Energy & Mining

What Lies Below

Mining

As of 2014, the major mining operations in the Dominican Republic were the Pueblo Viejo gold mines operated by Barrick and Goldcorp, with 9.7Moz of proven gold reserves, and the […]

As of 2014, the major mining operations in the Dominican Republic were the Pueblo Viejo gold mines operated by Barrick and Goldcorp, with 9.7Moz of proven gold reserves, and the Cerro de Maimón copper and gold mines operated by Perilya, which hosts approximately 6 million tons of open-pit copper/gold reserves. Construction of the $69 million open pit mine, processing facilities, and related infrastructure started in 2006 and was completed in 2008. The Falcondo nickel mine is operated by Xstrata and has a production capacity of 29,000 tons of contained nickel per annum. The Las Lagunas project involves the reprocessing of high-grade gold/silver refractory tailings from the Pueblo Viejo mine by PanTerra, and finally, there is Las Mercedes, which was formerly the Alcoa Bauxite Mine.

As mining output rallies, advanced exploration projects are the key to long-term success and diversification away from a tourism-based economy. In this regard, a number of exiting advanced exploration and promising, yet small operations are underway. Approximately 200km north of Santo Domingo, Unigold’s Nieta concession has been labeled a world-class deposit and is fully permitted for exploration. The site holds significant gold and copper resources upside, with 2Moz gold inferred resource identified at Candelones. By mid-2014, Unigold had resumed its 5,000m drilling program at its Nieta concession. Exploration has begun at the Loma de Montazo target, which is 2km from Candelones, where inferred resources of 39.5Moz averaging 1.6g/t for 2Moz of gold have been determined. The Loma de Montazo site returned the largest and strongest IP chargeability and resistivity response on the property. Other firms with exiting prospects include PanTerra, which has discovered elevated gold values along structural lineaments at La Paciencia concession, Everton Resources at the Pueblo Viejo Extension, and Precipitate Gold Corp at Juan de Herrera. These prospects suggest a solid future in mining in the Dominican Republic.

Beyond metallic mining activity, the Dominican Republic is the leading producer of cement in the Caribbean region, and according to Alexander Medina Herasme, the General Director of the Mining Management Office of the Dominican Republic, “increasing export activity on calcium carbonate…in the south of the country,” is set to cement the country’s regional status. On the bureaucratic front, the Chamber of Deputies approved the creation of the Mines and Energy Ministry in 2013. The ministry was further parsed into six deputy ministries, one of which deals exclusively with mining. Law 100-13 creating the ministry stipulates that, among other things, the ministry is in charge of “formulating, adopting, managing and coordinating the national policy for the exploration, exploitation and processing of metallic and non-metallic minerals”. The law also states that the ministry must “ensure the protection, preservation and adequate exploitation of minerals.” In 2014, President Danilo Medina appointed Pelegrin Castillo Seman as the country’s new Minister of Energy and Mining, who told TBY that the Ministry planned to spend 2015 promoting, “multi-sectorial consultation to improve the legitimacy of mining activities, and [addressing] important issues such as the definition of investment objectives, which must be financed with mining revenues.”

The economic footprint of mining remains a far cry from its heyday during the 1970s when large ferronickel and gold-silver mines made up 5.3% of GDP. That said, recent gains represent a massive turnaround from over a decade ago when the key gold deposit Pueblo Viejo (then called Rosario) lay abandoned. By 2011, mining contributed only 0.5% of the national GDP, in spite of encouraging indicators such as a 42% increase in contribution to the GDP in 2012, and a 79% increase in 2011. By 2013 however, it became apparent that mining was reemerging as an economic engine when during 1H, new gold mining operations drove a 223% surge in mining activity that contributed to a 1.6% growth in the overall economy.

The Dominican Republic is emerging as a major gold producer, with other minerals following suit. During 1H2013, gold exports increased by $551.9 million, and in 2014 Fitch Ratings cited this as a major factor behind its increase in the country’s credit rating. This has precipitated predictions that the Dominican Republic would be able to halve its 2012 deficit by 2016, to 3.3% of GDP.

In order to ensure the long-term stability of operations, a compromise will have to be reached with opponents of mining operations. While resistance is ostensibly over environmental issues, mining companies can point to significant environmental improvements, while arguing that environmental degradation is a legacy of preceding operations that are widely acknowledged to have been poorly run in the past. In order to attract the level of FDI required for a sustainable and thorough extraction of the Dominican Republic’s mineral resources, clearly defined and fixed rules of the game need to be applied that can guarantee investments in the long term. For example, irrespective of whether or not the original negotiation upheld notions of “national sovereignty”, “justice”or “transparency,” the renegotiated contract for Barrick Gold cost the company more than $1 billion and is sure to make future investors squeamish.

Organizations such as the Mining Management Office of the Dominican Republic and the Center for Export and Investment of the Dominican Republic are working together to increase FDI in the mining sector, and repeat the successes of the last half-decade. Speaking to TBY, Alexander Medina Herasme spoke of making “mining investment more direct and simpler, as well as reducing bureaucratic barriers for investors.” From a legislative standpoint, mining firms are still wary, in spite of more than $58 billion in estimated reserves. In 2014, Bloomberg reported that the future of Gelencore Plc’s ferro-nickel mine was in doubt due to new legislation declaring the region surrounding the mine a national park. This change could raise Glencore’s operating costs, and is reminiscent of the government’s renegotiation of Barrick Gold and Goldcorp’s Pueblo Viejo concession. This same renegotiation also caused the Dominican Republic to fall five slots in the World Bank’s “Ease of Doing Business” ranking. However, in September 2014 President Medina vetoed the measure to re-designate the area surrounding the mine, questioning whether the national park was constitutional and citing the country’s mining laws and international treaties. President Medina’s precedent demonstrates that the Dominican Republic is serious about developing long-term relationships with mining companies that take into account both business and environmental concerns.

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