Bolivia’s Mine Nationalization of South American Silver in Mallku Khota

On July 7th, 2012 the Bolivian police launched a rescue operation to recover hostages that were being detained by some indigenous community members opposed to South American Silver’s exploration operations in their territories. Despite initial claims made by the police and government about the nature of the death and the other injuries that resulted, it has been determined that the indigenous activist died from a bullet wound to the head, and others endured bullet wound injuries during the execution of the operations. Preceding the violent intervention, the Bolivian government emerged expressing their willingness to cancel the contract with South American Silver, and revert the concession rights to the state. In order to understand the final actions of the government it is important to understand the recent unfolding of escalations between community members in the context of the transnational presence of South American Silver.

In 2006, South American Silver Corporation (SASC) a Canadian junior mining company, was transferred the rights to the mining concessions of Mallku Khota, a silver and indium deposit located in the north of the department of Potosi, Bolivia.[1] Mallku Khota and the surrounding area is comprised of approximately 46 indigenous communities who hold indigenous territory rights over their land which are guaranteed in the New Political Constitution of the State of Bolivia. Working through their subsidiary Compania Minera Mallku Khota (CMMK), SASC continued with the exploration work previously undertaken by General Minerals Company and began working on signing community agreements for the surface rights.

Over the years SASC encountered resistance from members of the 46 communities that the project directly affects their indigenous territories. They hired sociologists and NGOs to work with community members to help them understand the benefits that the project could bring to them.[2] Despite these efforts they were unable to assimilate and purchase complete consensus, a fact which revealed itself on May 5th of this year when police officers entered and gassed the homes of the dissenting community of Mallku Khota,[3] the community that lies within the exploration zone and in the very near vicinity of the proposed mining operations.[4]

The Takeover

Following the gassing, members of the community detained two of the police officers involved in the operations that morning of May 5th. This incident led to the detention of indigenous leader Cancio Rojas (in opposition to the company’s operations) who, despite not having been in the area, is being charged for attempted murder. In light of these events, and increasing tension within the community regarding the company’s continued work in the area several violent events unfolded, first in Acasio, then in Mallku Khota, and finally with the most recent violent erruptions: the kidnapping of company engineers, and the taking over of the colonial mine in Ovejeria by community members opposing the company’s continued operations.

Despite the government’s insistence to dialogue over the past two months, the government’s primary politic was to protect the operations of SASC. Despite the government recently claiming that they had the intention to nationalize the concession rights for over a year, on July 9th, their actions previously guaranteeing the company’s operations argue something different. Any meetings that did take place almost always took place with those communities in favour of SASC’s continued presence in Mallku Khota, and failed to resolve the internal conflicts that were bubbling between community members which resulted in those against the company’s presence escalating their measures. The government continued to support the company’s rights to explore in the territory. On May 28th the Government of Potosi and the Minister of Mining met to sign an agreement with communities in favour of the operations which guaranteed that South American Silver would continue its operations and that communities would enter into the consultation process prior to the completion of environment and baseline studies, and explorations.

Instead of questioning the role of the Canadian company in Bolivia, and debating the importance of the project in Bolivia, the government commenced an “anti-cooperativista” campaign against the dissenting community members, which served to redirect what was central to the conflict: the dividing presence of a transnational mining company in indigenous communities. It is true that some of the opposition communities are just as concerned with cooperative exploitation of the minerals in the zone. This was used both by the government to reject the wider demands to cancel the concessions, and also by SASC to justify the police intervention and undermine the opposition as coming from “a select few of illegals.”[5]

Cooperativistas, Gold, and
the Particulars of Mallku Khota

Over the past few months, it is important to acknowledge the complications that have become increasingly visible in the Mallku Khota conflict. The groups of actors in this conflict can roughly be divided into three groups. The first are the community groups in favour of the company’s continued operations in the area, figures that hover about 43 of the affected communities. This group demands the protection of the company’s rights to the concession and their guarantee that operations will continue. These community members are often accompanied by members of the company’s subsidiary “Compania Minera Mallku Khota”, and are those who most frequently have met with government officials.[6]

The second two groups have similar demands of the government with opposing interests. The first group is comprised of various communities that do not lie in the direct vicinity of the operations are interested in the cancelation of the contract with SASC and it’s reversion to the community. The main objective is to then extract the mineralization via an empresa originaria comunitaria[7], which essentially will take the form of a cooperative, and allow mineral extraction without the payment of sector-based taxes. The third is in favour of the cancellation of the contract with the company and the reversion of the concession to the state. Both of these groups were continuously ignored or discounted in favour of utilitarian arguments, or by simply stating they were all cooperativistas, which does not recognize the diversity or complexity of the conflict.

Upon visiting the zone in May, we noticed that some community members were washing gold with mercury in small groups. According to SASC’s latest economic update, the concentration of gold that exists in the community is much less than what was originally estimated in the first exploration studies.[8] In fact, according to the Preliminary Economic Assessment (PEA) 2011, there are “minimal levels of gold mineralization”[9] that are to be found for exploitation. Gold is present within the concession, and from our field observations, the community members are extracting and washing gold in small quantities. That being said, since its presence is minimal, its exploitation will be short lived, and as such the “economic benefits” that it would offer to the groups engaged in its exploitation.

What the PEA 2011 does tell us about the mineralization of Mallku Khota is that there exists a large abundance of Silver and Indium, along with other important minerals like Gallium, Copper and Zinc.[10] Their composition, however, is such that it does not exist in one large vein, if not in various mineralized pockets throughout the various zones that they have been exploring most frequently. The silver concentrations with grades between 10-1000 gpt are found at a depth of up to 500m in a zone that is 4 kilometers long, and 20-200m wide. Its exploration requires further chemical processing, through chloric acid leeching, which, according to the plans of the study can operate with a 40,000 tonnes/day extraction rate and will allow for the separation and maximum recuperation of not only silver, but indium and gallium, metals which have high market demand and value with increasingly technological production. In order to recover up to 30 per cent of the anticipated brute revenue from the exploitation, the leeching is essential for recovering the “secondary” minerals described above.[11]

This suggests it is quite impossible to imagine that the extraction and recovery of the potential reserves identified in the PEA could be accomplished by small-scale community cooperative production, especially while guaranteeing safe working conditions and efficient production capacity. According to the PEA, the investment required to get to the initial operational phase, that is to say, the investment in fixed capital, in infrastructure and employment is approximately $411.4-million (U.S.).

It is important to remember what emerged as the central popular demands in 2003 after the gas wars was nationalization of natural resources to gain increased benefits for Bolivians. The problem with the cooperativista question is that it can end up re-producing an individualistic entrepreneurial model of production. It does not contribute to the growth and development of the nation, or the betterment of all Bolivians. Instead, it enables the expansion of capital through “small-scale production” and can contribute to exacerbating poverty while enriching a few elite interests.

South American’s Strategic Silence

Up until the detention of the engineers, South American Silver was silent on the conflict in Mallku Khota. In their update released on May 24th, they argued that things were stable in the area, and that they were continuing to improve their relations with community members. As a junior exploration company with a capital value of $45-million and a project projection investment of over $400-million (excluding the costs they will incur in the final exploration stages), they are dependent on increasing their share value in the exchange. The company must maintain the appearance of stability for current and potential investors. Between May 5th and June 14th, the company kept quiet on the conflicts that were erupting and managed to maintain very subtle coverage on the potential insecurity. The major Canadian press also failed to cover the conflicts that were erupting, including the police intervention, which left community members injured, and lead to the detention of Cancio Rojas.

None of this press coverage would have a positive effect on the image of the company, and thus would have impacted negatively their share value. But, given that these were indigenous community members that appeared to be fighting amongst themselves, they were able to contain the spread of bad press. However, after the community members detained two engineers who were working for the company in the area on the 28th of June, the company immediately emerged to denounce the activities.[12] It appeared that this would be a good opportunity for SASC to justify the continued police presence in the area and even further intervention to ensure their mining activities. This depended upon being able to portray the actions as only a few dissidents who were preventing development in the area. In fact, the company’s July 4th press release claimed that:

“A group of people carrying out illegal artisanal mining on exploration concessions owned by South American Silver has been encouraging confrontations between communities with support from outside groups and attempting to interfere with work on the project in recent weeks.”

SASC continued to “update” their investors with assurances that these were an isolated group of illegals who were trespassing on the concession, and that they were working closely with the government of Potosi and the central authorities to resolve the issue. This position reflects the similar position, which the central government took on the conflict in Mallku Khota. Throughout the months of May and June the government focused its campaign on the specifics of the cooperative and illegal mining practices that were going on in the area. The Minister of Mining, Virreira, announced[13] on May 14th that the cooperativistas were contaminating the lakes with their activities. On May 25th, they emerged saying over 600 families were involved in the extraction.[14]

Washing gold with mercury certainly contaminates; however, it is shocking not to recognize this is exactly what would happen in the event of continued exploration and eventual open-pit mining in the area. The projections in the PEA anticipate that 443,509,800 tonnes of waste material will be removed from the pits over the 15 years of the project; it will be dumped in the areas surrounding the pits located in the vicinity of Mallku Khota, with a projected area 8km long and 2 km wide. From our fieldwork, the distance between the two lakes (between which sits Mallku Khota) is 2 km. In the event that these operations are executed, there is likely to be no lakes, and no community.[15]

Community members opposing the mine continued to release warnings to both the government and company officials, that they would escalate their mobilizations in the event that the company did not cease operations in their territory. According to an interview with Greg Johnson, CEO of SASC on CBC’s The Current, when questioned as to whether or not the company made any deliberate attempts to divide the community members of Mallku Khota, he answered:

“…nothing could be further from the truth. My company and my team have spent our careers working with indigenous people, with first nations groups in Canada, in Alaska with the native corporations, and elsewhere, our approach to the project has been one of inclusion, one of talking to the people about the programs, about the local issues be it about agricultural improvement or the water resources that they will need.”[16]

Their “listening” did not include the warnings being made by community members and government officials that the zone was unsafe.

Instead, the company continued repeating that there was unrelenting support from some 43 communities and that they were working with the other groups to reach agreements, while continuing operations. It was only after the death of the indigenous community activist on July 7th that they temporarily suspended operations until the conflict is settled.[17] Following the news that an activist died in police operations from a bullet wound, the administration of President Evo Morales, from the Movimiento al Socialismo (MAS), was forced to respond. Despite the fact that there is an investigation pending, information and documents have been released by the government which show that Colonel Casio was responsible for making the call to use live ammunition during the operation.[18]

As we have argued in an earlier Bullet, the Canadian Government’s international foreign policy is one that requires and supports the militarization of mining camps and the repression of local communities opposing Canadian operations. What is more disturbing with this particular example is that Minister of International Trade Ed Fast’s office sent a letter to the Bolivian Government after the death warning the government of their concerns with talks of nationalization, claiming that it reflected poorly on the security of foreign investment.[19]

After news of the death emerged, the options for the Morales administration were radically simplified: continue to support the transnational, which now would be the center of international criticism and intensified community protest; or cancel the contract with the company to quell the protests. On July 8th Minister Santalla announced that Morales was willing to discuss terms of nationalization, with the government claiming on July 9th that it intended to nationalize Mallku Khota for the past year.

Conclusion: What Will Nationalization Mean?

Nationalization in this case is, indeed, favourable, but it is important to identify some of the limitations and restrictions, and the status of the larger mining political agenda of the Morales administration. SASC has repeatedly maintained the position that they felt comfortable with their investment in Bolivia. SASC’s Johnson, following the announcements of nationalization, claimed that “Bolivian officials were on record saying that private investment would be encouraged, private investment would be respected and was guaranteed under the constitution. So, I think we are quite surprised.”[20] Nationalization of this mine was not on the agenda for the central government, and instead emerged as the result to come to a solution with the community members of Mallku Khota.

Although there were 43 communities in favour of the company’s exploration activities, it does not appear that there will be conflict within these communities once the nationalization is confirmed. Upon our visit to Mallku Khota, we spoke with many of the community members in favour of the company’s activities. They were supportive due to the promise of jobs, better services, educational scholarships and improved infrastructure. These are communities that live in conditions of extreme economic marginalization. Whatever the new mineral wealth, there is a larger deficiency of resources and development in the country, and still marginal royalties and taxes on foreign investment in the country.[21]

For jobs and development in these communities, the capacity of the state mining company COMIBOL (Corporación Minera de Bolivia) is crucial. It is not certain it has the capacity to exploit what is projected to be one of the largest silver deposits in the world. The government will have to be politically willing to invest in the project, which is set to commence operations in 2016. Based on COMIBOL’s current participation in the industry overall, it is difficult to argue that they would have the capacity at this moment; and it is not clear that the Morales administration has the political will or fiscal capacity as such to undertake the project. Just days following the initial announcement from the government that Mallku Khota would be nationalized, the President of COMIBOL, Hector Cordova, suggested that several foreign companies had voiced their interest in the concessions for a partnership (this would include SASC).[22] Looking not only at the silver, but also indium reserves present, it is likely that a future investment partner might also come from Asian companies, several who are presently also working in Bolivia (and are based in Japan, South Korea and China). SASC’s recent offering resulted in the sale of 10 million shares to a conglomerate of strategic Asian partnerships,[23] all interested in the prospect of indium within the reserves.[24]

It is important to note that nationalization comes as the product of months of augmenting tensions, including violence, between campesino and indigenous sectors. There are also similarities to the Colquirri cooperativista-federation battle that lead to the cancelation of Glencore’s contract with the Bolivian state in June with its nationalization of the mines (that had been previously privatized). And earlier, the Huauni massacres left several dead, more wounded and resulted in the nationalization of the mine and the silver refinery in 2006. These events come as a result of a larger structural tension in Bolivia’s mining sector: heavily dominated by transnational and cooperative mining interests that extract and export primary resources leaving nothing for the Bolivian public, with still limited state capacity to control its exploitation and encourage diversified development, particularly strengthening of the self-government capacities of the indigenous communities.[25]

Bolivians demanded the nationalization of the hydrocarbon industry in 2003 following the violent implementation of neoliberalism and the liquidation of state assets in the 1990s. The Morales administration is still struggling to break from the neoliberal politics that dominated Bolivia when it came into power in 2006. This still acts as a key constraint from the world market. In the mining sector, legislation and economic strategies have not yet mapped out an alternative, even with the nationalizations. The MAS administration still encourages foreign investment and protects the rights to property for foreign interests. The formation of state and community capacities to control and develop mining development still remains limited. The sector continues to be disrupted by inter-sectorial conflicts between campesino and indigenous working-class people fighting over the small scraps which the transnational mining industry leaves behind. The actual state of mining in Bolivia today means nationalization can only be the beginning of a process. Many conflicts will continue to surface. Serious political and structural challenges remain before an egalitarian – and certainly socialist – model of development will emerge. •

Endnotes:

1.
For an overview of conflict see this article: Celia Garces, “Mallku Khota,” The Bullet, No. 646, 2012.

2.
South American Silver, Updated Preliminary Economic Assessment (PEA), 2011.

3.
Garces, ‘Mallku Khota.’

4.
South American Silver, PEA, 2011.

5.
SASC, ‘Update on Mallku Khota,’ July 4, 2012.

6.
In fact, on May 28, 2012, members of these communities met with the Minister of Mining and the Governor of Potosi. This resulted in the signing of an agreement that would guarantee the companies explorative activities in the area.

7.
Original peoples community company

8.
See: K. Katsura, ‘Report on Mallku Khota Property,’ Department of Potosi, Bolivia. Prepared for South American Silver, 2006.

9.
South American Silver, PEA, 2011, p.45.

10.
Garces, ‘Mallku Khota.’

11.
South American Silver, PEA, 2011.

12.
South American Silver, ‘Update on Bolivia,’ July 4, 2012.

13.
La Razon, May 14, 2012.

14.
Erbol, May 25, 2012.

15.
Garces, ‘Mallku Khota.’

16.
Interview on CBC, The Current, July 12, 2012.

17.
South American Silver, ‘Update on Bolivia,’ July 8, 2012.

18.
El Potosi, July 12, 2012.

19.
‘Canada steps into mine row; Trade minister challenges Bolivia’s move to cancel permit,’ The Canadian Press, July 12, 2012.

20.
Interview on CBC, The Current, July 12, 2012.

21.
See V. Diaz Cuellar, ‘La vigencia de la legislación neoliberal en Minería,’ Petropress, N. 28, 2012.

22.
‘MALLKU KHOTA despierta interés de la cooperación internacional,’ El Cambio, July 13 2012.

23.
South American Silver Corp, ‘South American Silver Announces First Closing of Financing with Asian based High Technology Groups,’ April 20, 2012.

24.
Indium is used as coating for flat-panel televisions and LCD screens.

25.
A mere ten per cent of today’s production in the mining industry is performed by COMIBOL. The remainder is dominated by transnational and cooperative production. See: ‘De los barones del estaño a los dueños de la minería,’ el Diario, June 18, 2012.