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Coal has historically been Colombia’s principal mining export, but copper is set to replace it as a result of significant proven deposits, according to the National Mining Agency ANM. (Photo: ANM)
Wednesday, March 9, 2022

Colombia’s Dilemma: Produce or Buy Copper?

Copper is set to replace coal as Colombia’s star mining export, govt says.


Demand for copper will undoubtedly increase as policies from across the world aim to promote the energy transition and wean the world off fossil fuels. Colombia happens to have great potential for copper mining, however social disputes and the 2022 elections will likely dampen short-term investor interest. Will Colombia seize the moment and produce copper, or will it stand idly by and buy it at market prices later?

As more countries opt to reduce demand for fossil fuels in their energy matrix and the economy moves towards renewable energies, copper is set to play a central role. Its dual functionality, as the best conductor for heat and electricity, will contribute to the global goals of reducing energy consumption, improving the performance of electrical equipment, and reducing CO2 emissions. This suggests countries with proven and potential copper reserves, such as Colombia, will play a strategic role as the world’s energy consumption patterns change.

Copper is the third most used metal in the world, and according to Goldman Sachs, demand for copper could double by 2030. The world is not currently producing enough copper to meet demand, suggesting a medium-term shortage. Chile and Peru are the world’s largest copper producers, while Colombia occupies the 42nd position. In addition to supporting the renewable energy sector, copper plays an important role in infrastructure—as a construction material—and in the automotive industry—as a component in batteries for electric vehicles. Promoting copper mining would not only speed up Colombia’s energy transition but would also allow the country to become a supplier of the metals market in Asia, the United States, and Europe.

Coal has historically been Colombia’s principal mining export. However, the fall in demand for coal and the push for decarbonization in large markets, such as Europe, is a testament that Colombian coal is on its final act. Copper is set to replace coal as Colombia’s star mining export, considering significant proven deposits in Córdoba, Chocó, Nariño, Antioquia, and the northeastern region, according to the National Mining Agency. The Agency states there are three copper mining projects in the exploration phase—Mocoa, Quebradona, and San Matías—and one project in the exploitation phase—El Roble. The four projects add up to USD $1.6 bn in investment. Copper exploitation and large-scale production are likely to increase government revenues, diversify the country’s mining basket, and improve local economies.

In the medium term, Colombia has the potential to become a global powerbroker in the copper market, considering the country’s copper deposits are world-class. While international deposits average around 0.6 percent copper per ton of material, Colombia averages 0.98 percent per ton. Large-scale copper mining is the most efficient way of taking advantage of proven deposits. However, the question is whether the Colombian government and society are prepared for this industry.

Promoting mining, obtaining environmental permits, and socializing projects with local communities are obvious first steps, but Colombia has been dragging its feet on all accounts. Concerns from activists and communities continue to trump long-term economic interests, and the government has so far been unable to get projects across the finish line. Nevertheless, mining and energy projects are expected to generate 54,000 jobs, which will boost local economies and contribute to territorial development. In addition to jobs, copper mining will improve Colombia’s foreign investment climate, a much-needed boost considering Colombia’s current account deficit.

Despite the promising scenario that copper mining represents, there are three clear obstacles that production and exploration are likely to face.

First, the elections. Colombia’s new president will be sworn in on August 7, 2022, and the current cadre of candidates have divergent views on the role of mining in the economy during the next four years. Many left-wing candidates have questioned extractivism, despite endorsing the energy transition agenda. A win by this group will put mining on the back burner of policy priorities. By contrast, right-wing candidates have been clear about their support for extractives. Their ascent to power would likely be a boon for the extractive sector generally and mining specifically. However, our previous analysis suggests there is a low likelihood that a right-wing candidate will win the race, so miners shouldn’t get their hopes up. Centrists present a challenge for miners. There is uncertainty about their position on the issue given that none of the leading candidates has been clear about their position on mining, and even some such as Sergio Fajardo have a negative reputation within the sector.

Second, obtaining social and environmental licenses has proven difficult. Communities outside of mining areas are skeptical about mining, and in some mines, environmental groups have actively opposed the sector through blockades and demonstrations. The prior consultation process has become more complex and the socialization of projects with local communities has been severely delayed due to the pandemic. Even when the projects are socialized with the government and the communities, environmental permits have become difficult to obtain, as the cases with Quebradona (Antioquia department) and Soto Norte (Santander department) demonstrate. Both developments submitted environmental impact assessments to the authorities, and both were tabled. Currently, the companies are re-doing their environmental impact assessment hoping the government approves them a second time around. The willingness of both companies to undergo the expensive and time-consuming process twice is a testament to the deposit’s potential.

Third, Colombia will have to attract foreign direct investment in an increasingly uncertain political climate. It is well known that extractive sector companies are seasoned players concerning risk analysis, mitigation, and response. However, for the risk to be worth the reward, companies need to find a suitable partner in the government. The president of Colombia and his crucial picks for Minister for Mines and Energy as well as Minister for the Environment and Sustainable Development must engage with companies, communities, and other stakeholders to create a shared vision of territorial development that offers a stable landscape for long term investment. These conditions also include a favorable security environment as well as legal stability. This last aspect is crucial since it involves, among other things, four issues that must be regulated and addressed by stakeholders before investing: changes in regulation, demands made by communities, changes within regulatory institutions, and the members of the Constitutional Court.

As we see it, Colombia has two options in the medium term: producing copper or buying it on the international market. Producing copper would allow Colombia to also move up the value chain through the industrialization of copper into batteries and other key components for the energy transition. Developing value-added products would bring different benefits, such as foreign investment, job creation, and increasing competitiveness. This would also allow Colombia to take advantage of the U.S. desire for nearshoring in key industries. Alternatively, Colombia will inevitably find itself buying more expensive transformed copper in the finished products it imports, including wind turbines, electric vehicles, and electronic gadgets.

The answer seems clear, but it is a question that the country must ask itself sincerely. Will Colombia take advantage of its bountiful copper reserves, or will it let the opportunity pass?

Katherin Galindo is a Research Analyst at Colombia Risk Analysis. Follow her on Twitter @GalindoKatherin.

Sergio Guzmán is the Director of Colombia Risk Analysis, a political risk consulting firm based in Bogotá. Follow him on Twitter @SergioGuzmanE and @ColombiaRisk.

This article was originally published by Global Americans. Republished with permission. 


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