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South American Silver Plummets As Bolivia Announces It Will Nationalize One Of World's Largest Silver Deposits

Submitted by Tyler Durden on 07/09/2012 14:09 -0400

• Nationalization
• Precious Metals
• Reuters
• SAC

Anyone long silver miner South American Silver Corp today is not happy, because while the precious metal responsible for the company top and bottom line has risen significantly, it is our old nationalizing friend, Bolivian President Evo Morales (who last year caused substantial moves higher in silver with threats to nationalize various silver mines in his resource rich if everything else poor country) who has stolen the spotlight, with his latest announcement that he is on his way to nationalize SAC.TO's Malku Khota property, which the company describes as "one of the world's largest undeveloped silver, indium and gallium deposits" and which El Pais adds "is considered one of the largest undeveloped silver deposits, with reserves estimated at 230 million ounces, and at least 2,000 tons of indium, gallium and gold as well." Of course, while this is good news for the actual precious metals as it means much more supply is coming offline, it is very bad for mining and extraction companies such as South American Silver, which stand to lose one after another property to a repeat of last year's wave of nationalization. Indeed, at last check SAC.TO was down 27% today alone and plunging.

This is how Reuters covered the development overnight:

Bolivia will consider nationalizing Canadian miner South American Silver Corp's silver property, President Evo Morales said on Sunday, following violent indigenous protests against the mining project.

Leftist Morales, who last month took control of global commodities giant Glencore's tin and zinc mine in the Andean country, said he hadn't taken a final decision on whether to revoke the Canadian miner's concession.

"Nationalization is our obligation, I already raised the issue of nationalizing (the Malku Khota project) last year, and I told (local residents) to reach an agreement, because when they want we're going to nationalize," Morales told a farmers' gathering.

Exploration work, in which South American Silver plans to invest some $50 million, is expected to end within three years. The company describes it as "one of the world's largest undeveloped silver, indium and gallium deposits."

Then, El Pais provided the following update:

Morales announced that he will nationalize major silver deposits

The Bolivian government withdraw the mining concessions awarded to the South American Silver Canadian company for the exploitation of silver deposits, indium and gallium Mallku Khota the hill, as agreed between government authorities and indigenous communities north of Potosi.

Agreement is reached, local communities agreed to free two engineers of the Canadian mining company and a police officer who had held for several days in order to pressure the government to listen to their demands to break the contract with South American Silver.

The Labor Minister Daniel Santalla, explained that the President Evo Morales is predisposed to reverse the mining concessions but that the decree will take several days due to legal and technical process should be launched for that purpose.

"Nationalize it is our obligation," said Morales in the city itself Colomi in the department of Cochabamba (center), barely a few kilometers from the mine site in question.

Finally, this is what the company itself had to say:

On Sunday the Bolivian Labor Minister, Daniel Santalla, signed an agreement to secure the release of the final three detained individuals with the indigenous opponents to the project. As part of this agreement the opponents were seeking cancellation of the mining concession, however, the government minister acknowledged that this could be difficult due to the original decree giving South American Silver the rights to the project.

Also on Sunday, President Evo Morales and the Government Minister Carlos Romero agreed that a "prior consultation” among all indigenous communities in the project area would be needed to proceed to determine the direction of the project based on the consensus view of all communities.

At this time there has been no change in the status of the project concession. The Company is continuing to work with the government at all levels and with the local communities to agree on an approach to development that is inclusive of all communities in the project area and allows development of the Malku Khota project to its fullest potential.

As noted in earlier updates, Bolivian government authorities have previously stated that there will be a period of constitutionally mandated consultation with local indigenous communities before the project enters the extraction phase.

On May 28 the Mining Minister Mario Virreyra signed an accord with 43 out of 46 indigenous communities in the project area specifying that the state will not reverse the mining concession and stating that the company should continue exploration activities and that Bolivian authorities should provide increased police security in the region.

The vast majority of the indigenous groups in the project area have formally demonstrated their support for the project and understand the social and economic benefits to their communities that the development of a world class, modern mine at Malku Khota will bring and which will create with thousands of well-paying local jobs.

By contrast, the artisanal mining that has been centered near one of three villages in opposition to the project would provide little economic benefit to the 43 other indigenous communities in the project area and has been cited by the Bolivian Mines Minister as causing local environmental damage.

South American Silver has worked closely with the local indigenous communities over the past several years providing significant direct employment on project related jobs, as well as jointly developing programs with the communities to facilitate job training, education, agricultural enhancement and water management for long-term sustainable development.

In conclusion, if before there was any doubt as to why miners trade at such notable discounts to the underlying precious metal, we hope that incidents such as this one give a good glimpse into the real ugly underbelly of what very well may happen to offshore projects if and when destitute countries decide to follow in the path of Argentina and Bolivia.
Finally, for those curious, here is a slideshow of the world's biggest silver mines.
Argentum Emptor.