Industry Trend Analysis - Judicial Uncertainty Darkening Gold Outlook - JUNE 2017

BMI View: A number of recent Constitutional Court rulings against the Colombian mining industry will hamper gold project development and pose significant downside risks to the country's gold production forecast as regulatory uncertainty undermines the foreign investment outlook.

Colombia's Constitutional Court rulings in the interest of local communities opposed to mining will continue to undermine the federal government's support for the industry, leading to project delays and deterred foreign investment particularly in the gold sector. We have previously highlighted growing environmental concerns in the country as a key downside risk to Colombia's otherwise constructive mining industry outlook, and several recent developments underscore this view ( see ' Regulatory Development - Courts Increasingly Rule On Side Of Environmental Protection ' , October 10 2016). Most notably, in April 2017, South African gold miner AngloGold Ashanti suspended work at the La Colosa project following a vote to ban mining in the Tolima municipality out of concern for the water supply. The vote received support from the town's mayor and the Constitutional Court, following the latter's ruling to overturn the federal government's sole authority to approve mining projects. This decision will create confusion in the mining permit process, by decentralising control and leaving unclear the final decision-making say between the federal and local governments. In February, the Constitutional Court ruled against Gran Colombia Gold at the Marmato operations, ordering the firm to engage in prior consultation with the local community before resuming open-pit mining. Gran Colombia subsequently filed a USD700mn lawsuit against the state. The firm is the largest underground precious metal producer in Colombia, operating the Marmato and Segovia mines.

Colombia's gold sector in particular will come under legal and social pressure in particular due to concern for water supply from the chemicals used in gold mining and the country's rampant illegal gold mining activities which undermine the formal sector's efforts to mine responsibly ( see ' Water Supply Concerns To Shine Spotlight On Mining Practices ' , April 10). Gold miners impacted by the court's decisions will challenge the rulings, generally leading to lengthy and expensive legal battles. In February, for instance, Zonte Metals announced a special Colombian court had accepted its case against various governmental departments for the rejection of the firm's exploration application at the Gramalote project in 2013. Similarly, Canadian firm EcoOro Minerals is suing Colombia over its revoked principal mining title due to the country's Constitutional Court 2016 order upholding a ban on extractive activities in the paramos regions.

Remaining Profitable To Prove Difficult
Gran Colombia Gold - Net Income (USDmn), Quarterly
Source: Bloomberg, BMI

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