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Cablegate: Mining Companies Brace for Royalty and Tax

VZCZCXYZ0000
RR RUEHWEB

DE RUEHLP #2046 2091849
ZNR UUUUU ZZH
R 281849Z JUL 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 0086
INFO RUEHAC/AMEMBASSY ASUNCION 6018
RUEHBO/AMEMBASSY BOGOTA 3336
RUEHBR/AMEMBASSY BRASILIA 7187
RUEHBU/AMEMBASSY BUENOS AIRES 4450
RUEHCV/AMEMBASSY CARACAS 1725
RUEHPE/AMEMBASSY LIMA 1740
RUEHME/AMEMBASSY MEXICO 1758
RUEHMN/AMEMBASSY MONTEVIDEO 3939
RUEHQT/AMEMBASSY QUITO 4356
RUEHSG/AMEMBASSY SANTIAGO 8918
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS LA PAZ 002046

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH

E.O. 12958: N/A
TAGS: EMIN EINV ECON PREL PGOV BL
SUBJECT: MINING COMPANIES BRACE FOR ROYALTY AND TAX
DECISIONS

REF: LA PAZ 1289

1. (SBU) Summary: U.S.-owned mining company representatives
said July 24 that they remained concerned by the GOB's
failure to make royalty and tax decisions. While officials
have repeatedly said the government will not act on President
Morales' promises to nationalize Bolivia's mining industry
(reftel), they have confirmed plans to modify the mining
code. U.S. firms complain that uncertainty complicates even
short-term decisions, but given the GOB's reluctance to
provide specifics, investors may have to wait some time for
clarity. End summary.

2. (SBU) In a July 24 meeting with the Ambassador, Apex
Silver representatives said they remained concerned by the
GOB's failure to makeQoyalty and tax decisions. President
and CEO Jeffrey Clevenger said the firm would move ahead with
its USD 800 million San Cristobal silver-lead-zinc mine but
noted that GOB delays in announcing higher royalties and
taxes made long-term planning difficult. If the firm were
not spending USD 1 million a day and were not at a point of
no return, Clevenger remarked, executives would consider
halting the project. Coeur d'Alene executives told Econoff
July 24 that they were hoping for GOB clarification before
deciding whether to pursue the firm's USD 180 million San
Bartolome silver mine, which has been on hold for nearly 18
months.

3. (SBU) While GOB officials have repeatedly said the
government will not act on President Morales' promises to
nationalize Bolivia's mining industry (reftel), they have
confirmed plans to modify the mining code to incorporate
higher taxes and royalties. Mining Minister Walter
Villarroel recently sent U.S. companies a letter promising
not to nationalize the mining sector, and Minister of the
Presidency Juan Ramon Quintana echoed that statement in a
July 25 meeting with Apex Silver representatives. Quintana
said, however, that the GOB would make "moderate,
intelligent" changes to the mining code and indicated that
companies should expect news within the next 90 days.
According to one Apex executive, Quintana bluntly asserted
that the "rules of the game" would change.

4. (SBU) Comment: U.S. firms complain that uncertainty
complicates even short-term decisions, but given the GOB's
reluctance to provide specifics, investors may have to wait
some time for clarity, particularly since GOB efforts to
build consensus among cooperatives, unions, and firms show
little sign of yielding quick results. While some companies
may be prepared to bear the risks of investing in Bolivia's
mining sector - Japan's Sumitomo is apparently considering a
"strategic alliance" with Apex - others, like Coeur d'Alene,
prefer to delay investment decisions. Continued uncertainty
can only harm a sector expected to play a key role in
boosting economic growth. End comment.
GREENLEE

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