Prodeco to relinquish Colombian mining contracts

Switzerland-based Glencore said that its Colombian coal mining firm Prodeco will begin the process of handing its mining contracts back to the government, as it remains uneconomic to restart operations.

Prodeco was previously instructed to resume operations by the start of the second quarter, but today's news means this will no longer be the case, tightening the supply picture in the Atlantic.

The mines will remain on care and maintenance until the formal process of relinquishing the contracts to the mining regulator (ANM) is complete, Glencore said.

Prodeco's Puerto Nuevo port, with capacity to handle 21mn t/year, will continue to operate in line with its obligations as a public service port, the company said.

In an internal release to workers, Prodeco said that maintaining coal production at its Calenturitas and La Jagua mines would require a very significant amount of cash during the next four years, and it would be impossible to recover its initial investment.

Prodeco conducted a review to identify cost-saving and streamlining measures for the business given that ANM expects prices to remain low in Prodeco's target markets. But the review did not change the firm's view that it continues to remain uneconomic to re-commence operations.

Glencore said that the benefits afforded by an internal review would only be achieved at the cost of a significant reduction in mineral reserves or the loss of operational flexibility.

The decision to relinquish the mining contracts was not taken lightly and is a disappointing outcome, Glencore said. Grupo Prodeco has over the last 30 years invested in excess of $3bn and paid almost $3bn in royalties and taxes, it said.

Prodeco held a meeting with ANM officials yesterday.

The company had lodged an application to keep its mines off line for a four-year period, but this was definitively rejected by ANM at the end of December. The regulator ruled that the firm must resume operations within three months.

What next for the mines?

Former minister of mines Amylkar Acosta said the coal titles will revert back to the nation, which can then put them up for sale.

Prodeco is relinquishing the Calenturitas mine in Cesar, north Colombia. Calenturitas is an open-pit mine that produces low-sulphur thermal coal with a high calorific value. It is also relinquishing the La Jagua coal mine in the municipality of La Jagua de Ibirico. La Jagua is an open-pit mine that is made up of five mining titles, held by three companies: Carbones de La Jagua, Consorcio Minero Unido and Carbones El Tesoro. After purchasing these operations Glencore integrated them into one, with the approval of the relevant authorities.

Prodeco, Colombia's third-largest coal producer, produced 3.8mn t in 2020 — all in the first quarter — down from 15.6mn t in 2019, company figures show. The firm suspended operations in March 2020.

Prodeco will maintain its 40pc stake in steam coal railway Fenoco, it said in an internal release to workers. The companies of the Prodeco group submitted a request for authorisation of the collective dismissal of workers to the labour ministry, the release said. "Prodeco has resumed the voluntary redundancy programme which significantly exceeds the statutory requirements under Colombian law," Glencore said.

By Diana Delgado