Bolivia to Nationalize South American Silver Mine Project

07/11/2012| 04:29pm US/Eastern

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--Bolivia plans to revoke mine concession following a week of violent clashes

--Company vows to fight the nationalization

--Bolivia seeking to attract foreign investors to its mining and natural gas sectors

(Adds comments from South American Silver Corp CEO and background on mining in Bolivia.)

 
   By Shane Romig 
 

Bolivia President Evo Morales plans to nationalize the Malku Khota silver-indium-gallium project run by Canada's South American Silver Corp. (SOHAF, SAC.T), following a series of violent clashes between opponents and supporters of the project.

The move comes hot on the heels of the nationalization of Swiss miner Glencore International PLC's (GLNCY, GLEN.LN, 0805.HK) Colquiri zinc and tin mine in June due to a similar conflict.

Morales, Bolivia's first indigenous president, met with members of the Ayllus community and reached an agreement Tuesday to annul the concession given to South American Silver, state news agency ABI reported.

The agreement puts an end to a week of turmoil at the project located about 340 kilometers (210 miles) south of the capital, La Paz, ABI said.

Seven people, including South American Silver employees and police, had been taken hostage, although all had escaped or been released by Sunday. One protester was killed during the clashes.

The company has invested more than $16 million at the Malku Khota site since 2007 and was quick to condemn the move. "We will pursue all legal, constitutional and diplomatic options," President and Chief Executive Greg Johnson said in an interview Wednesday.

The company still hasn't heard from the Bolivian government. Johnson said he found out about its move from local media and was surprised after receiving recent assurances by the government of their mining rights in the country.

"Mining is a key industry in Bolivia, and this proposed action by the state sends a strongly negative message to potential investors and developers about the security of title for their investment in the developing country," the company said in a statement earlier Wednesday. Mr. Johnson estimates that around half the value of the company's metal assets are in Bolivia with the rest coming from the Escalones Copper-Gold project in Chile.

South American Silver's share price was down over 20% at $0.39 Wednesday.

President Morales has implemented a string of nationalizations since taking office in 2006. During his first year in office, he nationalized natural-gas fields, and two years ago the government took over most of the country's electrical generation capacity.

In 2009, Bolivia changed its constitution to require miners to form joint ventures with the government mining company Comibol for all new projects.

Bolivia has a long and checkered history in mining, with the famed Potosi silver mine fueling the Spanish colonization of South America.

The country is also sitting on the world's largest known lithium deposits. Demand for lithium, a key ingredient in batteries, is expected to rise sharply in the future as electric car fleets expand globally.

Companies from South Korea, France, Japan, China and Brazil are vying for deals to develop Bolivia's lithium, however Bolivia has made it clear that it wants to see the batteries manufactured there as part of any deal.

Leading the pack is Korea Resources Corp., or Kores, which last year said it had teamed with South Korean steel maker Posco (>> POSCO) to set up a joint-venture lithium battery project with Comibol in Bolivia.

Bolivia is also on a drive to attract foreign investment to develop its potentially large natural-gas reserves after struggling to meet export obligations to Argentina and Brazil in recent years. Those exports are the poor, landlocked country's primary source of hard currency.

Many companies pulled up stakes following the 2006 nationalization, but they are now rushing back into Bolivia under "service provider" contracts for exploration. Once a company discovers natural gas, a joint venture that is majority-owned by state oil company YPFB will be formed to exploit the find.

-Alistair MacDonald contributed to this article.

Write to Shane Romig at shane.romig@dowjones.com

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