Colombia to renegotiate terms of BHP's Cerro Matoso mine

BOGOTA, Sept 26 Wed Sep 26, 2012 6:08pm EDT

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BOGOTA, Sept 26 (Reuters) - Colombia will renegotiate out-dated contract terms including royalty payments for BHP Billiton's Cerro Matoso nickel mine in a bid to get a better deal for the Andean nation, government officials and a tribunal said on Wednesday.

Cerro Matoso, which bills itself as the world's second largest producer of ferro nickel, has been in discussions with government officials for months over its agreements as Colombia tries to get better terms from the mining firm.

A Colombian tribunal, which solves disputes between companies and the government and whose decisions are binding, said the country must negotiate more favorable conditions.

BHP has two contracts which expire on Sunday but a third contract will remain in effect. That contract, however, was signed in 1996 and must take into account new international standards and mining legislation, the tribunal said.

National Mining Agency Director Maria Constanza Garcia said that the government hoped to complete the process on the conditions for the contract in the coming months.

The company was not immediately available for comment.

In the nearly two decades since the agreement was signed, the Andean country has become a magnet for foreign direct investment mainly into its oil and mining sectors thanks mostly to improved security.

Located near the town of Montelibano in northern Colombia, the Cerro Matoso mine has a lateritic nickel ore deposit and a low-cost ferro nickel smelter. The smelter and refinery are integrated with an open-cut mine.

About 65 percent of nickel is used to manufacture stainless steels, and 20 percent in other steel and non-ferrous alloys, often for highly specialized industrial, aerospace and military applications, according to the International Nickel study group.

The government says that it expects Cerro Matoso output at 51,100 tons in 2012. The mine produced 37,810 tons of nickel last year, 23.5 percent lower than the 49,443 tons produced in 2010 as one of the furnaces was off, the government said.

Cerro Matoso has an estimated reserve life of 40 years.