How Bolivia deals with Glencore

Bolivia Rising
March 21, 2012

In 2007, Bolivian President Evo Morales nationalized a Glencore tin smelter in Bolivia, and earlier this year, Morales  began talks with mining unions about nationalizing Glencore’s Bolivian mines.  

Highlights: Bolivia to debut new mine contracts with Glencore

* Glencore will be first to operate under new contract

* Company will get 45 pct of profits, state gets rest

* Bolivia drafting new mining law, this to be used as model

Global commodities giant Glencore will be the first company to operate in Bolivia under new contracts giving the state 55 percent of profits and converting the firm into a "service provider," the government said on Tuesday.

Leftist President Evo Morales aims to overhaul mining legislation to align it with a new constitution that gives the state control over non-renewable natural resources. Although the bill is still being drafted, the new Glencore contracts will take effect in the coming days.

"Glencore's contract will be the model to be incorporated in the new mining law for all operations currently in the hands of private companies," said the head of state mining firm Comibol, Hector Cordova.

Switzerland-based Glencore, the world's largest commodities trader, operates three mines in Bolivia to extract silver, zinc, lead and tin. Morales' government nationalized its Vinto tin smelter in 2007.

Other foreign companies that will have to renegotiate their contracts in Bolivia include U.S.-based Coeur d'Alene and Japan's Sumitomo, whose San Cristobal silver-zinc-lead mine accounts for at least half the country's mineral exports.

Glencore's local subsidiary, Sinchi Wayra, exported minerals worth over $300 million last year. It runs one mine under a shared-risk contract with state firm Comibol and leases the other two, paying up to 8 percent of profits.

Cordova said these contracts will be replaced by a single one giving Glencore the right to administer the mines and take 45 percent of profits, on the condition it invests at least $100 million in the next five years.

"Comibol will get 55 percent of the profits, that is the big difference," Cordova said.

In addition, the state firm will control the sale of the minerals.

Morales' government made a similar change to contracts in the key energy industry after nationalizing the sector in 2006, converting major players such as Brazil's Petrobras into service providers to state energy company YPFB.

More on Glencore below...