Bolivia Shelves $2.3 Billion Iron Ore Mine Contract

Thursday, August 10th 2006

Bolivia’s government postponed a $2.3 billion contract with Jindal Steel & Power Ltd., India’s third- biggest steelmaker, to develop the Mutun iron ore mine, Planning Minister Carlos Villegas said.

Bolivia shelved the contract, awarded June 2, to negotiate a greater share of profits from the project, which includes a steel plant and a sponge iron factory, Villegas said in a statement on the president’s Web site.

“The government won’t take a decision until we can guarantee more earnings for the state,” Villegas said in the statement.

The decision comes after President Evo Morales seized oil and gas fields May 1 to force companies to renegotiate contracts to pay higher royalties. The government also ordered Rio de Janeiro-based energy company EBX Group to leave the country in April on allegations EBX violated environmental rules.

“Bolivia doesn’t want private investment unless it’s under their conditions,” Eduardo Gamarra, director of Latin American & Caribbean Studies at Florida International University, said in a telephone interview days after a visit to Bolivia. “Foreign investment has basically disappeared.”

Jindal, which had been negotiating for about 2 1/2 years with the Bolivian administration, in June won the rights to mine half of El Mutun’s probable iron ore reserves, or 20 billion tons. The contract established the company would pay royalties to Bolivia for export of ore, finished steel and pellets.

Jindal’s Bombay-traded shares rose 74.05 rupees, or 5.1 percent, to 1,537.6 on Aug. 9. The shares have dropped 10 percent since the company won the original contract.

El Mutun

El Mutun, near Bolivia’s southeastern border with Brazil and Paraguay, is estimated to produce 1.5 million tons of iron ore a year, create 10,000 jobs and generate $200 million a year in export revenue, according to the Production Ministry.

The Municipality of Puerto Suarez, where the deposit is located, threatened to hold protests if the government doesn’t accelerate the contract process, according to Santa Cruz-based daily El Deber.

Benchmark contract iron ore prices from Australia’s Hammersley mine have risen by a third in the past 18 months to $65 a metric ton, according to Metal Bulletin. World iron imports this year will total 753 million tons, of which 353 million tons will be bought by China, according to Canaccord Capital.

Source: www.bloomberg.com