, phosphoric rock and ornamental rocks
• Fuels – coal

The state, as owner of the subsoil resources in the Colombian territory, is responsible for overseeing and planning the best way to develop, use and manage these resources. The state no longer is actively involved in the business side of mining and instead fosters a policy whereby mining development is left 100 per cent to the private sector.

The Mining-Energy Planning Unit (Unidad de Planeación Minero-Energética or UPME), the official entity responsible for the development of the mining sector in Colombia, has formulated a strategic national mining plan which states that “in 2019 the Colombian mining activity will be one of the most important industries in the continent, and will have significantly enhanced its share of the national economy.”

Over the past decade Colombian mining activity has grown significantly in production volume and value, and exports. Consequently, its contribution to the Colombian economy has been substantial; it has even counterbalanced a drop in hydrocarbon production. The share of the mining GDP (% of total GDP) has grown from 1.8 per cent in 1996 to 2.7 per cent in 2005 thanks to the growing development of coal mining and, to a lesser degree, of precious metals and ferronickel mining. Foreign investors such as Drummond, BHP Billiton, Glencore, Amcoal and Rio Tinto, have undertaken large scale projects in Colombia.

Elements that will determine the future of the Colombian mining activity are:

• Production capacity and reserves of currently operating mines.
• Degree of success of projects still at the exploratory phase.
• Likelihood of placing more mining production in the international market.
• Competitiveness in terms of attracting new investments to the sector.

With regard to reserve volumes (with the exception of those established in general studies carried out by state entities and the ones relating to the mines run by large companies), a reliable consolidated figure is not readily available since, according to the degree of informality prevailing in the sector, only estimates with no significant technical verification are available.

Opportunities

Australia’s trading connections with Colombia are steadily increasing. Australia enjoys good commercial relations in the mining, energy and education sectors, and there is long-term potential for investment in mining, agriculture and telecommunications.

The mining sector offers enormous business potential for both Australian resource investors and exporters of mining equipment services and technology across all facets of the industry. Particular attention is being placed on the environmental and safety aspects of the industry as both of these components are lagging behind international standards when compared on a country-by-country basis.

The Colombian mining community is determined to develop a world class mining industry and this offers opportunities for Australian companies whose products and services have a technical and cost competitive advantage in:

• Mineral exploration (geophysics, mapping, diamond drilling, tunnelling)
• Mining software (resource estimation, modelling, mine design and planning, maintenance and optimisation)
• Gold mining and processing technologies
• Contract mining
• Engineering services
• Environmental equipment (water and sewage treatment plants, effluent analysers, software)
• Environmental consulting (remediation and mine closure)
• Mine safety training and equipment
• Mining equipment

Competitive environment

While Latin America attracted more investment for gold exploration and exploitation/ development in the 1990s, little of it went to Colombia. This changed after 2002 due to rising gold prices and changes to the sector’s regulations and institutions. Investors perceived the latter as an indication of increased stability and transparency in Colombia.

The development of the coal mining industry has been determined mainly by the competitive advantages deriving from exceptional locations and reserve volumes.

Estimates made by the Metal Economics Group indicate that within the next 10 years some US$50 billion will be invested in mining projects, with 41 per cent of it destined for Latin American and Caribbean countries. Just how much of it Colombia will attract is dependent on the country’s ability to be competitive in comparison with its Latin American rivals.

The market for mining equipment and services is both receptive and competitive, with all major international suppliers represented. The local manufacturing industry also offers strong competition in terms of non-technology-intensive commodity goods, but there is potential for joint ventures or manufacturing under license arrangements.

Foreign mining companies are well represented in the Gran Mineria group, which leads the development of the sector. These companies have helped to introduce best practices in environmental and safety management, mining methods, social care and processing technology into the Colombian mining industry:

• Holcim Group (Switzerland)
• BHP Billiton (Australia-UK)
• Rio Tinto – Phelps Dodge (Australia-UK/USA)
• Glencore (Switzerland)
• Cemex (Mexico)
• Greystar (Canada)
• Drummond (USA)
• OXY (USA)
• Cambridge Mineral Resources (USA)
• Anglo American (UK)

Tariffs, regulations and customs

Colombia has signed several multilateral and bilateral free trade agreements. The most important of these are:

• The Andean Community (ANCOM) with Venezuela, Ecuador, and Bolivia (Peru withdrew in April 1997).
• The Latin American Integration Association (LAIA) with Argentina, Brazil, Mexico, Chile, Paraguay, Uruguay, El Salvador, Costa Rica, Guatemala, Nicaragua, Honduras and Cuba, which was later renegotiated country by country on a bilateral basis.
• The G-3 (Colombia, Mexico, and Venezuela).
• The Colombia-Chile bilateral agreements.

Full implementation will take several years, but once achieved, would give Colombia access to a free market of over 200 million people. Colombia has also requested admission to NAFTA.

Under the ANCOM agreement, the signatory countries must assign a common external tariff (CET) for imports coming from third countries and, at the same time, eliminate duties for products manufactured and traded within the region. There are four tariff levels in the CET: five per cent, 10 per cent, 15 per cent, and 20 per cent. As these member countries grow and modernise, foreign firms may consider the expanded ANCOM market attractive enough to initiate local production for the regional market.

Due to a number of integration agreements with various countries, a complex system of tariffs are applied according to the different treaties. The prior import-licensing requirement has been virtually eliminated. Approximately 97 per cent of the 5,162 items in the Colombian Harmonised Tariff Schedule are now on the free import list (ie. no license required). Import prices are now undergoing closer scrutiny (for duty collection purposes), as is the entry of foreign currency. US dollars can be exchanged freely through banks and financial corporations.

Import duties are ad valorem and are assessed on the CIF value of shipments. Colombia's tariffs conform to the 5-20 per cent Common External Tariff (CET) in effect for the Andean Community. Government entities are no longer exempt from import duties.

Most imports of consumer goods, consumer electronics, and apparel (in addition to a 15 per cent estimate for freight and insurance FOB costs), are subject to a 1.2 per cent surcharge on the FOB value of products for a so-called 'Customs Services Fund', which was introduced recently under Article 56 of Law 633 of December 29, 2000.

A 16 per cent value-added tax is levied on the CIF duty-paid value of imports, with only a few exceptions.

Courier or express shipments not exceeding US$1,000 in value or 20kg in weight are freely imported into Colombia. These shipments are classified under HS 98.08.00.00.00, and are subject to a 10 per cent CIF tariff and 16 per cent value-added tax assessed on the CIF-duty-paid value of most merchandise shipments, plus 1.2 per cent FOB surcharge for customs services. Rules apply to either air or surface courier shipments contemplated under the new customs code that entered into effect on July 1, 2000.

Export incentives include the 'Plan Vallejo' (drawback) or 'Maquila', 'Plan Vallejo, Jr.', and the CERT (tax reimbursement certificate), soft credit lines, and export credit insurance policy.

Industry standards

The Colombian mining industry complies with several international standards, specially the large international mining companies. Small mining companies are yet to reach some of the safety and environmental standards.

Marketing your products and services

Market entry

Entry strategies:

• Participate in a trade show.
• Visit the market. Austrade can help organise a visit program with the key relevant users of a product. Suggest twice a year visits to start.
• Search for a local representative or partner.
• Given the distance and freight costs, Austrade usually recommends that the products destined for market have a premium value added. Imports cannot compete with commodity type products. With this in mind Austrade can identify suitable partners or representatives according to the preferred commercialisation method. 

Colombian companies have generally favourable views of Australia although their knowledge of Australian mining industry capabilities can be limited. They are much more familiar with North American and European mining solutions.

The first step for Australian companies is to analyse the market potential and barriers for their products, services and technologies. Successful companies in Colombia target a market niche and in most cases offer a ‘smart’ solution. The second step is to estimate the market size and trend of growth. You should then determine product competitiveness and the most suitable entry strategy, either through partners, an agent, distributor or direct sales.

Mining companies in Colombia like to deal with a local distributor or agent for the following reasons:

• reliable after-sales service
• on-the-spot technical support
• guarantees
• lead times
• stocks reduction (tendency to use ‘just in time’ procurement practices)

Customers in the Colombian mining industry are divided into local and foreign companies. The foreign mining companies operate world-class mines using state-of-the-art technology with high safety and environmental standards. They have global procurement policies resulting in many suppliers chasing their business.

Local mining companies tend to have the latest technology but with some limitations. They tend to have lower safety and environmental standards although this is rapidly improving. Australian mining supply companies may find it more attractive to initially seek business with the local medium- to large-scale mining companies in Colombia.

Links and industry contacts

Mining-related sources

Mining Association of Colombi (ASOMINEROS) – www.andi.com.co
Ministry of Mines and Energy – www.minminas.gov.co
National Taxes and Customs Excise Department – www.dian.gov.co
Proexport Colombia (Export and Foreign Investment Promotion) – www.proexport.com.co (in English)