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Cablegate: Bolivian Mining: Cooperative Challenges

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RR RUEHWEB

DE RUEHLP #1322/01 1632001
ZNR UUUUU ZZH
R 112001Z JUN 08
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 7713
INFO RUEHAC/AMEMBASSY ASUNCION 8043
RUEHBJ/AMEMBASSY BEIJING 0429
RUEHSW/AMEMBASSY BERN 0179
RUEHBO/AMEMBASSY BOGOTA 5392
RUEHBR/AMEMBASSY BRASILIA 9331
RUEHBU/AMEMBASSY BUENOS AIRES 6551
RUEHBY/AMEMBASSY CANBERRA 0109
RUEHCV/AMEMBASSY CARACAS 3671
RUEHPE/AMEMBASSY LIMA 3944
RUEHMN/AMEMBASSY MONTEVIDEO 5533
RUEHNE/AMEMBASSY NEW DELHI 0191
RUEHNY/AMEMBASSY OSLO 0168
RUEHOT/AMEMBASSY OTTAWA 0537
RUEHQT/AMEMBASSY QUITO 6293
RUEHSG/AMEMBASSY SANTIAGO 0997
RUEHKO/AMEMBASSY TOKYO 0376
RUEHWL/AMEMBASSY WELLINGTON 0038
RUEHUB/USINT HAVANA 1195
RHEHNSC/NSC WASHINGTON DC

UNCLAS LA PAZ 001322

SIPDIS

E.O. 12958: N/A
TAGS: ECON EMIN EINV ELAB BO
SUBJECT: BOLIVIAN MINING: COOPERATIVE CHALLENGES

1. Summary: On May 29 and 30 Emboff traveled with
representatives of mining cooperatives, at their invitation,
to visit cooperative mines and separation plants in north
Potosi (note: As of June 9, this region is impassable due to
road blockades by cooperatives, private miners, and treatment
facilities, protesting the value-added-tax for internal
mineral sales which the government has just started to
charge. End note.) A number of the cooperatives have
reopened old mine workings that are once again profitable due
to high world mineral prices. The cooperatives are
interested in finding sources for U.S. equipment,
particularly high-quality used excavation and mineral
processing equipment. During the visit, Emboff was able to
see environmental impact and investment issues of cooperative
mines. Despite a need for equipment and investment,
cooperatives are not set up to easily interact with U.S.
markets. End summary.

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Basic Structure of Cooperatives
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2. Cooperative mines can be organized in different ways, but
generally they are associations of "partners" who own the
right to a portion of the production of a certain area of a
mine. These partners can hire employees out of their income
in order to produce more from their section of the mine: the
employees are paid a fixed rate. Cooperatives are defined
under Bolivian law as "non-profit" social organizations, and
therefore they do not pay income taxes. In the north Potosi
area of Llallagua and Uncia, each cooperative mine (with up
to 1500 partners) is also a member of the local cooperative
federation. Decisions which are strictly internal to a
cooperative (such as whether to pursue a new vein of ore that
does not cross cooperative boundaries) are made by the
leaders of each cooperative, sometimes with a vote of all
partners. The federation makes decisions that affect more
than one cooperative (such as maintenance of a main mine
portal from which multiple shafts belonging to different
cooperatives branch off.) All cooperatives contribute money
to the federation to maintain joint use areas and equipment
such as elevators.

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Need for Equipment and Service
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3. Whether theoretically the cooperatives are contributing to
maintenance or not, the reality is that both shared and
private areas are sadly undermaintained. In one deposit
mined by three cooperatives and roughly 4000 workers, Emboff
saw an elevator used for ore and personnel that dated from
the 1920s and seemed to have had little maintenance in the
past decade. The sides and floor of the elevator were rusted
through, and there were no safety breaks that would impede a
multiple-hundred foot fall when the ancient chain holding the
elevator inevitably breaks. A transformer within the mine
had reportedly been maintained within the last year, but no
one (not even the head of the federation) seemed to know what
the maintenance had consisted of: there were no records of
the oil changes that should be standard for an industrial
transformer.

4. Although the partners were most interested in the
possibility of importing used trucks, digging equipment, and
drills, Emboff also saw an obvious market for more basic
supplies such as safety equipment. Emboff's guide mentioned
that a safety survey carried out earlier that year had
resulted in the recommendation that the miners use
respirators or masks because the ventilation system installed
in the 1940s no longer functions. Nevertheless, Emboff did
not see a single worker with any form of respiratory
protection. Many of the workers were wearing construction
hard-hats not certified for use in a mining environment, and
the mining hardhat worn by Emboff's guide had a large crack
running from the top down to the brim, secured by industrial
staples. Partners confirmed that there was no radio system
for communication within the mine, nor any tag-board or
sign-in sheet by which the miners' presence in underground
could be tracked.

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Safety Aside (and it is an aside)
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5. Although one of the partners asked Emboff about the
possibility of arranging safety lectures from U.S. mining
experts, it is unclear how much a U.S. safety expert could
help in a situation where the standards are so low and the
partners seem unwilling or unable to implement suggestions.
Despite the recommendation that respirators or masks be used,
when Emboff asked about interest in buying these from the
United States the partners demurred, saying that they would
rather focus on production equipment. Any U.S. safety expert
would doubtless make another unpopular but obvious suggestion
to improve mine safety: get the kids out of the mine.
According to various partners, boys as young as fourteen work
in the mine (Note: women do not generally work underground,
as they are considered bad luck. End note.) Emboff's guide
mentioned that he had started working in his grandfather's
cooperative when he was seven.

6. According to a representative of the federation, nineteen
workers have died in this area in the first five months of
2008; he was not sure of the number of deaths in the year
before. This mortality count only includes miners who died
in accidents: as in other areas of Bolivia, deaths from
dust-related lung disease and other causes indirectly or
directly linked to mining are presumably high.

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Unsafe for Man...and the Environment
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7. Although there are mining safety regulations in Bolivia
(which large companies are required to adhere to and which
most international companies exceed), cooperativist miners
explained that there are no mine safety inspectors to address
any of the concerns listed above. They seemed equally
bemused by the idea of environmental inspectors, and there
was clearly no concern about any level of environmental
audit. The sides of the road on the way into Llallagua look
like a scene out of a post-apocalyptic movie: private mineral
separation pits spill a toxic mix of mud and chemicals into
the river, whose banks are stained orange with acid mine
drainage. At a separation facility belonging to one of the
cooperatives, Emboff watched as the froth from a floatation
process using chemicals and waste motor oil was methodically
swept into the river by a bored employee. "We need new
equipment for that," explained the guide: not to avoid
spilling the dirty mix into the river, but to automate it.

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A Difficult Market for U.S. Equipment
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8. Although there is an obvious need for earth-moving
equipment as well as personal safety equipment such as boots,
hard-hats and respirators, the market will likely be
difficult for U.S. companies to access. Each partner is
responsible for buying equipment for his own use, and when
Emboff asked about the possibility of pooling orders so as to
negotiate a better price with sellers, the partners were
interested but unsure how such a process would work.
High-price purchases (such as a new winch for the failing
elevator) would be negotiated with the federation, and each
partner would technically have a vote on the final decision.
The partners told Emboff that they are unable to access bank
loans, so any large sale would probably need to be arranged
as a loan from the U.S. equipment vendor that the
cooperatives would pay back as they produce more.
Nevertheless, federation representatives informed Emboff
after the visit that they had already begun making contact
with some of the companies listed in the USCS buyusa.com
sites Emboff provided.

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Equally Difficult for Investors
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9. The cooperative mines in many cases have reopened mine
workings abandoned since Bolivia's mining heyday in the
1940s. Like huts built on the ruins of mansions, the
cooperative mines make low-tech use of the old tin barons'
infrastucture. Mines that still have tracks no longer have
railroad cars, so the miners push old cars by hand until the
cars break, and then the tracks are just one more obstacle
for miners with sacks of mineral on their backs. A number of
partners reminisced to Emboff about the glory days of North
Potosi, their boyhoods when the railroads gleamed "like
silver," the company store had "the best food, the best
toys," and the mines' movie palaces showed all the latest
hits. None of this remains: the old engineering headquarters
have fallen into disrepair, and armed soldiers guard the
sites that belong to the state mining company COMIBOL (either
never having been opened to the cooperatives in 1952, or
having reverted back to the State, as in the case of Huanuni
mine.)

10. Leaders of the federation have visions of this greatness
returning. One representative told Emboff that recent
exploration suggests that the whole hill (now riddled with
tunnels and worked by 5,000 cooperative miners) could be
turned into an open pit mine. When Emboff asked how a
private company might be able to invest to make that scenario
a reality, the partners explained that, since the
cooperatives have the right to the concessions, any company
would have to negotiate with them. Reportedly concessions
for another area with substantial tin deposits are managed by
COMIBOL, requiring potential investors to either negotiate
with the State or with the cooperatives' loosely-organized
social groups. As current tax levels yield a government take
of over 70 percent in many cases, it is doubtful whether
international investors will want to take on this challenge.
(Note: A number of partners mentioned that "the Chinese" are
interested in the area, but no one remembered an actual visit
from any Chinese company. The certainty of Chinese interest
in Bolivian mining is widespread, although the evidence of it
is so far scarce. End note.)

11. The cooperatives are not able to efficiently recover
mineral from their product. One local separation plant in
the area specializes in re-processing old mining waste, and
the engineer at the plant admitted that even so, 30 percent
of the mineral content is lost into the river. The
participation of international investors with better
equipment and know-how could greatly improve this situation,
but any investor would need to be very careful moving into an
area with so much existing environmental damage: the
government (or international environmental groups) could
easily hold companies responsible for damage incurred before
their arrival. Involvement of large, international-class
mining companies would doubtless improve the area's safety
record, as well, but Emboff saw no evidence of current
international investor interest.
GOLDBERG

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