By James Wellstead — Exclusive to Coal Investing News
Late last year, Vale initiated efforts to sell its Colombian coal operations, which produce three million tonnes per year, and are in production near Glencore (LSE: GLEN) and Drummond's projects in the Cesar province. The company is exiting, industry players say, due to the mine's high cost and low production, and because coal is not a core asset for the diversified mining giant.Goldman Sachs (NYSE: GS) has recently been identified as the key party looking to scoop up the property. MPX Energia SA, a subsidiary of Batista's EBX, recently delayed its US $4 billion Canaverales mine in Northern Colombia on weakening thermal coal prices. Luis Caceres, projects manager at the company's Colombian coal unit, told Bloomberg in February that “in 2014, we would like to be in conditions to start an aggressive ramp-up.” Caceres also said that the project will produce about one million tons of coal in its first year, much of which will be destined for Chinese and Indian markets. Political risks improving Despite bountiful resources, secessionist forces and rebel armies have long been a reason for investors to steer clear of developing large-scale projects within the country. Major rebel groups, primarily the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN), have spearheaded many attempts to destabilize the country in order to achieve their political goals. But an improving political climate has led Citigroup to single Colombia out as a strong South American market. Citigroup equities analyst Jason Press told Bloomberg recently that “we love Colombia for the long term” because of this improving security picture. Amongst reforms have been efforts to draft legislation to clarify the engagement process with local communities. The mining bill introduced in 2011 did not require prior consultation with indigenous communities surrounding mining sites. But concerns persist as a former paramilitary member of the United Self-Defense Forces of Colombia (AUC) recently identified American Drummond officials as having paid millions of dollars to kill union organizers at their Colombian mine operations. The disguised AUC paramilitary told an Alabama judge that “the AUC had to kill all of the Drummond union leaders because the union was causing problems for Drummond.” Attacks on the railway of Cerrejón, Colombia's biggest coal exporter, also persist, with two anonymous bombings in early 2011 making the threat of instability palpable for many investors. Cerrejón, which annually produces 32 MT of coal for exportation, said the attacks are the work of "groups seeking to destabilize security in [the coal mining region of] La Guajira." But for those who seek potentially high-risk payoffs, Colombia's coal sector is proving to be a strong target of focus in the coal sphere. Continued concerted efforts on the part of the government and coal companies could go a long way towards diffusing much of the tension in the country.