MAC: Mines and Communities

South American Silver files proceedings against Bolivia government

Published by MAC on 2013-05-13
Source: Mining Weekly

Previous article on MAC: Bolivia: to nationalise or not?


South American Silver files proceedings against Bolivia government

Henry Lazenby

Mining Weekly

1 May 2013

TORONTO - Vancouver-based South American Silver (SAS) this week filed international arbitration proceedings against the Bolivian government after the company's subsidiaries lost mineral tenements in that country in 2012.

SAS said the international arbitration had been started under the Promotion and Protection of Investments Treaty between the UK government and the government of Bolivia, under the Arbitration Rules of the United Nations Commission on International Trade Law.

The dispute arose as a result of acts of the Bolivian government, including the issuance of Supreme Decree No 1308 on August 1, which revoked mining concessions held by Compañía Minera Malku Khota, a fully owned subsidiary of SAS.

SAS said it was a protected investor under the bilateral investment treaty between the UK and Bolivia, and the actions of the Bolivian government were in violation of that treaty and of international law.

Bolivia has been involved in over fifteen ‘nationalisations', the majority of which took place after president Evo Morales came to office. A number of the cases had reached negotiated settlements and at least five others were pending.

Bolivia's reserves of cash and gold were estimated at $13.62-billion as of December 31, 2012, up from $3-billion when Morales came to office in 2006.

SAS noted Bolivia's credit rating was upgraded by all three major rating agencies in 2012, the most recent being a Fitch Ratings upgrade from B+ to BB- in October 2012, and the country had demonstrated that it had ready access to international funding, having had a $500-million ten-year bond offering significantly oversubscribed in August 2012 at an interest rate of only 4.875%.

The IMF recently forecast that Bolivia would be one of the fastest-growing economies in South America with an expected gross domestic product growth rate in 2013 of 4.8%.

"It is not a question of whether Bolivia is capable of meeting its obligation to compensate the company for the expropriation; it clearly has the financial capacity," SAS CEO Phillip Brodie-Hall said on Tuesday.

SAS said since the decree, the company had made numerous attempts to open a dialogue with the government with the aim of reaching an amicable resolution of the dispute, including receiving fair-value compensation.

Late in February, the company was invited to attend a meeting set for April 17 in La Paz; however, attorneys representing SAS attended the April meeting but no resolution was reached and no compensation offered.

"The decree stated clearly that the Bolivian state mining company, Corporacion Minera de Bolivia (COMIBOL), would hire an independent firm to carry out a valuation of the investments made by [SAS subsidiary Compañía Minera Malku Khota] CMMK within a period not to exceed one hundred and twenty (120) business days. However, no such valuation has been carried out, nor has an independent firm been hired to undertake the valuation," SAS said.

Exploration commenced at Malku Khota in 2003 and work on the project continued through to the expropriation in August 2012. A May 2011 preliminary economic assessment (PEA) update included economic modelling that indicated a pre-tax net present value at a 5% discount rate of $1.48-billion at prices of $25/oz silver and $570/kg indium.

After the 2011 PEA update, the prefeasibility study phase was started in June 2011, but not completed owing to the expropriation.

"It is regrettable that we are forced to resort to international arbitration to resolve this matter. Bolivia chose to expropriate our mining concessions; it must now meet its legal obligations and compensate us for this significant loss," Brodie-Hall said.

"International arbitration gives us the means to pursue our case and we are very confident that it will deliver fair value compensation. We have a first-class team working on the case and, while we are open to dialogue with government, we are prepared to go the full distance in arbitration if that's what it will take to get fair value compensation."

Now that the arbitration had started, the Bolivian government had thirty days to respond and an arbitration tribunal will be empanelled in the coming months.

Thereafter, the tribunal would set a provisional timetable for the arbitration itself, including a schedule for submission of a statement of claim, statement of defence and oral hearings.

Unless there was a negotiated settlement of the dispute, it is expected that the arbitration could take up to two to three years to conclude.

Stock of the company, which was still listed on the TSX, traded at C$0.255 apiece on Wednesday.

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