Colombia asks Glencore to merge ops, pay more to extend contract

BOGOTA Wed Jul 16, 2014 6:10pm EDT

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012.  REUTERS/Arnd Wiegmann

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012.

Credit: Reuters/Arnd Wiegmann

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BOGOTA (Reuters) - Colombian coal miner Prodeco, owned by Glencore Xstrata (GLEN.L), must merge operations at one of its mines and pay higher royalties as part of government conditions to extend its contract, the Mines and Energy Minister said on Wednesday.

Prodeco, the nation's third biggest thermal coal producer, is seeking to extend the contract at its La Jagua mine in northern Cesar province, Amylkar Acosta told Reuters.

The company has two large-scale mines, one of which carries various extraction licenses - obtained after buying different companies - and which are considered small-scale, he said.

"In Prodeco's case, an aspect we see of great importance is that of integration," Acosta said in an interview at his Bogota office. "For us that is an immovable condition to award the extension."

Small-scale mines pay the government 5 percent of their total monthly production in royalties, while large-scale mines must hand over 10 percent, and so the government wants Prodeco to pay the higher tariff, Acosta said.

Prodeco was unable to immediately comment, but the National Mining Agency told Reuters that Prodeco's La Jagua mine holds six extraction licenses.

"The immediate effect of its integration is that they will go from paying 5 percent for each block to paying 10 percent because they will be considered large scale," he said of the miner, which last year produced 18.6 million tonnes.

Prodeco, which exports coal to Europe, the United States and Asia from its Calenturitas and La Jagua mines, has been receptive to the condition and keen to move ahead, Acosta said.

U.S.-based coal miner Drummond DRMND.UL also is seeking an extension of its Colombia mining contract. Drummond is Colombia's second biggest producer.

Colombia's coal sector, the world's fourth biggest exporter, has faced many obstacles over the last year with Marxist rebel attacks on infrastructure and strikes at the top two miners, Cerrejon and Drummond.

Disruption of physical production combined with lower prices have slashed royalty income for the Colombian government at a time when it is seeking ways to raise extra money for badly needed improvements of infrastructure, especially roads.

The government has forecast 2014 output of 89.1 million tonnes. Acosta said he expects to meet the target. Last year, output reached 85.6 million tonnes.

Acosta also said that Drummond and Cerrejon, Colombia's biggest coal miner, reached agreement to produce coalbed methane gas.

"They reached a deal that they are perfecting and soon will be able to extract industrial scale CBM in Colombia," Acosta said.

(Reporting by Helen Murphy; Editing by Bernard Orr)

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