Despite higher gold prices, miners can''t boost production for years

Section:

By Helen Popper
Reuters
Friday, May 12, 2006

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?
storyID=urn:newsml:reuters.com:20060512:MTFH67891_2006-05-12_20-50-
05_N12333316&symbol=EEL.V&rpc=44

LA PAZ, Bolivia -- Bolivia's investment-hungry mining industry is
not in line for a nationalization like that seen in the energy
sector but foreign companies probably will have to pay more taxes.

Foreign miners have been jumpy since May 1, when the South American
country's leftist president announced a sweeping nationalization of
the energy industry that handed control of production to the state
and slashed company profits.

But Mining Minister Walter Villarroel has sought to calm foreign
miners' jitters, assuring investors a similar policy will not be
applied to the mining industry. Bolivia has rich tin, zinc, and
silver deposits and also several small gold-mining operations.

Several foreign companies, including Canada's Eaglecrest
Explorations Ltd. and U.S. Apex Silver Mines have received letters
from the minister assuring them that the industry will not be
nationalized.

But Villarroel has indicated that tax rises are on the agenda in
South America's poorest country amid soaring global metals prices.
Also, the government wants defunct state miner Comibol to have a
role in production.

"He has said the system they use for energy is not going to be
followed in mining. The fundamental changes are going to be in the
area of taxes," a mining ministry spokeswoman said on Friday, adding
that all proposals would be discussed with foreign investors in a
bid to reach consensus.

President Evo Morales is expected to detail the government's mining
plan at the end of May, she added.

Even if the government does not announce the size of any tax
increase immediately, many in the industry believe a rise is certain.

"The government line has been ambivalent but for now they're saying
they won't nationalize," said Ana Maria Aranibar, general-secretary
of the Bolivian branch of the Latin American Mining
Organization. "What's certain is they're going to raise taxes," she
added.

Government officials and representatives of two mining unions have
been working for two months on proposals to reform the mining
industry, a pillar of Bolivia's small economy, accounting for
exports worth nearly $500 million in 2005.

"There's a very big difference between mining and hydrocarbons,"
said Andres Mamani, a leader of the Bolivian Mine Workers
Federation, one of the advising unions.

"We want there to be a tax that is fair and we want investment
security for companies. The responsibility of the federation is to
safeguard jobs and create new ones -- which requires investment and
we think President Morales understands that," he added.

In terms of new mining investment, Bolivia lags far behind levels in
its wealthier neighbors, Argentina, Chile, and Peru.

"I've received indications that this government is striving to set
up a legislative model that encourages foreign investment," said
Igor Levental, vice-president of investor relations and corporate
development at Apex Silver. "We think the government recognizes a
significant change to the tax regime would not" encourage investment.

Apex Silver is developing the San Cristobal silver and zinc mine set
to start production in southern Bolivia in 2007. An eventual
investment of about $800 million makes the project the biggest
investment in Bolivian mining history. It will provide some 3,000
jobs.

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