Prodeco seeks longer halt to Colombia mines: Update

Colombian coal miner Prodeco is seeking government permission to prolong the suspension of operations at its two mines, according to a letter to workers sent by company president Xavier Wagner.

Prodeco, owned by Swiss commodity producer Glencore, halted operations because of Covid-19 on 23 March and is the only major Colombian miner still on care and maintenance. But the letter to employees, seen by Argus, said the rapid decline in global coal prices, unrest in local communities as well as continuing uncertainty surrounding the pandemic have prompted the miner to seek government permission for a longer temporary halt to operations. The Fenoco railway — controlled by Colombia's largest coal miner Drummond, Prodeco and US firm Murray Energy's local arm CNR — has been targeted by blockades by local communities during the lockdown.

Colombian mining regulator ANM has told Argus it is in the process of verifying Prodeco's request, but declined to comment further. ANM can cancel its contracts with coal mining firms if they stop producing for more than six months without reasonable justification, under Colombia's mining code.

The letter said the mining suspension will protect the value of the firm's assets, "preserving the option to implement revised mining plans once it receives required approvals and once market conditions improve".

A lack of approval for the development of Prodeco's mining operations has also "obliged the company to re-evaluate the way we operate our business" the letter said. But ANM said it does not know what approval the miner is referring to.

Prodeco has revised its mining plan and the cost structure of its operations in response to weaker coal prices in the international market. But the revision requires government approval, which may result in further consultation with local communities.

The firm will continue operations at its Puerto Nuevo coal port, the letter said. Puerto Nuevo has around 400,000t of coal on stock and has been loading six vessels per month since May, according to one port worker. This is down from around 20 vessels/month before the lockdown.

The company is loading one or two 50,000-80,000t vessels per week, according to the source, who declined to be identified. With its own production suspended, Prodeco has procured coal from CNR to fill its export requirements in recent months.

Prodeco will continue to pay salaries to its 2,500 direct employees, but 4,800 contractors stopped receiving payments when Prodeco halted operations in March.

The latest news is a blow to the local authorities in Cesar province, which recently urged the miner to restart operations.

Prodeco boosted production by 17pc on the year to 4.2mn t in the first quarter, according to Colombia's mining ministry. Exports through Puerto Nuevo doubled on the year to 4.1mn t in January-March, according to the country's transportation regulator Supertransporte.

Fading resource

Colombia is seeking to wean its mining portfolio off of coal in favor of copper and gold, new mines and energy minister Diego Mesa said in his first encounter with reporters last week.

Colombia's export-oriented coal industry has fallen on hard times because of shrinking international demand, legal challenges and plummeting prices.

Propelled by a surge in gold prices, the production of the precious mineral in Colombia grew by 7pc year on year to 9.5 t in first quarter 2020. In contrast, coal production fell by 7.2pc in January-March.

Combined production of thermal and coking coal fell to 19.5mn t in January-March, from just under 21mn t in first quarter 2019.

The development of copper mining in Colombia is still in its early stages, as most projects have been waiting about three years to secure permits to access deposits, determine the volume of reserves, and study local flora and fauna.

Mesa, the former vice minister, was sworn in last week in place of Maria Fernanda Suarez.

By Diana Delgado