Bolivia - Present position and prospects of the mining and metallurgical sector

Report No. 1251a-BO Present Position and Prospects of the Mining and Metallurgical Sector of Bolivia IIESURN TO LL & C INFORMATION CENTER November 19, 1976 Latin America and Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Fank authorization.  Currency Fquivalents U.S$1 = 20.00 Bolivian pesos Weights and Measures 1 Yetric Ton = 1.102 Short Tons 1 Metric Ton = -2,204 Pounds 1 Metric Ton = 1,000 Kilogram;, 1 Long Ton Unit = 10.16 Kilograms 1 ,hort Ton Unit = 9.07 Kilogram3 1 Pound = 0.453 Kilograms 1 Ounce = 28.349 GraMn Abbreviations COMIBOL Corporacion Minera de Bolivia (Bolivian Mining Corporation) ENAF = Empresa Nacional de Fundiciones (National Snelting Company) GEORBOL = Servicio Geologico de Bolivia (Bolivian Geological Service) ITMM = Instituto de Investigaciones Minero-Metalurgicas (Institute for Mining and Metallurgical Research) BAMIN Banco Minero (Mining Bank) BISA = 3anco Indu:strial, S.A. (Industrial Bank)  FOR OFFICIAL USE ONLY INTRODUCTION i. This report is based on the findings of a mission consisting of Messrs. J. U. Richter (general economist), A.J. Freyman (mining consultant) and W. Craigen (metallurgical consultant) which visited Bolivia from January 26 through February 7, 1976. The purpose of this report is to update the findings of the Mining and Metallurgical Sector report of December 7, 1972 in the light of recent developments of the overall economy in general and of mineral mining and processing in particular, recent changes in Government poli- cies and the Government's objectives and strategies for the secotrs as stated in the 1976-80 Development Plan. 2. The report is limited to issues related to mining, processing and marketing of non-ferrous metallic minerals. Iron ore, radioactive substances, and non-metallic minerals appear to have a very limited development potential in Bolivia at least over the medium term and therefore, have not been dealt with in this report. This document has a restricted distribution and may be used by recipients only in the performance | of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   PRESENT POSITION AND PROSPECTS OF THE MINING AND METALLURGICAL SECTOR OF BOLIVIA TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... iv I. RECENT TRENDS ......................................... 1. Contribution to Growth .1 2. Major Producers. 2 3. Major Minerals. 4 4. Institutions Serving the Mining Sector. 5 II. DEVELOPMENT CONSTRAINTS AND DEVELOPMENT REQUIREMENTS .. 5 1. Basic Constraints. 6 Natural Conditions. 6 Exploration and Mine Development. 6 Other Investment. 8 Operational Efficiency. 8 Infrastructure .10 Export Composition, Marketing, and Inter- national Markets .10 2. Problems Faced by Major Producers .12 Corporacion Minera de Bolivia (COMIBOL) .12 Medium Mines .15 Small Mines and Cooperatives .17 Smelting and Refining .19 3. Institutional Problems .21 Ministry of Mining and Metallurgy .21 Bolivian Geological Service (GEOBOL) .22 Institute for Mining and Metallurgical Research (IIMM) .23 Mining Bank (BAMIN) .24 Industrial Bank (BISA) .26 4. Government Policies .28 Taxation .29 Relationships between Government and State Enterprises in the Mining and Metallurgical Field .32 Exploration Policies .33 Mining Sector Credit .34 III. DEVELOPMENT PROSPECTS .36 1. Market Prospects .36 2. Government Objectives and Plans. 40 3. Prospects for Output and Productivity Growth 46 IV. EXTERNAL FINANCING REQUIREMENTS .51  TABLE OF CONTENTS (Cont'd) MAPS STATISTICAL APPENDIX ANNEXES 1. Output and Export Prospects of Major Minerals Produced by Bolivia 2. The Metallurgical Industry in Bolivia 3. Work Program of the Ministry of Mining and Metallurgy TEXT TABLES Page No. Table 1: Growth of Mineral Output and Share of Minerals in Bolivian and World Mining Production, 1965-74 ..................... 3 2: Subsector Shares in Mining Exports, Employment and Taxes, 1965-75 .................................................. 4 3: COMIBOL Share in Mineral Exports, and Share of Purchases from Cooperatives in COMIBOL Exports, 1967-75 .... ........ 13 4: Size Indicators for Medium Mining Firms, 1973-74 ... ...... 16 5: Market Prospects for Selected Minerals, 1972/74-1985 ..... 39 6: Government Output Targets for Mining and Refining, 1980 41 7: Planned Public Sector Mining and Refining Investment, 1976-80 .................................................. 42 8: Contribution of Smelting and Refining Expansion to GDP, Net Exports, and Balance of Payments, 1976-85 .... ........ 47 9: Projected Growth of Bolivian Mining and Refining Output, 1976-85 .................................................. 50 10: Projected Mining and Refining Investment and Financing, 1975-80 .................................................. 52  SUMMARY AND CONCLUSIONS 1. Mining in Bolivia, traditionally one of the most important activi- ties of the economy, has experienced secular stagnation mainly associated with weak performance of the largest enterprise, the state-owned Corporacion Minera de Bolivia (COMIBOL) and slow growth of the world market for tin, the country's principal export commodity. While mining has accounted for nearly 75% of mer- chandise exports and 25% of Central Government current revenue over the last ten years, the very small increases in output and sharp fluctuations in inter- national prices have rendered the mining and metallurgical sector an unstable and slow-growing source of foreign exchange and fiscal revenue, which has limited its contribution to overall economic growth. Employment generation has been small and very few linkages to other sectors of the economy have been developed. Imports required for both investment and current operations conse- quently are extremely large. Since the bulk of Bolivia's mining output still is refined abroad, net export earnings are reduced by fees charged by foreign smelters and higher transport costs associated with shipping concentrates instead of refined metals. 2. After the metal price boom of 1973-74, Bolivian mining suffered the effects of weak markets in 1975 as a consequence of the international recession. The composite price index for Bolivia's mineral exports for that year was nearly 20% below its 1974 peak and mining output, which had been declining since 1973, fell by nearly 5%. Tin prices during most of 1975 were below operational costs for all but the most efficient Bolivian mines, and a number of small tin and copper mines went out of production. However, some diversification has been attained over the last decade with increased impor- tance of minerals with stronger market potential than tin, such as zinc, antimony, tungsten and silver. This acted to soften somewhat the impact on Bolivian mining of the recent world recession. 3. Recent developments have brought the mining sector's lack of resilience and stuctural problems into focus. Mining related activities in Bolivia generally are high-cost, low-efficiency operations. While there are considerable natural obstacles--such as terrain, location of deposits in narrow underground veins which precludes application of modern mining tech- niques, ore complexity and other geochemical peculiarities--development of the mining and metallurgical sector has also been hampered by operational inefficiencies, institutional weaknesses and inadequate government policies. Investment has been very low over extensive periods, limiting productive potential and the capacity to respond quickly to favorable market conditions. Capable middle-level management is lacking and management and operating systems are poor. Infrastructure deficiencies in transport, energy supply, and marketing pose further impediments to expanding output. In the light of these constraints, requirements for faster growth of mining and refining are evident. Substantial improvements in operations and administration are needed, on part of the producers, together with stepped-up investment to rationalize and expand production. For the more important entities, joint ventures with foreign firms would greatly contribute to easing financial and managerial bottlenecks and to strengthening corporate structures.  - ii - 4. Among the major producers, COMIBOL is adversely affected by deple- tion of deposits in many of its mines, undercapitalization combined with an oversized labor force, and extremely difficult labor relations. Over-central- ization and simultaneous lack of clearly defined authority attached to various management levels further complicate the running of this large and diversified enterprise. While efforts to improve COMIBOL's performance have been intens- ified and have produced some positive results such as improved beneficiation, overall operations continue to be inefficient. The company's long-term rehabilitation is one of the basic goals of the Government in order to achieve a lasting improvement of the mining sector; this will have to include increased investment and determined efforts to rationalize operations and improve admin- istration. Surplus labor is bound to pose one of the most difficult issues to resolve. A lasting solution to this problem can be found only if sustained growth of investment and output is attained in COMIBOL and elsewhere in the mining sector. The other state-owned enterprise in the sector, the National Smelting Company (ENAF), has significantly expanded since starting operations in 1971 but still is affected by high overhead resulting primarily from over- sized infrastructure, and by administrative weaknesses. However, ENAF has taken steps to improve its managerial structure. In order to be equipped for a substantial expansion as envisaged by the Government, ENAF's technical and managerial capacity will have to be further strengthened and appropriate marketing strategies developed. 5. Problems encountered by private medium mines until recently have centered around frequently changing, and occasionally adverse, government policies towards private enterprise. With a more favorable government posi- tion vis-a-vis the private sector prevailing over recent years, managerial, technical and financial constraints rather than impediments of a political nature are now limiting medium mining growth. In order to break these con- straints and to build more effective corporate structures, the larger firms have started to hire senior staff of international calibre and to seek joint ventures with foreign firms. In contrast, small mines and cooperatives face problems of such dimensions that only a long-term program of technical assist- ance and development credit would offer the chance of transforming the more promising entities into viable operations. This process will be assisted by an IBRD financed small mining development project. Since small individual and cooperative mines account for one-half of sector employment, they pose a social as well as economic problem. Rehabilitation efforts notwithstanding, most small mines are bound to gradually disappear or to be merged into more viable units. 6. The effectiveness of Government institutions serving the mining sector has been hampered by staff shortages and lack of funds as well as the absence of consistent development-oriented policies. The Ministry of Mining and Metallurgy often gave only limited policy guidance; as a result, there has been little coordination among state entities in the mining and _ metallurgical sector. However, the Ministry recently has benefitted from employment of highly motivated officials and also from external technical assistance. The Geological Service (GEOBOL) and the Institute for Mining and Metallurgical Research (IIMM) have expanded considerably in recent years but they are being sidetracked from their basic geological and research functions  - iii - by the Government's decision that these entities should increasingly pursue revenue-earning contract activities. Recent progress notwithstanding, Govern- ment regulatory and service institutions require further administrative improvements and increased allocation of funds, in addition to rational policies, in order to function more effectively. The state-owned Mining Bank (BAMIN), which is charged with providing financing, technical assistance and marketing to private miners, has a history of inefficient operations, with conflicts of interest arising between banking and marketing to the detriment of both functions. The Government attaches priority to BAMIN's rehabilita- tion, recognizing that the entity is in urgent need of recapitalization and of substantial improvement and rationalization of its operations. BAMIN's capital has recently been increased and technical assistance is forthcoming from IBRD as part of a small mining development loan. BAMIN would probably benefit from limiting itself to providing credit to private mining where it has an important role to play. Partly due to the absence of an effective government development bank, the privately-owned Industrial Bank (BISA) has become an important source of financing for medium mining investment. 7. Past mining policies in general have not contributed to bring the Government's goal of revitalizing the mining and metallurgical sector closer to realization. On the contrary, mining taxation has induced irrational and wasteful operations and has curbed the incentive to expand, the exclusion from private activity of large tracts of mineralized areas held by the Government or COMIBOL ("fiscal reserves") has tended to restrict private exploration, and the lack of adequate credit has adversely affected the sector's productive capacity. However, the Government is enacting policy changes conducive to mining growth and development. A change-over from the present taxes on value of production to a tax based on net profits, under preparation now, is expected to eliminate the most adverse effects of the present system. Fiscal reserves are about to be opened to private exploration in joint ventures with public entities. An exploration fund is being established to facilitate financing of exploration by private as well as public entities. In a significant change of its previous position, the Government is now encouraging joint ventures of domestic producers with foreign firms, in order to gain access to foreign capital and know-how. 8. The envisaged policy reforms are in accordance with development requirements of the mining and metallurgical sector and should contribute to faster growth over the medium to longer term. As regards market prospects, increases in demand for minerals exported by Bolivia can be expected to be at least within their historical range and probably somewhat higher as new uses are being developed (as for zinc, tungsten and antimony) or substitution and economization in usage are likely to pose less of a problem than in the past (possibly for tin). 9. As part of its 1976-80 Development Plan, the Government aims at diversification of mining and a considerable expansion of smelting and refin- ing. To this end, it envisages a substantial acceleration in mining and refining growth over the next five years or so to 6% p.a., with even faster growth for minerals other than tin. Planned public investment not including ferrous and radioactive minerals development is approaching US$395 million, compared to less than $70 million over the previous five years (both in 1975  - iv - prices). The bulk of investment is earmarked for mineral processing, includ- ing over $240 million for smelting and refining, in order to process nearly two-thirds of mining output domestically by 1980. On the other hand, alloca- tions for exploration and mine development have remained relatively small and are clearly inadequate for developing the sector's potential over the long- term and for attaining the Government's goal of diversification of mining output. 10. While the emphasis on developing the potential of minerals other than tin is sound, given Bolivia's resource endowment and market prospects, the objective of expanding smelting and refining involves some unresolved issues. Although the Government's position that forward integration into smelting and refining would enhance the net contribution of mining related activities to the economy, reduce the sector's dependence on foreign smelters and lay the basis for processing industries appears convincing, there remain some questions about the priority and viability of some of the envisaged projects. Most projects are still in a preliminary stage and detailed analysis has yet to be carried out. This analysis should include investment alterna- tives in mining whose returns are likely to be higher; it should indicate the substantial needs for skilled manpower and marketing expertise associated with an extensive smelting and refining industry; and it should show the likely implications on balance of payments and external debt as metallurgical invest- ment generally has to be large-scale and very capital intensive to be economical, implying substantial requirements for -- mainly external -- financing. Current output and presently proven reserves of some minerals, especially copper and lead, might not to be sufficient to provide adequate supplies of concentrates over the lifetime of metallurgical projects. It also appears that the direct contribution to GDP growth and to the balance of payments to be expected from an expanding metallurgical sector would be limited, at least over the medium term. The magnitude of capital outlays and borrowing requirements and the danger of resource misallocation associated with potentially oversized and premature investments make it imperative that a thorough analysis of indi- vidual refining projects be carried out before any firm investment decision is taken. Projects should be selected according to their pay-back period and their impact on the export capacity of the economy; and accordingly, metallurgi- cal projects whQse feasibility appears questionable under present circumstances due to low export contributions, low returns, and high import requirements, might have to be postponed or deleted. 11. In the short term, mining capacity will continue to be restrained, despite accelerating investment underway in COMIBOL and the medium mines, until new production facilities come on stream and productivity measures take hold. Assuming that over the next five years or so, the larger part of planned public investment is carried out in time and that there will also be substantially increased private mining investment, it should be possible to attain output growth not much below the Government's target of 6% p.a., with increases in export earnings and fiscal revenues of a comparable mag- nitude. Growth will probably slow down afterwards when the expansion effect of new investment will be progressively compensated by declining output from  mines nearing depletion. On the basis of metallurgical investment feasible over the medium to longer term, it is also possible that by 1980, about 45% of mining output might be refined in Bolivia, increasing to 65% by 1985. 12. The mission estimates that mining and metallurgical investment of the public and private sectors required to meet these output targets totals close to US$390 million (in 1975 prices) for the next five years. Probably not more than 20% of financing can be realistically expected to be generated from cash flow and other domestic sources. There are about $120 million external loans already committed including loans from the World Bank Group to medium and small mines totalling $19 million. It should also be possible over the next five years to attract direct foreign investment of at least $20 million. Assuming that financial and suppliers' credits could finance a substantial proportion of metallurgical projects, this would still leave financing falling short of sector requirements by nearly $90 million and by nearly $50 million for smelting and refining investment alone. The Govern- ment should therefore explore the desirability of reducing planned metallur- gical investments instead of further increasing external borrowing. 13. While Bolivia's potential for mining development on a substantial scale is likely to be modest by international comparison due to the absence of known large and easily exploitable deposits, comparative advantages do exist for rare metals such as antimony, tungsten, and bismuth which eventually might open up possibilities for industrialization. With no alternatives in sight over the next years, the mining and metallurgical sector remains of key importance for output and export growth of the overall economy until other sectors are sufficiently developed to become self-sustaining. Nevertheless, the share of mining-related activities in GDP is likely to continue to decline as newer sectors will benefit from the trend towards diversification of the economy.   I. RECENT TRENDS 1. Contribution to Growth 1. Mining in Bolivia, traditionally one of the most important activi- ties of the economy, has undergone a secular stagnation mainly associated with the weak performance of the largest enterprise, the state-owned Corporacion Minera de Bolivia (COMIBOL), and slow growth of world markets for tin, Bolivia's principal mineral. Value-added of the sector over the last 10 years has grown at an annual average rate of only 1.5%, with a 5% decline in 1975 when output was affected by falling mineral prices and weak demand resulting from the world-wide recession. The industry's share in GDP thus dropped below 11% in 1975 after having risen during the 1960s from 10 to over 14%. Investment, in particular that of private medium mines and foreign firms which surged in the late 1960s, fell to insignificant levels in the subsequent period of political upheaval and accelerating inflation. Employment in mining amounts to just between 60,000 and 75,000 people, equivalent to about 3% of the employed labor force. This low absolute level has been due to capital-inten- sive methods of production, and slow employment growth is the direct result of inadequate investment and stagnating production. Thus, mining has not contri- buted significantly to growth and development of the overall economy. Since the late 1960s, just about 5% of GDP growth has been attributable to mining. 2. Its slow development notwithstanding, mining has contributed the largest share of Bolivia's export earnings and until very recently, of fiscal revenues as well. During 1965-75, minerals accounted for nearly 75% of merchandise exports and tin alone, for nearly 40%. Over the same period, the mining sector generated close to 25% of Central Government current revenues. However, excessive dependence on tin and sharp fluctuations in mineral prices rendered mining a highly unstable and slow-growing source of foreign exchange and fiscal revenue, with consequent strains on the balance of payments and on public finances. 3. Almost the entire mining output of Bolivia is exported, mainly in the form of concentrates with a metal content ranging from below 25 to 60%. With the exception of one-third of tin and antimony output and the bulk of bismuth, minerals have to be refined abroad. Refining fees and transport costs thus incurred reduce net earnings from mineral exports by about 20% on average. While mining is the most export-intensive sector of Bolivia's economy, its import requirements also are very large. The import content of fixed mining investment approaches 80%. About the same proportion of material inputs has to be imported. On that basis, direct import requirements for operations (i.e., net of transport and refining costs) would be close to US$65-70 million annually and including investment, around US$90 million. There have been substantial price increases for imported inputs since late 1973 which initially were more than compensated by rising mineral prices; however, when mineral prices began to decline in late 1974, the higher costs of imported inputs contributed to the sharp reduction in margins of mining operations.  4. The importance of mining for the overall economy notwithstanding, Bolivia appears to have only modest potential for mining development on a substantial scale. The mineralized area covers less than one-third of the country's land surface and is almost entirely located in rather inaccessible portions of the Andes; mine development thus often involves formidable logistical and transport problems. Also deposits tend to be relatively minor, placed in narrow veins and occur at substantial depths, which impedes applica- tion of the most efficient mining techniques, i.e., open pit or dredging. Therefore, future mining in Bolivia is likely to remain confined to medium and small size operations by international standards. Nevertheless, Bolivia's share of world production of certain minerals is quite important: centrally- planned economies apart, the country is the secon.d largest producer of tin anid antimony, the third largest producer of tungsten and Iolis significant rescrves of relatively rare and highly priced minerals such as antimony, tungsten, bismuth 1/ and cadmium. 2. Major Producers 5. More than one-half of Bolivia's mining output is state-controlled. The government-owned Bolivian Mining Corporation (Corporacion Minera de Bolivia; COMIBOL) produces a wide range of minerals and also operates a bismuth smelter/refinery. In addition, the National Smelting Company (Empresa Nacional de Fundiciones; ENAF) processes about one-third of tin and antimony output. Mining enterprises are classified into three categories: COMIBOL, the dominant entity, which owns and manages 14 large mines, accounts for over one-half of mining exports and taxes and for over one-third of mining employ- ment; thirty-one medium-sized private companies which account for the larger share of private mining output though not of employment; and about 2,000 - 3,000 small mines. 2/ A significant proportion of small mines is frequently brought into or taken out of operations depending on mineral prices and inter- national market conditions. Due to generally higher taxation and more stringent reporting requirements for medium mines, a number of firms exceeding the production limits set to qualify as medium mine choose to remain in the small miners' group. In addition, there are about 100 cooperatives which work under marginal technical, economic and social conditions, often exploiting abandoned COMIBOL mines and selling their output back to the company. I/ Whereas bismuth in other mining countries generally is a by-product contained in basic metal sources, a number of Bolivian mines produce bismuth as principal material. 2/ The recently completed inventory of small mines identified about 5,200 individual properties. However, not all of these properties are under production; and a number of producers might own more than one property.  TABLE 1: GROWTH OF MINERAL OUTPUT AND SHARE OF MINERALS IN BOLIVIAN AND WORLD MINING PRODUCTION, 1965-74 (Percent) Share in Bolivian Share in World Mining Production Growth of Mineral Output Mining ProductionY of Individual Minerals 1965-74 1965-69 1970-74 1965-74 1965-69 1970-74 1965-74 1965-69 1970-74 Tin 2.0 4.4 -0.7 62.1 68.o 58.6 12.9 13.4 12.6 Zinc 15.1 18.0 12.9 7.1 3.5 9.3 0.8 0.4 0.8 Antimony 4.5 10.7 -0.1 7.0 5.0 8.2 21.4 19.8 23.3 Tungsten 9.8 20.0 2.2 5.9 5.2 6.4 Copper 5.9 14.1 -0.2 5.0 5.0 5.1 0.1 0.1 0.1 Lead 1.1 9.5 -5.5 3.7 4.2 3.4 0.7 0.7 0.6 Silver 3.9 10.1 -0.9 5.7 5.9 5.7 1.9 1.8 1.9 Bismuth 9.9 22.7 0.8 2.3 1.3 2.8 16.32/ 16.23-' 16.42/ Gold 17.8 -- 0.3 0.7 -- o.004 0.07 -- Cadmium 5/ 0.2 -- 0.2 0.2 0.01 0.4 Other 5/ 0.7 1.2 0.3 -_ _- -- not available not applicable 1/ Value. 2/ Volume. 3/ Excluding U.S. output. 17/ 1965-72 3/ 1974 output 18 times above that of 1965. Source: Government of Bolivia, Ministry of Mining and Metallurgy; Metallgesellschaft.  - 4 - 6. The changing contribution of the producer groups to mining exports, employment and fiscal revenue is shown below: TABLE 2: SUBSECTOR SHARES IN MINING EXPORTS, EMPLOYMENT AND TAXES, 1965-75 (Percent) Mining Mining Mining Exports Employment Taxes 1965-75 1965-70 1971-75 1965-75 1965-74 1965-70 1971-74 Large Mining (COMIBOL) 60 54 64 40 56 49 59 Medium Mining 23 23 23 10 28 34 26 Small Mining 17 23 13 50 16 17 15 Note: Allocation of ENAF's exports of refined metals according to COMIBOL's and medium miners' shares in supply of concentrates to ENAF. Source: Central Bank; Institute of International Development, Harvard University: Taxation and the Mining Sector in Bolivia. 3. Major Minerals 7. Tin has dominated the development of the Bolivian mining sector. Bolivia is the world's second largest tin producer, accounting for nearly 12% of world supply in recent years. However, output and exports have stag- nated over the last 10 years or so as a result of high operational costs due to depletion of known reserves, discriminatory taxation and very slow growth in international demand. The share of tin in mineral exports had fallen below 60% by the mid-1970s compared to 70% throughout the 1960s, despite the fact that tin prices had improved relative to those of other minerals, in part due to exports of refined tin since 1971. 8. In contrast, exports of other minerals combined have increased by almost 6% p.a. over the last 10 years, compared to less than 1% for tin. In order of contribution to exports, zinc has become the second most impor- tant mineral and has grown fastest, which was made possible by significant capacity expansion carried out by foreign investors during the late 1960s. Bolivia has doubled its share in world production which, however, has remained very small. Output of antimony has grown only moderately. Although prices generally were firm with the exception of short but sharp swings in 1970/71 and 1974/75, this did not lead producers to expand or improve existing mines. In contrast, tungsten output grew relatively fast, stimulated by strong international markets. COMIBOL's sales of tungsten have increased 2.5 fold  - 5 - over the last 10 years, making this mineral an increasingly important compo- nent of the company's earnings. 1/ Copper output showed steady growth through the early 1970s but declined steeply in 1975 in the wake of falling prices. In particular, small mines, which have been hard hit by cost increases and difficult access to markets, reduced output and a number of operations were closed down. Output of lead increased rapidly through 1970 but has been falling off since then. While COMIBOL's production increased at an above- average rate, that of small mines stagnated and medium mining output prac- tically ceased after 1972. Bismuth output has grown relatively fast since the late 1960s when COMIBOL completed its smelter and entered into a long-term sales contract with PRB of Belgium. Output of small mines also increased while that of medium mines levelled off at a very low level. Among minor minerals, cadmium, entirely accounted for by COMIBOL, expanded substantially since 1970 while output and prices of sulphur have experienced sharp swings. 4. Institutions Serving the Mining Sector 9. There are basically four groups of institutions which to a greater or lesser degree influence mining activities. Policy-making bodies such as the Ministry of Mines and Metallurgy and the Ministries of Finance and of Coordination and Planning, act as regulatory bodies and are instrumental in formulating development goals, strategies and policies for the sector. Supporting institutions such as the Bolivian Geological Service (Servicio Geologico de Bolivia, GEOBOL) and the Institute for Mining and Metallurgical Research (Instituto de Investigaciones Minero-Metalurgicas, IIMM) are charged with geological survey work and basic research into ore processing. Financial intermediaries, essentially the Mining Bank (Banco Minero, BAMIN) and the private Industrial Bank (Banco Industrial, BISA) have provided working capital loans and term credit for investment financing. Finally, there are producers' associations on a country-wide and regional level--the National Association for Medium Miners (Asociacion Nacional de Mineros Medianos), the National Mining Chamber (Camara Nacional de Mineria) for small miners, and the National Federation of Bolivian Mining Cooperatives (Federacion Nacional de Cooperativas Mineras de Bolivia)--which principally act as representatives of their members' interests vis-a-vis the Government. II. DEVELOPMENT CONSTRAINTS AND DEVELOPMENT REQUIREMENTS 10. While Bolivia's topography and geological characteristics pose con- siderable natural obstacles to mining, the very slow development of the sector in recent years has also been the result of deep-seated structural problems, 1/ However, COMIBOL's indigenous tungsten output has substantially declined; exports thus were increased on the strength of purchases from mining cooperatives.  - 6 - compounded by institutional weaknesses and inadequate Government policies. They have added to inadequate investment and operational inefficiencies which have severely curbed the productive potential. 11. Requirements for faster growth and development of mining are evident. A substantial investment effort is needed to compensate for past neglect, to modernize existing operations and to take advantage of opportunities for expansion and diversification. Government institutions serving the mining sector should be greatly strengthened, and mining policies made more develop- ment-oriented. These requirements are being recognized by the Government and policy changes are underway likely to produce an environment conducive to sustained growth and development. Encouraged by the Government's more favor- able attitude towards the private sector, mining investment is gathering momentum. Increasing amounts of foreign loans for state and private mining investment have been attracted and for first time in almost ten years, there is also some direct foreign investment. Intensified support from abroad-- through loans for investment projects, joint ventures and technical assistance --will be needed to supplement domestic efforts to rehabilitate and expand mining activities. 1. Basic Constraints Natural Conditions 12. Bolivia's mineralized area is essentially confined to rather in- accessible regions of the Andes. Mines are located at high altitudes--in some instances above 5,500 metres--and access at times involves formidable infrastructural and logistical problems. Mineral outcrops normally occur in narrow, deep-seated veins, embodied in "ard rock, which precludes effi- cient exploitation methods such as open pit, dredge or trackless mining. Instead, deep shafts and extensive galleries are needed to gain access, which tends to make mining in Bolivia a high cost, low efficiency operation. Furthermore, deposits normally are low grade and frequently consist of complex ores--lead-zinc, lead-silver, copper-bismuth, to name a few--which are fairly difficult to treat and therefore, involve relatively high smelt- ing and refining costs. Exploration and Mine Development 13. The restriction to low productivity mining operations has in part resulted from neglect of systematic exploration and mine development. Most deposits now mined were already known at the turn of the century. There was no exploration on a significant scale for nearly three decades since the 1930s; while private exploration revived somewhat in the late 1960s and early 1970s, GEOBOL estimates that not more than US$10 million had been spent on explora- tion over the last decade. As a result, known reserves of most mines have fallen to dangerously low levels. Only about a dozen mines have developed  - 7 - reserves for more than four years. Furthermore, recovery rates of metallic values have declined as lower grade, more complex ores have to be mined. 14. COMIBOL's investment in exploration and mine development has followed an erratic pattern and has been undertaken on a significant scale only very recently. Difficulties in finding required financing and unforeseen delays in preparation and implementation impeded progress of the exploration and reserve development program. The most successful project, the Caracoles cross-cut, proved up over a dozen new veins with width and mineral content well above those deposits now being exploited. However, very little explora- tion and development has been carried out at the Catavi mine, which has a firm potential for additional deposits, reputedly because of the unusually high risk of investing in a mining zone beset with permanent labor difficulties. There was substantial investment by medium mines in the late 1960s which resulted in capacity increases by around 1972; but later, their exploration activity had all but ceased and painstakingly assembled exploration teams were dismantled because opportunities in mining were deemed unattractive. The most common way for medium mining firms to increase ore reserves has been by buying up other mining properties, mainly those of small mines which sold out once heavier investment and more sophisticated mining methods became necessary to continue operations. Small mining firms did not carry out any organized exploration and mine development. 15. In past years, Government attitudes and policies towards private sector activity in general and in mining in particular have also affected exploration and development. Political instability and episodes of outward hostility towards the private sector left its imprint on exploration and development which by its nature is high-risk, high-cost investment requiring a long gestation period. Even in the present, more stable political environ- ment, the incentive to invest continues to be adversely affected by provisions in the areas of taxation, fiscal reserves and credit allocation. There are no tax incentives nor credit available to finance exploration. Furthermore, the Government and COMIBOL hold extensive mineralized areas as fiscal reserves which only now are about to be opened to private exploration on a selective basis. Private firms therefore tended to short-cut exploration and to pursue investment with quicker pay-back periods, often outside mining. 16. Exploration has also been hampered by insufficient basic geological work on part of GEOBOL, especially geological mapping. Of Bolivia's land area, only 25% had been geologically mapped by 1972, and less than 5% explored on any systematic basis; since then, this proportion has increased somewhat after completion of surveys covering the South-East and West of the mineral belt. Apparently both COMIBOL and medium mines now are undertaking basic geological tasks to be considered part of GEOBOL's responsibility. However, the entity ought to benefit from technical assistance it recently received from UNDP and the British and West German geological services for joint exploration.  8 Other Investment 17. Investment in mining and processing equipment and in other produc- tive installations has been grossly inadequate over extended periods. COMIBOL's equipment at nationalization in 1952 was already depreciated and technically obsolete and no significant new investment occurred until very recently. COMIBOL has channelled investment mainly into ore processing (including volatization) and was thus successful in increasing recovery ratios despite falling mineral content of ores. On the other hand, production and safety equipment in mines has further deteriorated. The situation is better among the larger medium mines which expanded and modernized operations during the late 1960s, partly through purchase of well-kept second hand equipment. Smaller firms are seriously undercapitalized, however, often neglecting essential safety standards and--among the smallest producers--working without mechanically powered equipment. 18. Obstacles to investment in production facilities are similar to those restricting exploration and mining development. In addition, sharp price increases for mining equipment apparently in excess of international price increases due to Bolivia's weak market position,combined with occasional supply difficulties,are cited as restricting investment in equipment. Higher prices (in local currency terms) resulted from the devaluation in 1972 and international price rises for steel products during 1973-74. Future price increases of significant proportions are likely to be brought about by the gradual start of production of mining equipment within the Andean Common Market and Bolivia's commitment to eventually adopt the Andean Common External Tariff, which is bound to exceed Bolivia's preferential import tariff for these items (presently ranging from zero to 2%) by an substantial margin. Operational Efficiency 19. Mining and processing of minerals in Bolivia generally are high- cost, low-efficiency operations. Among tin mining countries, Bolivia has the highest production costs with the exception of the U.K.; in turn, COMIBOL's production costs exceed the Bolivian average. COMIBOL's tin production costs during 1975 reportedly were above US$3.20/lb and those of medium miners, around $3.-/lb. i.e. higher than the international tin price for most of that year. Over the last years, Bolivia's production costs for tin persis- tently exceeded the floor price under the tin agreement. Bolivia's cost disad- vantage is in part the result of geological and geochemical peculiarities. In contrast to the Far East tin producers (Malaysia, Indonesia, Thailand), which are able to exploit primarily alluvial and eluvial deposits allowing use of cheaper production methods and to apply relatively cheap graphimetric concen- tration to process ores to almost pure cassiterite, Bolivian ores generally are located in narrow-vein underground deposits and therefore, have to be high-grade to make exploitation economical. Furthermore, Bolivian tin often occurs in colloidal form whose separation requires expensive pyrometallurgical processes (such as volatization) or has to be recovered from sulphides which makes further up-grading necessary, thus introducing additional sources of  - 9 - metallurgical losses and reducing overall recoveries. As a result, the average tin content of Bolivian concentrates is just above 35%, compared to 70% for Indonesia and 75% for Malaysia and Thailand. 20. Lack of reserve and mine development and insufficient investment in equipment in the past are depressing operational efficiency. Low labor productivity is a problem particularly for COMIBOL and small mines whose recent per-man output was just 67% and 15%. respectively, that of medium mines. Employment in COMIBOL and the small mines is well in excess of requirements; on the other hand, COMIBOL employs underground just about 35% of its work force compared to over 60% in medium mines. 1/ While Bolivian mine workers are said to be quite experienced, considering their working conditions and low educational attainments, there is a lack of capable middle management at the mine and plant levels. Effective operating systems hardly exist, resulting in waste and inadequate organization. In concentrating, hardly any efforts are made to gain by-products. Most firms irrespective of size encounter serious difficulties in applying indispensable management tools such as financial control and project evaluation. The absence of proper cost accounting and inventory control impedes efficiency control. These managerial shortcomings have been compounded in many instances by ineffective deployment of scarce professional staff. 21. Mining operations also have had to sustain substantial cost increases of both domestic and foreign inputs. Wage increases for miners during 1972-74 largely eliminated the cost advantage expected to be gained from devaluation; more recently, in 1975, the sector experienced price rises for energy and fuels. 2/ As to imported materials, price increases during 1973-75 for ammo- nium nitrate, drill bits and metal sacks--which together account for about 20% of total material costs--ranged from 55 to nearly 200%. The effect of these increases, which was not fully felt until export prices started to decline at the turn of 1974/75, was particularly damaging to a number of marginal COMIBOL and small mines. (However, unit costs of Bolivian mines over recent years do not appear to have risen faster than those of other tin producers: the problem is one of absolute levels rather than annual changes.) 11 However, COMIBOL's surface labor force includes many former underground miners who for health reasons are unable to continue to work in mines. 2/ As part of a price adjustment for domestically consumed petroleum derivatives in late 1975, fuel oil prices for mining firms went up by 95%. However, due to relatively low share of energy in produc- tion costs and prevailing low fuel costs, increases of production unit costs as a result of the fuel oil increase are estimated by the Ministry of Mining to be less than 1%.  - 10 - Infrastructure 22. Deficiencies in transport services and, to a lesser extent, in energy supply also affect mining operations. Although distances to ports might be as long or even longer elsewhere, transport costs sustained by Bolivian mining are significantly higher than in most other mining countries due to geographic isolation of mines, poor conditions of the transport system and uneconomic load factors. Truck transport is costly despite continued low fuel prices as poor road conditions involve delays, accidents and consequent losses. Efficiency of the rail network, which is confined to major traffic routes, is still seriously affected by past neglect of repair and maintenance of road beds and rolling stock. Concentrate losses-in-transit had been as high as 12% and even after acquisition of some new ore cars, were still around 7%. 1/ Restricted capacity of the railway system has become a serious impediment to mining expansion, particularly in the Potosi region. However, a railway rehabilitation program, assisted by IBRD, should contribute to eventually reducing the transport bottleneck. Further increases in transport and handling costs result from inadequate storage and handling facilities both at collection points in Bolivia and ports in Peru and Chile used for Bolivian exports. Finally, due to relatively small individual shipments, advantageous ocean freight rates are hardly ever attained. 23. While energy costs in Bolivia are still low in comparison to mining countries mainly relying on imported petroleum as energy base, generating capacity, reliability of supply and geographic extension of the system are still insufficient. Mines often have to generate their own power, involving additional investment and current expenditures. Inadequacies in energy supply are bound to restrict modernization and expansion of mining and energy-intensive processing. However, rural electrification programs under- way are likely to benefit mining districts, too. For a traditional mining country like Bolivia, supporting activities are little developed. There still is hardly any domestic production of equipment or current inputs needed in mining. Import agencies normally operate with low volumes and high mark- ups. Deliveries of imported goods are said to take up to nine months. Mining firms therefore have to hold substantial stocks, incurring financial charges or else, risk interruption of operations. Export Composition, Marketing and International Markets 24. Mining development in Bolivia has also been restricted by the preponderance of tin, a mineral whose international demand is growing slowly and which is subject to significant price swings. 2/ Despite some diversif- ication in recent years, tin still accounts for nearly 60% of mining exports. 1/ Institute of International Development, Harvard University, based on interviews with mining enterprises during 1975. 2/ Price fluctuations for tin during 1955-75 were less than for most non-ferrous metals but above those for metallic minerals traded mainly on the basis of long term contracts such as bauxite, iron, and manganese.  - 11 - The larger part is exported as low-grade tin-in-concentrates which are not easily marketable and their sales are limited to a few refineries in Western Europe and North America processing "dirty" ores. While an increasing share of tin is refined domestically, ENAF's refinery can only process relatively high-grade (around 45%) material; any lasting improvement of the market position for the remaining tin concentrates therefore will have to await completion of ENAF's low-grade tin smelter. 25. A serious disadvantage for Bolivian mining has been posed by the lack of efficient marketing. With the possible exception of some of the larger medium mining firms, exporters do not have effective sales organiza- tions. There is only limited knowledge about international mineral and freight markets and little risk awareness; little attention is paid to forward price movements which aggravates supply inelasticities inherent in mining production. In concluding sales contracts, optimum conditions therefore are hardly ever attained 1/. Although COMIBOL, ENAF, and BAMIN combined have an export volume large enough to establish an adequate bargaining position, the Government never attempted to forge a coordinated marketing approach. BAMIN moreover has been affected by its purchasing policies, inefficient handling practices, and high transport costs due to small individual shipments. 26. Direct sales to final users are confined to certain tin-in concentrates by COMIBOL, BAMIN, and some medium mines and most recently, sales of antimony concentrates to ENAF. All other material is sold to international trading firms either by producers directly or BAMIN. Trading firms have increasingly acted as principals, thus excluding mineral suppliers from decisions over timing and destination of sales. While trading firms generally pay imme- diately after delivery, their commission could be as much as 20% of the sales price. 2/ Attempts by BAMIN to conduct more direct sales (e.g., of antimony) have been unsuccessful as uninterrupted deliveries and quality 1/ Individual sales contracts vary greatly according to mineral, by- products, parties involved, form of shipment chosen, length of contract etc., but "smelting contracts" would normally have certain basic features. First, the price would be based on quotations at international metal exchanges (primarily London and New York) or producer prices adjusted by smelting and refining fees; the latter depend on metal content, cost escalation clauses, and penalities for impurities. Second, a quotation period will be chosen by the refinery, normally following discharge at port of destination. Third, a provisional payment--possibly 80-90% of estimated value--will be made against shipping documents, the rest being paid after finally establishing volume and grade. In turn, contracts with trading firms would include different modalities mainly depending on if these firms act as agents or principals. 2/ Trading firms frequently extend credit to private miners for working capital and even investment, in exchange for long-term delivery contracts.  - 12 - required by refineries cannot be guaranteed. Instead of concluding longer term contracts, BAMIN mainly undertakes spot sales for which it invites tenders by trading firms. There are indications that there tends to be collusion among buyers and that offers often are below international quota- tions for minerals, especially if BAMIN has accumulated excessively high stocks. 2. Problems Faced by Major Producers 27. In addition to the obstacles affecting the sector as a whole, the various producer groups are facing problems of their own which intensify the overall constraints on development. The nature of these problems and scope for their solution are discussed below. Corporacion Minera de Bolivia (COMIBOL) 28. COMIBOL has accounted for about 53% of mineral exports during 1965-74, and somewhat more than 57% in 1975 when there was a disproportionately large decline in private mining. The company owns and operates 14 large mines, extensive concentration facilities and a bismuth smelter/refinery. The company is large even by internatioal standards with US$226 million of total current assets and nearly 24,600 employees at end-1974. Tin accounts for nearly two-thirds of COMIBOL's output; in addition, the company mines and processes at least 10 other minerals of which zinc, silver, tungsten 1/ and bismuth are the most important. 29. Since its inception in 1952, COMIBOL has been beset by serious problems. Although the company has achieved noticeable improvements in recent years and management is highly competent in all technical aspects of mining, operations continue to be inefficient, and operational costs higher than in private mines. This has been due to various factors. First, mineral deposits under production probably are more depleted than for the sector as a whole since most COMIBOL mines had been working for many years. COMIBOL therefore had to shift to block-caving which is expensive and less rewarding; and throughput of material in beneficiation plants has increased substantially, further adding to costs. Second, most production equipment and safety instal- lations are over-aged, with little modernization undertaken since nationaliza- tion; technology applied is outdated and health and safety standards in the mines often are appallingly low. Third, COMIBOL is seriously over-staffed. The work force was increased even in years of falling production, with a resulting decline in labor productivity; at the same time, the share of the work force employed underground has fallen and is now about one-third, compared to 60% in private medium mining firms. It has thus been estimated that COMIBOL could dispose of 15% of its labor force without any fall in 1/ Tungsten is mainly purchased from cooperatives; COMIBOL has little production of its own.  - 13 - Table: COMIBOL SHARE IN MINERAL EXPORTS, AND SHARE OF PURCHASES FROM COOPERATIVES IN COMIROLTE,YPORTS, 1967-75 (Percent) Share of Purchases from Cooperatives COMIBOL 3hare in Mineral Exports in COMIBOL Exports 1965-70 1971-74 1975 1967-70 1971-74 TOTAL 534 53.2 57.2 18.6 8.0 Tin 63.7 55.9 75.5 16.4 16.6 Zinc 22.2 81.9 68.9 0.1 - Tungsten 30.2 36.4 40.o 98.0 100.0 Copper 40.8 43.6 50.1 13.9 4.3 Lead 40.5 63.1 84.7 10.1 4.0 Silver 79.5 86.8 91.1 6.8 6.3 Bismuth 97.5 94.4 95.6 9.0 6.4 Cadmium 100.0 100.0 100.0 - - Note: Shares based on gross value of mineral exports. Source: Ministry of Mining and Metallurgy; COMIBOL.  - 14 - production. Fourth, labor relations traditionally have been extremely diffi- cult. While there has been an improvement over the situation in the late 1950s and early 1960s, the incidence of strikes and unannounced work stoppages is still high, and mine and plant managers often have little authority over their personnel. Fifth, COMIBOL has been running an expensive program of fringe benefits and social services such as profit sharing, company stores and free housing in addition to free education, health and recreation facilities which have imposed on COMIBOL a substantial financial burden and blunted a com- mercial approach to operations. 30. COMIBOL is also facing organizational weaknesses. The wide scope of operations in terms of minerals mined and processes carried out is bound to pose difficult technological and managerial problems whose solution would require a streamlined and well integrated management and accounting structure. Instead, COMIBOL is over-centralized which impedes running its large and diversified operations efficiently; at the same time, there appears to be no clearly defined authority attached to the various levels of decision making, and top management has a span of control which effectively means little supervision. Budgeting, accounting and control do not allow proper evaluation of management performance. For example, financial statements do not clearly distinguish operational and investment expenditures 1/ nor is there a clear allocation of costs according to their origin. Thus, decisions often have to be made on the basis of incomplete and insufficient information, and there is often a lack of cost consciousness in operational and investment decisions. 31. There have been various attempts to rehabilitate COMIBOL, the most ambitious of which was the "Plan Triangular" of USAID, IDB and the West German Government. This plan envisaged recapitalization of COMIBOL through external loans; strengthening of management including budgeting and control with the help of external advisers; and freezing of wages and a substantial reduction of surplus labor. The plan was abandoned in the wake of political events in 1969-70. Since then, rehabilitation has been limited to partial efforts such as opening some new mines and increasing recovery ratios in ore processing through modernizing pre-concentration and concentration facilities. The company thus did gradually improve its position over the last years: recovery ratios in beneficiation, while still low by international standards, increased despite declining metal content of ores, and under adverse circumstances, COMIBOL was able to hold or even increase output of ore and concentrates. These efforts notwithstanding, operational efficiency has remained low, labor productivity has been falling and the cash flow is clearly insufficient to build up reserves and to contribute appropriately to financing an expanded 1/ This is done partly in an attempt to under-represent operational sur- pluses and thus, limit claims by workers and Government to expand fringe benefits and social services.  - 15 - investment program 1/. The entity has increasingly resorted to external borrowing to finance investment and in 1975/76, inventories as well. 32. COMIBOL's operational and administrative deficiencies point to the areas where improvements are most urgently required. The need for action is recognized by the Government and the company alike: considering COMIBOL's importance as by far the largest mining firm, any attempt to make mining in Bolivia more viable would have little success if rehabilitation of the state company were not given top priority. However, this is bound to be a huge task and to-require years of determined effort by the company as well as the Government, supplemented by substantial technical and capital assistance from abroad. On the part of COMIBOL, primary attention will initially have to be given to administrative reforms in order to equip the company with an organi- zation capable of increasing efficiency of current operations and of imple- menting a major expansion scheme planned over the medium term. Joint ventures with foreign firms for new operations form part of COMIBOL's development strategy in order to provide needed managerial and technical inputs, over and above investment capital for expansion. The handling of surplus labor will pose one of the most difficult yet crucial issues. While large-scale retrench- ment would be politically unfeasible, surplus labor should be encouraged to move to new mines to be opened up where productivity promises to be higher. Medium Mines 33. Largely dependent on Government policies vis-a-vis the private sector, operations of medium-sized mining firms have varied considerably. In general, their contribution to sectoral output and employment has oscillated around 22 and 10%, respectively, over the last 10 years. The subsector is dominant in tungsten and antimony, which are minerals with good market pro- spects; it accounts for some 45% of Bolivia's copper output and 20-25% of tin output whereas its share in remaining minerals is insignificant. Among the 31 medium mining firms, five have a volume of operations approaching or exceeding that of individual COMIBOL mines. The remaining enterprises are much smaller and less efficiently managed than the largest medium mining firms; at the lower end of the scale, firms might have a lower output than the largest of the small mines. These considerable differences in size notwithstanding, even the largest medium mining firms are small by international comparison and their corporate strength probably would not permit rapid growth on an indepen- dent basis. 1/ Net returns after tax and profit sharing by employees in 1974, COMIBOL's best year so far, has been equivalent to just 5% of fixed assets. In turn, the company's cash flow declined from nearly US$30 million in 1973 to an estimated US$8.5 million in 1975 and might just reach US$3 million in 1976.  - 16 - TABLE 4: SIZE INDICATORS FOR MEDIUM MINING FIRMS, 1973-74 1973 1974 Sales per firm (US$ million) Average /1 2.5 2.6 Large firms (2 firms) above 15.0 above 15.0 Remaining firms (14 firms in 1973; less than 0.5 less than 0.5 15 firms in 1974) Average profits per firm (US$ million) 0.3 0.5 Employment per firm Average /L 300 293 Large firms (5 firms in 1973; 500-1,000 500-1,000 4 firms in 1974) Remaining firms (15 firms in 1973; less than 300 less than 300 (18 firms in 1974) /1 20 of 27 firms in 1973. 24 of 28 firms in 1974. Source: Institute for International Development, Harvard University 34. Due to marked differences in size, medium mining output is heavily concentrated in a few firms. For example, COMSUR accounts for the entire medium mining output of zinc (equivalent to 24% of overall output); EMUSA, for 70% of antimony; International Mining Company, for 96% of tungsten; and Nitto Mining, for almost the total output of copper. Two of the medium mines have foreign participation; another two are fully foreign-owned. Medium mines sell about 70% of their output of tin and antimony directly to ENAF and smelters abroad. A certain share of medium mining output is marketed by metal trading firms, whereas a rather small proportion is sold to the Mining Bank (BAMIN). Medium miners tend to use sales to BAMIN as an outlet only when international markets are weak. 35. Technical and managerial competence as well as health and safety standards in medium mines tend to be higher than in other mining subsectors although there are significant variations within the medium mining industry. In the larger firms, managers and technical staff are experienced in all aspects related to medium-sized mining and ore dressing. Due to substantial investments in the late 1960s, equipment is more modern than COMIBOL's and tends to be well maintained and used at capacity. These advantages notwith- standing, most medium-sized firms are encountering increasing managerial, technical and financial constraints to further growth. Since most of these firms are family enterprises and reluctant to accept outside equity capital and managerial expertise, operations tend to outgrow their financial and managerial capacities. Accounting practices of virtually all firms leave room for improvement. However, some firms have strengthened their auditing and control systems in recent years, either in response to internal needs or in anticipation of foreign capital participation. Scarcity of skilled labor has  - 17 - caused production bottlenecks in some mines and equipment damage due to worker inexperience. There is lack of sophistication in international trading; as a result, bargaining positions are not fully exploited and potential profits foregone. Finally, anxiety about nationalization once operations have reached a certain size, and the virtual impossibility, due to labor legislation, of discharging workers or closing down unprofitable operations, have caused medium miners to keep a low profile and maintain self-imposed growth limits. Their investment during 1970-75 was substantially below the level attained during the late 1960s and rarely exceeded US$5 million per year; in particular, there is little investment for exploration. Only very recently has there been a return of investors' confidence as it is now generally expected that the Government's favorable attitude towards private sector activity is likely to persist. 36. It has therefore been mainly political stability which has caused private firms to plan for expansion; however, more positive measures on part of the Government will soon be needed if the momentum is to last and foreign investment on a significant scale is to be attracted. The new mining develop- ment law, due to be introduced shortly, should assist in that respect. In order to overcome managerial constraints to growth, the larger of the medium mining firms are increasingly turning towards employing senior staff of inter- national calibre or are seeking joint ventures with foreign firms. Partly due to more credit being available, investment is gathering momentum with little interruption caused by the recent fall in mineral prices. Loans totalling US$12 million have been made available from the World Bank Group for financing expansion projects of medium mining firms which should result in substantial output gains for tin, zinc, antimony, copper, tungsten and bismuth and possibly, silver and gold as well. Small Mines and Cooperatives 37. Small private and cooperative producers account for a fairly limited, and declining, share of overall mining output: 12% in recent years in com- parison to 23% in 1965-70. They are mainly important as a source of employ- ment. Small private mines might employ a total of 15,000 to 25,000 workers depending on the number of mines in operation, and cooperatives give some precarious employment to about 16,000 people, often disabled or otherwise discharged workers from COMIBOL and medium mining firms. Cooperatives mainly work deposits leased by COMIBOL after these have become unworkable with indus- trial methods, or tailings located near former or existing mines. Operations of small individual firms could range from one-family and part-time activities to enterprises comparable in output and employment, if not in technology used, to smaller medium mines. Cooperatives could have from five to as many as 1,000 members; the larger ones tend to have elected boards to deal with government institutions. Small mines and cooperatives mainly sell their output to BAMIN 1/ or--in the case of cooperatives operating COMIBOL leases--to COMIBOL. 1/ About 100 small mining firms have obtained permission to sell their output through other channels than BAMIN. They are grouped as "Other Exporters" in Bolivian mining production and export statistics.  - 18 - 38. Their small and declining contribution to overall mining output notwithstanding, small private and cooperative producers are of certain importance for individual minerals. The share of small mines in the output of tin, antimony, tungsten, and lead is still signifi-;oi*t -T 'le of COMIBOL's sales, 15% of tin, over 60% of gold and nearly 90% of tungsten originates from cooperatives. 39. Small individual and cooperative mines are the most backward and least efficient mining units in Bolivia. They generally mine marginal deposits, employ very little capital and apply primitive technology and rudimentary management. Records, if any, are seriously incomplete; there is practically no technical or financial planning, and mining is carried out irrationally. Only the richest and most easily accessible portions of deposits are normally exploited, which often results in serieus damage to the ore body, making a later use by industrial methods more difficult, if not impossible. The problem is compounded as small mines and cooperati-es are widely dispersed and often operate in the least accessible areas where transport and marketing infrastructure are worse than elsewhere; and also because they mainly produce tin whose world demand has grown little, and complex minerals which are costly to recover. Operations normally are feasible only because costs are kept low through inferior wages and negligence of essential health and safety measures. Until very recently, small producers had little or no access to credit other than short-term trade credits from BAMIN, and thus no means to mechanize and improve operational efficiency. Cooperatives have the additional disadvantage of insecurity of title as their leases are generally restricted to three years, and the resulting lack of collateral for bank borrowing. Although small mines and cooperatives are taxed at concessionary rates, this advantage is lost through high production costs and low gross incomes due to generally low metal content of concentrates. 40. As it happened in more advanced mining countries, a selection pro- cess is likely, leading to the gradual disappearance of most small indivi- dual and cooperative operations. Perhaps about 100 small mining firms have the potential to become viable entities provided they receive substantial inputs of technical and capital assistance. Taking into account that small miners tend to have certain reservations about outside assistance, a gradual approach coupled with a public relations effort will be required, starting a program of assistance with those firms whose potential is most promising. Nevertheless, attempts to strengthen the small mining subsector necessarily will have to be selective and the cut-off point rather high. 41. In preparation of an operation of this kind, GEOBOL has carried out and is presently evaluating a survey sponsored by the Bank Group. A small mining development loan recently committed by IBRD is to be channelled through BAMIN to the larger small mining producers; the project includes obligatory technical assistance to loan recipients for both project preparation and implementation. Other potentially viable small operations might become interesting for external loans from other sources or direct foreign investment. The proposed establishment of equipment pools and regional concentrators by private firms or the Government could also help to improve productivity of  - 19 - small mines. On the whole, however, most of these operations will continue to offer a marginal existence only, and the bulk of persons employed will have to be absorbed by more remunerative activities in medium mining or outside the mining sector. Smelting and Refining 42. Smelting and refining activities are almost entirely carried out by the state-owned National Smelting Company (Empresa Nacional de Fundiciones; ENAF) which has a monopoly on producing and exporting refined metals. There are also a few small privately owned tin and antimony smelters and COMIBOL operates a bismuth smelter and refinery; however, these operations are insig- nificant in comparison to ENAF. Formed in 1966, ENAF has refined tin since 1971 and antimony since late 1975. Both plants are located at Vinto, near Oruro. Nearly one-third each of tin and antimony are now being domestically refined, i.e., nearly 10,000 M.T. and 5,000 M.T., respectively. ENAF exports almost its entire output 1/ which during 1973-75 has accounted for 15% of Bolivia's mineral and metal exports. With annual exports of US$50-60 million approaching that of medium mines as a group, ENAF has become the second most important enterprise of the mining and metallurgical sector after COMlIBOL and the largest individual purchaser of tin and antimony concentrates in Bolivia. It purchases about 25% of COMIBOL's tin output and nearly 45% of that of medium mines. The tin smelter presently processes about 30,000 M.T. of high-grade (40-50%) concentrates, two-thirds of which are supplied by COMIBOL and the rest by medium mines. Small mines supply very little to ENAF due to low tin content of their concentrates. The throughput of the antimony refi- nery will be around 9,300 M.T. of 63% concentrate once capacity is reached. Antimony concentrates are to be supplied mainly by the largest medium mining producer. ENAF charges its suppliers treatment costs geared to the Capper Pass smelter of the U.K., a major user of Bolivian tin concentrates. It thus deducts most of the transport cost differential its suppliers would have saved by selling metals instead of concentrates, and occasionally, has added surcharges for pollution and increased petroleum world prices without having been subjected to such cost increases. 43. The setting up of refining capacities involved large-scale invest- ment, approaching US$75 million during 1967-75. The bulk was financed through West German and Czech suppliers' credits and foreign commercial bank loans; the Central Bank extended the equivalent of $9.5 million for working capital. ENAF's own contribution over this period has been just about US$1.5 million. While liable to a 20% corporate income tax 2/, ENAF thus far has not paid taxes due to the absence of profits. Thanks to improved capacity utilization I/ Domestic sales of refined tin since 1971 have accounted for less than 0.5% of ENAF's production. 2/ Metallurgical ventures for tax purposes are not treated as part of the mining sector.  - 20 - and favorable prices through 1974, losses were reduced but in 1975, gross income again fell by US$7 million despite increased shipments, due to weak tin prices and cost increases, in particular for energy. 44. As indicated by cumulative losses during 1971-74 of US$2.2 million reported by ENAF, the company has been faced with a number of problems, some of which were resolved after completion of the break-in phase. Others, such as the level of infrastructure related costs, have been of a more persistent nature. While the tin smelter was commissioned with an initial capacity of around 7,500-M.T. and will not reach its full capacity of 20,000 M.T. before 1977 or 1978, the infrastructure required for the full capacity was built already during the initial phase, resulting in high overhead. The most advanced technology available was used for both tin and antimony refining which had obvious implications on capital outlays and complicated running of the plants. At the same time, there is a lack of middle level technicians and skilled workers. Although costs of essential inputs--concentrates, energy-- are lower than for most smelters, ENAF operates less efficiently than its main competitors. At a recovery rate for tin of around 93% (compared to 97.4% for the now defunct Williams Harvey smelter), losses of potentially recoverable metal are significant. ENAF therefore aims at increasing recovery as part of its expansion scheme. In turn, the antimony refinery is designed to even- tually produce 4,300 M.T. metallic material (three grades with a purity ranging from 98.5 to 99.6%), 1,000 M.T. of alloys and 1,000 M.T. of antimony trioxide. This product mix appears to be disadvantageous as trioxide has better market prospects than metallic antimony. 45. ENAF's operations have also been affected by heavy financial charges due to large external loans. While the top management is fully competent in technical and engineering aspects of operations, there are certain weaknesses in financial administration and internal control. The accounting system is not set up in a way to allow proper control of operations. The company appears to have experienced problems in controlling costs and even in estab- lishing the financial results of operations. Finally, the marketing system is still incipient. Over one-half of ENAF's output is marketed on a commis- sion basis by foreign trading companies although the proportion of output sold directly has increased over recent years. 46. In line with the priority given by the Government to building up a metallurgical industry, the forthcoming 5-year Development Plan calls for substantial investment in smelting and refining, including expansion of tin and antimony refining, and schemes for zinc, copper, lead and silver (para 97). ENAF envisages total investment over the next five years in excess of US$250 million and annual sales reaching about the same dimensions. At such levels of investment and current operations, administrative and operational shortcomings would pose serious problems indeed. In order to effectively handle an investment program approaching the envisaged size, ENAF's managerial and administrative capacity would have to be considerably strengthened. The company is already taking steps in this direction. An experienced accounting firm is presently developing a modern management information system. Outside assistance has also been requested for assessing ENAF's managerial techniques.  - 21 - In this regard, joint ventures and other arrangements with foreign smelting companies such as management and marketing contracts would help to reduce existing bottlenecks in the short run and contribute, over the medium to longer term, to building up a management structure suited to ENAF's expanding activities and to developing a marketing strategy appropriate for ENAF's increasingly diversified production. 3. Institutional Problems Ministry of Mining and Metallurgy 47. The Ministry is the principal policy making and regulating body within the mining sector, monitoring exploration and development, exploitation, processing including smelting/refining, and marketing. Together with the Ministry of Coordination and Planning (CONEPLAN), it is charged with designing development goals and strategies and coordinating investment plans; it is to regulate the major productive entities through its representatives on the boards of public enterprises and in the private sector, through tax and credit policies and technical assistance. The Ministry presently consists of three departments, i.e. for mining, metallurgy and planning including sector analy- sis; and 29 interdepartmental units work on specific assignments 1/. An advisory body to the Minister, the Consultative Mining Council (Consejo Consultivo de la Mineria) consists of senior officials of the Ministry, de- pendent institutions and state enterprises as well as representatives of the producers' associations and the miners' labor unions. 48. In the past, the Ministry's impact on mining development had been limited. In addition to the absence of a well-defined development policy, its effectiveness has been hampered by the lack of qualified staff and shortage of funds. Although the administrative and technical capacity at the higher echelons has been greatly increased, partly through commissioning experts from the private sector, there remains a serious shortage of experienced geologists, engineers and mineral economists. Newcomers and young technicians often had to be placed into responsible positions with inevitable mistakes connected with gaining experience and trial approaches. There is also a considerable rotation of staff as a result of shortages and ad-hoc decisions about work priorities. These institutional weaknesses have affected the Ministry's position vis-a-vis state enterprises and other public institutions in the mining field. Some of these weaknesses can be traced back to inadequate budget provisions. In spite of the importance of the mining sector for the economy, the Ministry has received just over 1% of Central Government budget allocations and recent increases (from b$75 million in 1975 to b$96 million in 1976) have remained well below that of Government expenditures as a whole. 1/ For details see Annex III on Work Program of the Ministry of Mining and Metallurgy.  - 22 - 49. There has nevertheless been a noticeable expansion and improvement in the work of the Ministry in recent years, thanks to a small group of relatively young but highly motivated senior officials. Ministry staff has assisted in, and greatly benefitted from, the preparation of a Bank Group- sponsored study on mining taxation by a Harvard University advisory group. The Ministry has commissioned a study on an exploration fund and has prepared extensive sector documentation of a macro-economic nature and other inputs for the forthcoming 5-year Development Plan. The work program of the Ministry includes setting up a documentation center and a catastral survey of mining properties for which financial and technical assistance from the Bank Group has been requested. Beyond the progress made thus far, analytical work and sector planning will have to be greatly strengthened in order to enhance the developmental impact of the Ministry's activities. Supporting staff will have to be increased and better trained. External assistance programs and joint studies of the type of the recently completed tax study would be an ideal vehicle for this. Officials, especially on the middle level, ought to obtain more intimate expertise on mining operations and trends in interna- tional metal markets. Bolivian Geological Service (GEOBOL) 50. GEOBOL's basic function is to carry out geological surveys and to provide geological services to other Government entities and to mining enter- prices. However, its activities have considerably expanded and the institu- tion has become increasingly involved in exploration, partly as a reaction to insufficient private activity. Its capital outlays during 1969-75 were nearly US$6 million, of which less than US$1 million was spent on geological work per se. Apart from the IDA-financed inventory of small mines, GEOBOL is carrying out a number of geological and exploration programs. The institution has received technical assistance for geological mapping including (satellite photography under the ERTS program. 1/ UNDP and the British and West German geological services are also providing financial and technical assistance including training for mineral exploration of the Cordillera, northern La Paz province and the Brazilian shield. These programs concentrate on exploration for rare minerals and precious metals, including gold, and amount to nearly US$6.5 million, of which some 70% is financed through external grants. GEOBOL is also to participate in the administration of a mineral exploration fund which the Government is about to set up (para 84). 51. Although GEOBOL is adequately staffed with medium level geologists and mining engineers the entity is quickly approaching its capacity limits. Its fast growth in part was prompted by a Government decision that GEOBOL should cover costs over and above salaries through own revenues from contract work. The institution thus has given priority to contractual assignments (which amounted to US$1.3 million in 1972-74 alone) and to mineral exploration. 1/ Earth Resources Technology Satellite of the U.S. National Aeronautics and Space Administration.  - 23 - This has been to the detriment of basic geological work such as mapping. Occasional institutional rivalries within the public sector and less than adequate coordination with COMIBOL and the Institute for Mining and Metal- lurgical Research (IIMM) in matters such as exploration and basic mineralogy have also impeded the proper functioning of the entity. 52. The strengthening of GEOBOL will be crucial for mounting a well- coordinated exploration effort over the next years. This will imply a Government decision on GEOBOL's future role as an institution serving the mining sector. Basic geological work should be re-emphasized and adequate funding provided by the Government to make the entity less dependent on contract revenues. In expanding GEOBOL's activities, adequate additional funds and personnel ought to be provided to ensure that GEOBOL's primary functions will not be further affected. Possiblities for removing or alle- viating Government-imposed salary ceilings, e.g. by establishing drilling incentives, should be explored. Building up of expertise should become an integral part of technical assistance programs. 53. A special unit within GEOBOL was set up to carry out an inventory of the small mining sector as part of the IDA-financed mining project (IDA No. 455-BO) and in preparation of the recent IBRD project for developing small mines. Based on records of mineral purchases by BAMIN, 5,240 individual properties were identified and classified according to size and composition of output and nearly 100 of these were visited. Of the 26 mines selected for more detailed examination, studies are presently being carried out on 12 operations. The aim is to eventually collect basic data on all existing small mining properties. The project has been closely supervised by the Bank. The survey by and large has produced acceptable results, considering the novelty of the task, the lack of reliable data and the hesitation of small miners to provide information. However, preliminary studies on individual properties should also contain information on deposits on the basis of mapping verified by drilling and quality of management as it is planned by the Unit. Within the context of the small mining project, the Unit will prepare prefeasibility studies and extend technical assistance, either directly or through arrange- ments with other suitable entities or consultants, for project implementation and mine management to firms selected to receive Bank financing. The Unit eventually should also be in a position to assist in commissioning feasibility studies to consulting firms and in supervising their preparation. Institute for Mining and Metallurgical Research (IIMM) 54. The Institute is charged with basic research in mineral processing, including smelting and refining and with assisting the mining industry with project-related studies and test runs. The Institute prepares reports for both COMIBOL and ENAF which turn to it regularly due to lack of process research facilities of their own, and also for private firms. Research topics have included cassiterite flotation, volatization of tin, antimony and zinc, thermal refining of bismuth, and copper leaching; the later study is financed by the Andean Common Market. The Institute is also undertaking process by the  - 24 - research for small mines in preparation of the IBRD lending operation (para 53). The Institute has diversified into operating small custom plants in Oruro (also used by the University), Potosi, and La Paz. The program for the next five years or so foresees capital outlays of about US$4 million for regional concentrators and small equipment pools, among others. Technical assistance has been received from UNDP, Austria and West Germany. 55. IIMM's activities appear to be well directed towards the technolo- gical requirements of mineral processing in Bolivia. While the Institute has been able to retain a capable staff (out of a total staff of about 160, 40 are professionals) its activities have been adversely affected by the lack of laboratory equipment and pilot plants. For instance, its equipment does not allow treatment of oxide minerals. The Institute also appears to be ineffectively used by COMIBOL which has applied only 5 out of 300 processes investigated by IIMM. On the other hand, private mining firms are increasing- ly turning towards the Institute--less for laboratory analysis rather than for pilot plant test work--which thus is assisting in utilizing deposits hitherto considered unexploitable. 56. IIMM's budget, somewhat less than US$1 million in 1975, is planned to be increased to US$1.3 million in 1976. As in the case of GEOBOL, the Government wants the Institute to become financially self-sustaining through income from contract work. The latter has become an increasingly important activity while basic research has declined. The Institute's financial position improved substantially after 1973 with the earmarking of export tax receipts which now provide nearly 55% of its income. Contract work accounts for another 40% while just about 5% of IIMM's income is from Treasury alloca- tions, almost exclusively for salaries. Mining Bank (BAMIN) 57. The state Mining Bank was established as the principal credit, marketing and technical assistance institution for private mining, expecially small mines, as well as for provision of equipment and current inputs to private mines. BAMIN extends working capital loans (for up to 18 months) and loans for investment including mine development for a period running from five to thirteen years. Sources of financing have essentially been external. An AID loan of US$5.7 million mainly for equipment purchasing was obtained in 1967; however, the larger part of this loan was cancelled four years latter, alleg- edly because of the high interest rate charged to borrowers compared to other available funds. BAMIN has also received US$3 million from the AID- financed Industrial Refinancing Fund (FRI) which was destined in equal parts for equipment and material purchases and working capital loans and was almost entirely used by medium mining firms. It further obtained in 1975 a US$6 million commercial bank credit from abroad for financing exports by medium mining firms and is also administering credits from the USSR and Poland for equipment purchases totalling US$4.1 million. Most recently, US$9 million of a US$12 million IBRD loan to the Government of Bolivia have been extended to BAMIN for on-lending to small mining enterprises.  - 25 - 58. As a development bank and technical qssistance institution, BAMIN has a history of inefficient operations. In the absence of clear policy directives in the past and with unduly strong influence of producers' asso- ciations, BAMIN found it difficult to design a strategy and policies conducive to mining development and had mainly to rely on ad hoc decisions. Its banking and marketing functions were not clearly separated, producing conflicts of interest detrimental to both activities. The Government therefore attaches priority to BAMIN's rehabilitation. Measures aimed primarily at strengthen- ing the credit department of this entity are being enacted which before long should result in significantly improved performance. Steps have been taken to neutralize excessive influence of private interests on Board decisions; credit and trading departments have been financially separated; the credit department's equity is being increased through capitalization of a Central Bank loan and a direct Government contribution; and more adequate financial precautions have been taken by increasing provisions for bad debts. 59. Thus far, BAMIN's credit department has mainly extended working capital loans; medium mines accounted for 60% of the amounts lent (though only for 3% of the number of loans). Occasional equipment financing on the basis of foreign loans was also made but generally, lending for investment purposes was constrained by BAMIN's limited access to term funds and by its technical capacity to prepare and evaluate suitable lending projects. Arrears over three months now amount to 10% of the loan portfolio; reschedulings and write- offs have been insignificant in terms of loan amounts and mostly affected loans to small miners who carry out precarious operations and thus, are particularly susceptible to "loss of vein" or falling mineral prices. While previously, sub-borrowers of dollar nominated funds were not obliged to carry the foreign exchange risk, thus causing losses for BAMIN at the 1972 devaluation, funds obtained abroad are now onlent in foreign currencies only. 60. As a marketing entity, BAMIN still needs to be considerably streng- thened. The institution has limited knowledge of international mineral and freight markets; it normally has received less than optimum conditions from its purchasers even in periods of favorable markets, partly due to relatively small individual shipments. While its tin exports are essentially to a few low-grade smelters in Europe, other shipments are almost entirely taken up by metal traders which tends to make BAMIN subject to collusion on part of its purchasers. Although BAMIN has been given a virtual monopoly over exports by private small mines, it has granted exemptions rather freely, due to its inability to handle a larger part of private mining output. As a result, the entity has been supplied mainly by very small miners and cooperatives who tend to deliver limited individual quantities of low grade, complex and not easily marketable concentrates. On the other hand, medium miners tend to turn to BAMIN only if international markets are weak and their output would not be otherwise saleable. BAMIN purchases as principal and fully assumes market risk and financing of stocks. At times of falling prices it tried to minimize losses by holding stocks which were only partly liquidated when markets improved. BAMIN's stocks of most minerals have grown substantially since the late 1960s, whereas exports have been falling over the same period. Due to market difficulties in 1975, unsold stocks rose to US$12.5 million, compared  - 26 - to less than US$6 million in the previous year. There have been substantia.l increases in stocks of tin, copper, antimony and lead-silvier concentrates, which BAMIN continued to purchase despite virtual closure of markets, irm- mobilizing an increasing share of working capital as a result. Collecting, blending and sampling operations are still done manually which tends tc affect quality of assays. 61. Despite its shortcomings, BAMIN is potentially a key institution for private mining development in Bolivia. In recognition of its importance and to assist its institution building process, the entity has been selected as a channel for sub-loans under the IBRD financed small mining development project; it will also supervise preparation of feasibility studies and appraise sub-projects under the loan. In order to develop into a viable financial insti- tution for small private mines, BAMIN is to carry out changes in operational policies, in addition to improvement of administration, staff quality and opera- tional efficiency. A program of staff training including project appraisal is being formulated. Allocation of term credit will increasingly be based on pro4ect analysis and made conditional on improvements in managerial efficiency and attainment of a minimum level of returns by its borrowers. It still appears desirable, however, that BAMIN's interest rates and loan terms provide more fully for recapitalization and growth of the institution. As an indication of its future growth, BAMIN plans over the next three years or so to treble loan commitments and to attain a rate of return of about 8% compared to 2.2% in 1975. 1/ 62. In the interest of operational efficiency and of terminating the risk associated with trading on international mineral markets, BAMIN's marketing operations ought to be taken over by a separate entity althotigh this essen- tially depends on the Government's policy on marketing of minerals, currently under review (para 69). Irrespective of the outcome of this review, BAMIN does have options to reduce exposure to price and market fluctuations. It could offer its suppliers an option to act as agent rather than principal; it could reduce advances paid to suppliers at time of delivery (now 100%) to, say, 60-80%; and it should encourage larger individual deliveries to reduce the time lag between purchase and export. The possibility of reducing the market risk through longer term contracts with purchasers should also be explored. At the same time, BAMIN should reconsider its relationship with metal trading firms. While excessive dependence on these firms is a direct result of its inexperience in international trading, BAMIN should start using traders more as contacts to final users ("traffic agents") rather than middle men which would provide the entity more directly with the opportunity to build up expertise related to international mineral markets. Industrial Bank (BISA) 63. The wholly privately-owned Industrial Development Bank was originally established for the purpose of financing manufacturing and commercial agricul- ture but it has also become the principal source of term financing for private 1/ For a comprehensive assessment of BAMIN, see IBRD Appraisal of a Small Mining Development Project Bolivia (No. 1236b-BO of 1 September, 1976).  - 27 - mining. BISA has financed mining ventures since 1974 when US$5 million out of a US$6.2 million IDA Credit were made available for onlending to medium mines. BISA is well managed and has a capable staff sufficient to administer expanded operations. Project appraisal is generally satisfactory and in most cases includes an economic rate of return calculation. BISA's operations have increased more than fivefold since 1973. Loan approvals in 1975 alone amounted to $b215 million (nearly US$11 million equivalent) and earnings have improved significantly in the wake of expanded operations. BISA plans to increase commitments by about 10% annually (in nominal terms) through 1980 and to eventually attain a 15% rate of return on equity. For this expansion, BISA will require long-term funds which in part are to be supplied through a US$10 million IBRD loan (IBRD No. 1290-BO); additional funds for working capital loans will also be needed. In order to attain growth while preserving reasonable debt equity limits, BISA's equity capital will have to be increased. In addition to local contributions, an IFC investment is made for that purpose. 64. BISA's lending to mining has grown radidly since its start in 1974. Recipients have mainly been medium miners but some promising small mines have also received BISA financing. Mining now accounts for about 10% of BISA's portfolio and for almost 25% of the increment in 1975. Funds available for lending to mining presently total US$7 million (US$5 million of the IDA credit, US$1.5 million from commercial banks and US$0.5 million of own funds). By mid-1976, about US$3.1 million of IDA funds have been committed for seven projects with a total investment of nearly US$14 million. There are loan requests pending from medium mining involving about the same amount, part of which is to be met by a recent IBRD loan. BISA's appraisal of mining projects is generally sound although there is room for further improvement of the technical as well as economic analysis. For instance, quality of ore reserve and assay plans could be improved; technical plans and reserve diagrams should be more closely correlated and ore reserve analysis should be made with refer- ence to specific plans and sections; more details on pricing of equipment and on contingencies could be provided; and for project supervision, original fore- casts on investment, production and markets should be periodically up-dated. 65. BISA's lending for mining is essentially medium term and mainly for expansion and modernization of existing mines. Loans are usually secured by machinery and collateral and have shorter maturity than could be expected for new mining projects (i.e., eight to twelve years). 66. BISA's lending policies for mining underline the basic problem faced by a relatively small, stability conscious development bank operating in an environment where credit for risky investment is short. As all mining projects involve a considerable element of risk, BISA is following perfectly sound bank- ing practice in attempting to secure its loans with extensive collateral. It may not even be advisable for BISA to take on unusually risky or larger mining investments, which might have to be financed instead by other sources such as international banks or private foreign investors. However, there is scope for BISA to gradually raise lending limits once its capital is increased. The entity is prepared to finance development of new mines and adopt loan maturi- ties to its borrowers' cash flow requirements once term funds become more readily available. It is also emphasizing more strongly the development  - 28 - potential of projects for loan appraisal and prepared to consider proven ore reserves as partial collateral. The riskiness of its portfolio would decrease as more and larger projects are financed and generally, more experience is gained with financing of mining. 1/ 4. Government Policies 67. Mining related activities have traditionally been a prominent preoccupation of Bolivia's policy makers who have been conscious of the strategic importance of these activities for their country's economic and social transformation. The nationalization in 1952 of the three largest mining enterprises and the creation of COMIBOL was designed to strengthen the Government's influence by gaining direct control over the most important productive units. The setting up of smelting and refining facilities was aimed at improving the sector's international market position and at enhancing local value-added. Successive development plans have emphasized increased investment and output in mining as the principal means of attaining a higher degree of growth and stability for the overall economy. However, these goals were only rarely translated into attainable targets and practical measures. Sectoral plans normally had been lacking rational priorities; there has not been a comprehensive investment plan, nor have sources and requirements of capital been identified. On the project level, no economic or serious finan- cial analysis has been undertaken and no firm control over project implemen- tation and financing has been exercised. Therefore, investment of the state mining and metallurgical sector was often haphazard, dependent upon available foreign financing and bearing little relationship to Government development plans. As a result, investment decisions often were not conducive to optimum sector development. For example, whereas exploration and mine development on the one hand and rapid expansion of tin smelting and refining on the other, seemed to be of highest priority and would probably have produced the highest economic returns, the investment effort was concentrated on COMIBOL's tin volatization plants and ENAF's antimony smelter which were projects of rela- tively low priority or doubtful financial viability, at least over the medium term. 68. In the past, the Government was unable to formulate an unequivocal position towards private mining. The uncertainty of private investors result- ing from episodes of nationalizations and political instability had not been fully dispelled until very recently. There still is no clear demarcation between public and private activity in mining and no upper threshold has been identified beyond which enterprises might become subject to nationali- zation. Past policies towards the private sector were dependent on rapidly changing political undercurrents of the day. With a generally favorable 1/ For a comprehensive assessment of BISA's operations, see IBRD Staff Project Report on Banco Industrial Mining and Industrial Credit Project (No. 1132a-BO of 4 June, 1976).  - 29 - government attitude since 1971, investors' confidence in mining is now return- ing, albeit later than in other sectors. However, some anomalies in govern- ment policies put mining at a disadvantage in comparison to other sectors; their removal is necessary if the growth potential of the sector is to more fully materialize. 69. The Government is aware of the need for policy reforms in order to give a stimulus to mining development. Reforms are under consideration in vital policy areas such as taxation, exploration, financing and eventually, marketing. The latter might lead to pooling of exports by state entities (COMIBOL, ENAF, BAMIN) or just to establishing common criteria for marketing. In a significant departure from previous policies, joint ventures between state entities and private domestic and foreign investors are being encouraged. This is in addition to a substantial investment program for the state mining and metallurgical sector as part of the 1976-80 Development Plan. The Govern- ment is now preparing the legal and institutional framework for putting its new policies into effect. A new mining development law is being drafted and planned to be enacted by end-1976; a reform of the mining code is not intended, however, because the Government considers that the deficiencies inherent in the code will be largely remedied by the forthcoming development law. An exploration fund to finance exploration activities by public and private entities is about to be formed. There are also plans for a Mining Development Corporation (Corporacion de Desarrollo Minero) to administer fiscal reserves and general promotional activities; this entity would also represent the Government in joint ventures and would be authorized to raise foreign loans. 70. In the following, major Government policies affecting mining devel- opment will be analyzed, together with requirements and Government plans for policy changes. Taxation 1/ 71. Taxation has become the most serious individual obstacle to mining expansion. The Government tried to meet its revenue needs to an inordinate degree from mining, which had been the sole important export sector of the economy until very recently. As a result, the sector's tax burden as well as the number of levies affecting it have significantly increased over time, unnecessarily complicating mining taxation. Operations now are subject to well over 50 individual levies of which two--royalties and the export tax-- provide 90 percent of tax revenues from mining, whereas 40 minor taxes account for less than 0.5 percent of mining taxes. 72. Royalties ("regalias") vary according to firm size and mineral produced (based on "fine" unit and adjusted by metal content of the concen- trates). Medium mines generally are subject to the highest rates with small 1/ The analysis contained in this section owes much to the work of the advisory group of the Institute for International Development, Harvard University, on reform of mining taxation in Bolivia.  - 30 - and antimony are taxed at the highest rates and zinc, lead and copper, the lowest. The tax base for the more important minerals is the difference between mineral prices and presumed cost 1/, whereas taxation is based on gross value alone for bismuth, silver, sulphur, and some minor substances. The amount charged (expressed in US$ per "fine" unit) increases progressively with mineral prices. Export taxes were introduced in 1972 to siphon off wind- fall gains from devaluation, but have meanwhile become a permanent feature of mining taxation. They have been applied since 1973 on the gross value of exports at rates varying with firm size, mineral, and metal content of con- centrates. The effective export tax rate on total gross mineral exports was around 7 percent in 1973 but has declined since then. Among minor levies, there are import duties (at the "mining tariff" of 2 percent but there are numerous exemptions), a 1.6 percent foreign exchange tax, mineral rights ("patentes") and special dues earmarked for regional entities, the Institute for Mining and Metallurgical Research, and universities. 73. The combined burden of royalties and export taxes is not low. The effective rate of royalties on presumed income in 1974 was above 35 percent for all minerals except lead and zinc; including export taxes, effective taxation then was about 50-60 percent of presumed income. As real income in many cases has been below presumed income, effective mining taxation probably has been even higher than indicated by the above rates. As a matter of com- parison, corporate incomes in Bolivia other than those from mining are taxed at 30 percent. The export tax, furthermore, is highly regressive, resulting in a combined burden of royalty and export tax which at the lowest level of presumed income, is three to eight times that at the upper level. 74. Discriminatory taxation has been a major reason for private mining firms increasingly reinvesting profits in other sectors. Furthermore, there are a series of structural deficiencies inherent in Bolivia's mining tax system based on gross output. First, taxation is unequal and capricious as tax burden might either be the same for firms under differing circumstances or different for firms in essentially the same circumstances. Firms operating with low productivity or incurring initial losses are particularly hard hit. Second, in establishing tax liability, cost increases are never taken ade- quately into account. Third, the system induces firms to restrict even neces- sary operational outlays, e.g., by exploiting only the richest deposits ("high- grading of ores") while discouraging the efficient use of concentrators ("low-grading of concentrates"). Fourth, the absence of depreciation allow- ances tends to discourage investment. While fiscal incentives provided for in 1/ Both mineral prices and presumed cost for tax purposes are set by the Ministry of Mining, the former being geared closely to prices in specified markets. Whereas "official" prices are changed every 15 days, presumed costs have been changed very little and have increasingly fallen out of line with actual costs. However, presumed costs were increased in January 1976, to take account of cost increases as well as falling export prices.  - 31 - the 1972 Investment Law also apply to mining 1/, they are irrelevant as they are related essentially to income taxes and customs duties, i.e. levies that are low or not applicable to mining. Fifth, the lack of loss carry-forward provisions is particularly disadvantageous for a sector such as mining which is subject to long gestation of investment and frequent swings of interna- tional prices. Finally, mining taxes as applied in Bolivia do not qualify for tax credit in home countries of prospective foreign investors. 75. The system of "blind" mining taxation has contributed to suppress investment in exploration, mine development and mineral processing, thus affecting the sector's future growth potential; however, there are indications that high mining taxes have affected current output as well. The stagnation of output in 1973-74 despite booming prices and the precipitory decline in the following year can be largely attributed to taxation. Hence, by stifling production and exports, taxation is jeopardizing the fiscal revenue potential of mining. Due to its regressiveness, mining taxation does not assure ade- quate participation by the Government in years of high prices and profits, whereas it becomes oppressive when market conditions are weak. 76. In order to counteract the disincentives inherent in mining taxa- tion, the Government since 1974 has applied a 50% reduction of both royal- ties and export taxes on the proportion of output exceeding the 1971-72 average. This provision, however, was ill-designed insofar as it stimulates maximum current production instead of giving an incentive to investment and increased efficiency and furthermore, it is prone to abuses as firms could increase their sales not on the strength of expanded output but through purchases from other producers. While revenue foregone still is fairly small--in 1974, it amounted to US$1.5 million, or 2 percent of revenue from royalties and export taxes--the tax reduction could become a significant source of revenue losses. Since the provision has failed to produce the expected results, the Government is considering its repeal. 77. The wide repercussions of mining taxation make its reform a matter of urgency. Under the technical assistance program financed by the Bank Group, the Institute for International Development of Harvard University has prepared alternatives to the present system, proposing two options: (i) a tax on pre- sumed income by taking regular and systematic account of actual cost develop- ments, combined with a low-rate levy ("production royalty") to stabilize fiscal revenue; (ii) once this system is well established, a change-over to a net profits tax at least for firms in a position to eventually meet the accounting requirements of corporate taxation. Application of a net profits tax thus might be limited to COMIBOL and 25-30 private firms which account for about 80 percent of mining output, however. Producers unable to prepare proper accounts would continue to be taxed on a presumed-income basis. The advisory group expects mining taxation based on net profits to be fully operative by around 1980, with at least three years needed for the transi- tional first stage; improvement of COMIBOL accounts alone might take three 1/ Chapter VII of the Law.  - 32 - to four years. Recommendations of the report include a detailing of amor- tizable expenses (a partial credit on exploration and development is recom- mended instead of a depletion allowance); elimination of preferential tax treatment of certain minerals and low-grade concentrates; a structure of effective tax rates designed to increase with incomes and not the opposite as under the present system; incorporation of a surtax in order to increase the Government's revenue share when prices are buoyant; and finally, rationalization of mineral rights and other minor taxes. 78. A system of mining taxation based on either presumed income or net profits would remove most of the deficiencies of the present system. However, as pointed out by the advisory group, the net profits tax option would be clearly superior. First, it takes full account of cost differentials among individual producers and gives due consideration to investment in exploration and development including improvement of health and safety standards in mines; second, its reliance on actual instead of presumed income involves less uncer- tainty for investors; third, tax credit against foreign investors' liabilities in their home countries will not be in doubt; and finally, loss carry-forward provisions can easily be incorporated. On the negative side, a net profits tax would pose problems of tax administration and compliance; it is bound to lead to short-term instability of fiscal revenue from mining, and a separate tax regime would be necessary for those firms unable to attain required accounting standards. 79. The Government has yet to decide on these reform proposals. Con- siderations range from immediate introduction of a net profits tax to conti- nued application of the existing system to avoid a revenue risk. Although the immediate introduction of a net profits tax does not appear to be feasible, it is clearly advisable, in the interest of long-term growth of mining output and of fiscal revenue from mining 1/, to apply this system as soon as conditions permit. Whereas a reform of the present mining tax system should not be postponed on account of administrative requirements for even- tually applying a net profits tax, immediate steps ought to be taken to improve accounts of larger firms, especially COMIBOL's, in order to expedite the intro- duction of such tax. Improvement of accounting systems ought to be made a condition of Government guaranteed loans and firms should be encouraged to move to net profits taxation on a voluntary basis as expeditiously as possible. Assistance from experienced domestic and foreign auditing firms should be secured for that purpose. Relationships between Government and State Enterprises in the Mining and Metallurgical Field 80. Since the Government through its enterprises (i.e. COMIBOL, ENAF and BAMIN) controls a substantial proportion of mining related activities, the 1/ The advisory group estimates that a net profit tax on mining, once firmly established, would generate as much as 14 percent more revenue than the present system.  - 33 - extent of coordination between Government and company decisions obviously in- fluences the effectiveness of mining policies. Moreover, the pace of mining development as well as domestic resource mobilization depend in large measure on the performance of public enterprises in the mining and metallurgical field. 81. In the past, coordination between the Government and the enter- prises has not always been close as clear policy guidelines at times did not exist and the enterprises adopted overall development targets only with delay. Although answerable to the Ministry of Mining and Metallurgy, some of the enterprises for extended periods appear to have been more subjected to private interest groups such as miners' unions (COMIBOL) or producers' associations (BAMIN) rather than being guided by criteria related to sectoral development, and lack of Government support often forced them to accomodate special interests. These circumstances hampered measures to increase manage- rial efficiency and financial viability, especially in COMIBOL which had to shoulder substantial and swiftly growing expenditures of a social nature well above those of comparable public enterprises in Bolivia. As a result, the entities expanded less than market opportunities would have warranted; their contribution to public savings remained limited and occasionally, they required financial assistance from the Government. 82. In order to enhance their developmental impact, state enterprises in the mining and metallurgical field should observe guidelines set by Government policies so the fullest extent compatible with managerial autonomy and should further increase operational efficiency and financial viability. The Government can assist this process by an evaluation of the entities' policies and opera- tions as basis for institution building as it was done in the case of BAMIN. The Government is creating an environment more conducive to efficient produc- tive operations. The forthcoming reform of mining taxation ought to contribute to improving COMIBOL's financial position and hopefully, its operational efficiency as well. Complementary steps might be directed towards attaining a high degree of tax compliance on part of the enterprises but also, towards a gradual and selective reduction of COMIBOL's social expenditures, especially those expenditures that ought to be under the Central Government's own responsibility. Exploration Policies 83. Private investment in exploration until recently was hampered by Government policies in a number of ways. First, a substantial portion of the national territory had been declared fiscal reserve (including a five kilo- meter wide belt around COMIBOL concessions and border regions) where private exploration was not allowed, while exploration carried out by COMIBOL in these areas has been limited. Fiscal reserves, meanwhile, comprise about one-third of Bolivia's territory. Second, the lack of Government-backed financing at reasonable terms has made exploration for many firms more difficult. In addition, unreasonably low mineral rights for exploration and exploitation have facilitated speculative holdings of concessions and blunted the incentive to find and develop new deposits. These policy obstacles tended to reinforce  - 34 - the private firms' reluctance to conduct mineral exploration caused by their anxiety about long-term political developments. 84. The Government is aware of these impediments and is preparing several measures to stimulate private exploration. Mineral rights are to be increased as part of the forthcoming mining tax reform. Encouraged by the success in mobilizing exploration by foreign companies in the hydrocarbon field 1/, private exploration of fiscal reserves will now be allowed in selected cases in association with and under supervision by the Government. In case of discoveries, joint ventures are to be formed, with public sector entities holding a majority and private operations allowed for a maximum of 20 years. Special tax incentives for exploration and infrastructural investment in outer areas are also under consideration. More imminently, an exploration fund is about to be established, to be financed in about equal parts by Govern- ment and foreign contributions. Policy framework and some of the operational details have already been laid out. The Government envisages the fund to be open to private and state firms and to be managed in such a way to make it attractive to mining firms to draw on it while preserving and building up the fund's capital (i.e., exposure to producers' risk should be to the mini- mum extent possible). Lending limits are likely to depend on the size of mineral deposits and repayments would start once incremental output from new deposits comes on stream. The fund's initial capital, planned to be around US$7 million, is probably insufficient and might have to be soon increased 2/. A Bank Group sponsored study by the U.S. Geological Survey has contributed to develop the concept of this project. Successful operation of the fund will also in the future make external technical assistance necessary, over and above capital contributions. Mining Sector Credit 85. Allocation of credit to mining has not been commensurate with the sector's importance for the overall economy. While there is a system of quantitative credit controls designed to favor "productive" (as distinct to "commercial") sectors of the economy, lack of productive credit, which is a problem throughout the Bolivian economy, is particularly serious for mining. The share of mining in outstanding credit of the banking system did increase slightly during 1965-75 from 7 to just under 9%, but this increase was entirely 1/ Based on the Hydrocarbon Law of 1972, exploration service contracts have been concluded with 15 foreign oil companies and company consortia. Pre-drilling expenses incurred by these companies in 1973-75 approach US$70 million. At least six firms either have already started explo- ratory drilling or are going to drill soon; two gas strikes of commer- cial quantities have been reported so far. 2/ In addition to US$2 million from the sale of tin buffer stocks already committed to the project, $5-10 million might be available in a combina- tion of grants and soft loans from the Government of Japan. Assistance from the U.N. mineral exploration program thus far has not materialized.  - 35 - due to financing of inventories based on a credit line by the Central Bank to BAMIN; the share made available for working capital and term financing actually dropped. Of the increment of banking system credit during 1965-74, only 9% was for mining including mineral stocks, compared to 11% for import financing, 27% for manufacturing and over 39% for commercial agriculture (Table 4 of Statistical Appendix). Credit to private mining has mainly been extended by specialized institutions such as BAMIN and since 1974, BISA. The Bolivian DeveLopment Corporation (CBF) also provided some term financing sustained by a credit line from IDB which meanwhile is virtually exhausted. On the other hand, hardly any credit was extended by commercial banks including the impor- tant State Bank (Banco del Estado), mainly due to collateral regulation. 86. As a result of lacking domestic credit, mining firms have had to seek funds abroad including for financing of inventories 1/. Apart from sup- pliers and commercial banks, metal trading firms have played a significant role in providing financing for medium miners. Small mines are largely excluded from these sources and have to rely almost entirely on BAMIN whose capacity to channel investible funds into mining is still limited (paras. 58, 59). Among Government-guaranteed loans from abroad during 1968-74, 14% were committed to mining related activities, i.e. more than the sector's share in domestic credit over the same period. The importance of external financing is likely to increase further once mining and metallurgical investment gathers momentum. 87. More adequate financing of private mining will require changes in credit policies as well as further institutional improvements at BISA and BAMIN. As the two institutions will remain the principal source of mining credit, effi- ciency of their operations will significantly influence the scope for attracting foreign funds for private mining investment. On the other hand, financing of large and more risky investments might have to be undertaken outside the exist- ing framework of financial intermediation in Bolivia (para 66). 1/ COMIBOL traditionally has had a credit line with foreign commercial banks for export financing and in December 1975 obtained a US$19 million loan to finance toll contracts with foreign tin smelters.  - 36 - III. DEVELOPMENT PROSPECTS 88. Future development and growth of Bolivia's mining and metallurgical sector depend essentially on two sets of factors. First, on medium to long term prospects of international mineral markets; second, on efforts by pro- ducers and Government to increase investment, improve operational efficiency and diversify the output mix. There is considerable scope for rehabilitating the mining sector provided the policy reforms outlined above are quickly enacted and a positive response on part of the producers is attained. On the other hand, Bolivia's influence on international metal markets is bound to remain marginal as market trends also in future are likely to be determined primarily by industrial activity in major OECD countries. Bolivia's scope of action in this regard will probably be confined to attempts to influence the intervention price ranges and other conditions of the International Tin Agreement 1/ and possibly, to form commodity agreements on other minerals such as antimony, tungsten and bismuth. While producers' cartels might succeed for antimony where three producing countries account for about 70% of supply, production of other minerals is too fragmented, or their growth potential too limited to give such cartel action much chance of success. 1. Market Prospects 89. Following the mineral price boom of 1973/74 and subsequent decline, prices for most minerals have been recovering from their 1975 lows as a result of stronger demand associated with the upturn of economic activity in indus- trilized countries and restocking on the part of industrial and commercial purchasers. Production cut-backs by major producers and export restrictions for major minerals, which failed to sustain prices in 1975, appear to have exerted some upward pressure on prices in early 1976. For the whole of 1976, the increase in the weighted price index of Bolivia's mineral exports is ex- pected to be 20%, or 13% if adjusted for inflation. Composite mineral prices in real terms thus would be almost back to their 1973 level, the last year of relatively undisturbed price developments. 90. Medium term demand and price prospects for minerals exported by Bolivia will essentially be influenced by industrial activity in major OECD countries, in particular the U.S., Japan and West Germany; by competition from substitutes and secondary material; and to a certain extent, by sales 1/ During preparatory discussions for the Fifth International Tin Agreement conducted in early 1976, Bolivia took a leading part and demanded changes in the ITC voting system, higher voluntary consumer contributions and increases in the buffer stock, in addition to higher intervention prices in order to assure intervention more favorable to producers. See: Metal Bulletin of May 11, 1976 and previous issues.  - 37 - from the U.S. stockpile. However, on the supply side, mining and refining costs are bound to exert stronger influence on future price levels. Mining costs are likely to increase in real terms as gradual exhaustion of deposits now in production will make it necessary to move to less rewarding and less easily accessible deposits. This is the case for minor and precious metals such as silver; but there are indications also that in South East Asia, the richest and most easily accessible tin deposits are nearing depletion and future operations may have to move to deeper sea-beds and other less advan- tageous locations. 91. As regards prospects for individual minerals, demand growth for tin is likely to remain at its low historical rate of 1-2% p.a. although the scope for substitution and economization has been nearly exhausted and more rapid demand increases can be expected to materialize in developing economies. Tin demand will mainly depend on the growth of the container industry but new uses are likely to be developed in chemical industries. Tin output and prices tend to be somewhat cyclical and following the historical pattern, it can be expected that there will be a delayed supply response to the high 1973/74 prices around 1978, resulting in overcapacities and downward pressure on prices which in turn, might lead to slower output growth and faster price increases in the early 1980s. 92. Market prospects are likely to be much stronger for most other metallic minerals. Demand for zinc during the recent world-wide recession fell more than OECD industrial production but is likely to benefit fully from the economic recovery, due to its importance for growth industries. New applications with substantial potential are being developed, for instance as anti-corrosive material for bridges and ships. Substitution by plastics has not proven very successful and might be reversed to some degree. Hence, medium term demand growth could accelerate to a rate above that of recent years and exceed GDP growth in OECD countries; there is even the possibility that supply shortages might develop over the next few years if productive capacity is not increased quickly 1/. Pressure on prices is likely to result from increased smelting costs caused by higher costs of energy and expensive anti- pollution devices. Demand giowth for antimony has been fast f.or chemical uses but much slower in other industries where substitution was encouraged by rapidly rising prices. Nevertheless, price prospects are likely to be good, particularly for antimony trioxide which is used as a fire-retardant and has a strong growth potential on the U.S. market. In order to take advantage of this opportunity, it will be important for Bolivia to supply material of consistently high quality. Prices for tungsten have shown a gently rising trend in recent years, even uninterrupted by the recent recession. Due to its outstanding physical properties as a hardener, tungsten has a growing poten- tial for steel al.loys and in the aerospace industry. Demand and price pros- pects for silver are considered excellent as this metal is irreplaceable for many industrial uses with high growth poteintial such as electro-chemistry, 1/ Commodity Research Unit, New York, as reported in: Metal Bulletin, May 11, 1976, pp. 22.  - 38 - refrigeration and appliances, and is clearly superior to any substitutes. Silver consumption has exceeded production in recent years, resulting in a draw-down of stocks. As supply shortages are likely to persist and easily accessible deposits are becoming exhausted, significant price increases in real terms for silver can be expected. 93. In contrast, prospects for lead are not too bright as over one- third of requirements can be met from recycled material. The trend to smaller cars and fuel economies will limit growth of demand by the automobile industry, a major consumer. Furthermore, anti-pollution regulations are bound to re- strict lead usage as an additive to gasoline, paints and other industrial products. Substitution by other materials is likely to continue and no new uses for lead are in sight. As a counterbalance to demand-induced price determinants, there is likely to be upward pressure on production costs, thus reversing the trend of past years, which would require higher prices to make future investment feasible. While output growth over the medium term might accelerate somewhat compared to the very low rate of the early 1970s, increases in demand might futher slow down. Prospects for copper are intimately tied to the performance of industrial economies, probably more than for most other non-ferrous metals. Although future competition from aluminium and plastics will pose less of a problem due to higher costs of energy and hydrocarbons, demand growth over the medium term probably will be slightly below its historical trend. As growth of mining capacity is expected to somewhat exceed that of demand, assuming expansion programs in traditional and new copper producing countries postponed during the recent recession come forward over the next years, significant stocks and/or restricted capa- city utilization can also be expected in future. Finally, demand for bismuth, mainly for therapeutic and cosmetic pharmaceuticals, might be affected over the medium term by substitution and unpredictable fluctuations in cosmetic fashions whereas on the other hand, there are growing industrial uses in machinery manufactures, for temperature control devices and manufacturing controls. Future supply will largely depend on output of lead and copper ores and other basis metal sources which tend to contain bismuth. 94. International market prospects through 1985 of metals important for Bolivia's mining sector are summarized below (Table 5).  Table 5: MARKET PROSPECTS FOR SELECTED MINERALS, 1972/74-1985 Change in World Demand Change in World Supply Unit Prices (Percent) (Percent) (1975 USJ/lb) 1972/74-85 1972/74-80 1981-85 1972/74-85 1972/74-80 1981-85 1972/74 1980 1985 Tin 1.6 1.0 2.3 1.0 2.0 -0.5 348.1 320.7 366.4 Zinc 3.2 1.7 5.3 4.2 3.5 5.2 48.9 37.2 40.1 Antimony .. .. .. .. .. .. 80.7 74.0 80.4 Tungsten .. .. *- 319.3 380.1 413.6 Copper 3.9 3.9 4.0 3.5 2.8 3.7 100.0 83.6 89.3 Lead 2.3 1.2 3.9 2.0 1.9 2.2 27.0 21.8 23.5 Silver 1.9 .. .. .. .. .. 5,538.5 8,359.2 9,005.3 Bismuth 1.6 .. .. .. .. .. 611.4 647.8 663.9 Cadmium 2.9 .. .. .. .. .. 510.1 426.6 461.8 Note: World demand and supply excluding Centrally-planned Economies. Supply to equal mine output. Source: IBRD Commodities and Export Projections Division, U.S. Bureau of Mines; Mission estimates.  - 40 - 2. Government Objectives and Plans 95. As stated in its 1976-80 Development Plan, the Government continues to aim at rehabilitation and sustained growth of the mining sector in order to enhance the sector's contribution to economic growth, exports, fiscal revenues, and employment generation. In contrast to earlier plans, however, the Govern- ment has set specific and interrelated development objectives for the mining sector over the medium to longer term. The more important of these objectives are the following: (i) Diversification preferably by developing minerals with a stronger growth potential than tin, including ferrous and non-metallic minerals and radioactive substances; (ii) Increasing efficiency in all aspects of mining and metallur- gical operations including allocation of human, technolo- gical and financial resources; (iii) Forward integration of mining through up-grading of beneficia- tion, expansion of refining and eventually, establishing iron and steel production and production of basic chemicals; (iv) Strengthening of Bolivia's position on international markets by improving marketing systems, active participation in existing and future commodity agreements and utilization of production allocations within the Andean Common Market. 96. The development plan sets indicative targets for mineral exploration and mining and refining of individual minerals over the next five years. By 1980, approximately 30% of the country's territory are to be systematically explored and significant output increases attained through application of improved production methods. Total mineral output in 1980 is expected to be 35% above its 1975 level (measured in 1975 prices), implying an increase of 6% per year. Substantially faster growth is foreseen for zinc, tungsten and copper, while there would be slower than average increases for tin, silver and bismuth, virtual stagnation of antimony and a slight decine for lead (Table 6). COMIBOL plans to increase output by 5.5%, annual average; however, tin is to grow at 6% and would provide two-thirds of the company's 1976-80 output gain. According to Government plans, medium mines by 1980 are to account for nearly 28% of mining output which implies an increase averaging 17.5% p.a. over the next five years. Growth would be particularly fast for minerals other than tin, thus making medium mining the major propellant for the diversification drive. In contrast, the share of small mines and coopera- tives is expected to fall further. Also by 1980, about 70% of mining output is to be refined domestically, i.e., 80-90% of tin and bismutli, two-thirds of copper, 50-60% of lead, zinc, silver, and tungsten, and 44% of antimony.  - 41 - Table 6: GOVERNMENT OUTPUT TARGETS FOR MINING AND REFINING, 1980 (1975 US$ millions and metric tons) -----------------------Mining--------------------- ------Refining------- Increase p.a.(Percent) 1974 1975 1980 1976-80 1975-80 1974 1975 1980 TOTAL (1975 $mn) 246.0 236.6 318.6 6.1 4.4 8.5 9.6 94 MAJOR MINERALS (Metric Tons) Tin 28,934. 26,441 36,150 6.4 3.8 7,045 7,497 29,060 Zinc 48,600 48,702 106,700 17.0 14.0 - - 64,150 Antimony 13,060 11,917 13,200 2.1 0.2 - 131 7,500 Tungsten 2,583 2,551 3,800 8.3 6.7 - - 1,960 Copper 7,919 5,989 15,000 20.2 11.3 - - 9,930 Lead 19,353 16,796 18,140 1.6 -1.2 - - 18,000 Silver 180 203 450 17.3 16.5 - - 136 Bismuth 696 612 780 5.0 1.9 - - 700 Gold (kg) 2 .. 3 .. 7.0 - - - Cadmium 110 156 200 5.1 10.5 - - 1/ Value-added (net of value of concentrates) only Source: Ministry of Mining and Metallurgy; Ministry of Planning and Coordination, 1976-80 Economic and Social Development Plan (Plan de Desarrollo Econ6mico y Social, 1976-80).  - 42 - 97. Planned Government investment in mining and refining for 1976-80 is based mainly on individual projects proposed by COMIBOL and ENAF which are quite representative of the likely trend as these two entities will continue to account for the bulk of capital outlays in the mining and metallurgical field. COMIBOL plans to invest over US$110 million during 1976-80, the largest part of it in ore processing: three volatization plants alone would account for two-thirds of COMIBOL investment. In turn, outlays on mine development would be much lower than those on exploration very small. COMIBOL's investment objective is to increase output through modernization of equipment and application of new techniques, both in mining and bene- ficiation. For mining operations, shafts are to be deepened, intra-mine transport improved and new exploitation systems studied, such as open pit mining at Catavi and trackless mining at Mathilde. However, priority is given to increasing productivity of beneficiation in order to attain higher recovery rates in concentration and consequently, lower cut-offs in mining operations; this is expected to allow exploitation of very low-grade ores which thus far has not been economically feasible. With respect to tin, higher productivity is to result from intensified pre-concentration, cassite- rite flotation, and large-scale volatization; the latter is expected to significantly increase recovery (to 94%) and to facilitate treatment of complex ores. Investment planned by ENAF for the 1976-80 period approaches US$250 million (compared to just above $75 million during the previous nine years), including a trebling of tin refining, new plants for ammonium- paratungstate (APT) and alloys (tungsten, vanadium), a zinc refinery, a lead-silver smelter and a copper refinery. Somewhat less than one-third of investment would be carried out in joint ventures with COMIBOL ($70 million for the lead-silver smelter and copper refinery) and a meditm mining firm (US$6 million for the APT plant). On the whole, then, planned public invest- ment in mining-related activities during 1976-80 is close to US$395 million, not including ferrous and radioactive minerals development and US$450 million overall. This compares to less than $70 million during the previous five years (all in 1975 prices). Table 7: PLANNED PUBLIC SECTOR MINING AND REFINING INVESTMENT, 1976-80 (1975 US$ million) TOTAL 449.4 GEOBOL 33.0 Other Exploration 1.8 IIMM 3.6 COMIBOL 113.5 Exploration (1.6) Mining (15.3) Ore Processing (96.6) ENAF 243.3 o/w Joint Ventures /76.0/ Other /1 54.7 /1 Ferrous and radioactive minerals development. Source: Ministry of Planning and Coordination; Tables 13, 14 of Statistical Appendix.  - 43 - 98. Projected BISA and BAMIN lending operations also give some indi- cations about private mining investment over the next five years. Medium mines might be expected to invest as much as US$65 million: about 40% would be directly attributable to projects supported by two Bank Group operations which are likely to result in increased output of tin, zinc, tungsten, antimony and possibly copper and gold as well. Small mining investment could increase to possibly US$15-20 million (based on projects to be submitted for IBRD financing) and include expansion projects for tin, tungsten, antimony and zinc. 99. The Government's objectives are in line with development require- ments for the mining and metallurgical sector as well as for the overall economy. It is evident that substantially increased investment and output are needed to make mining and refining more viable; however, the targets of the state enterprises operating in this field are not fully in accordance with the Government's development objectives. Whereas diversification of mining through developing primarily minerals with strong market prospects is impor- tant for the sector's long-term potential, COMIBOL still envisages substan- tially increased output of tin and copper for which market prospects are only moderately good. Whereas productivity increases and capacity expansion at the mining end of the industry ought to receive priority, an unduly high share of public investment is earmarked for tin volatization and other large-scale metallurgical schemes. In fact, COMIBOL's planned investment in its present form only loosely corresponds with development requirements of the company and the mining sector. Investment earmarked for volatization is clearly too high, considering the size of the overall program and the technical and economic risks associated with this largely untried technology. There are indications that returns will be low due to over-sized plants and substantial cost in- creases since the investment decision was originally made. 1/ Concentration and recovery ratios could be increased much more cheaply by methods based on flotation and generally, improved plant management. While investment for the first volatization plant is already underway, no decision on two much larger and technologically more complex plants should be taken before the viability of the process in Bolivia is firmly established. On the other hand, invest- ment in exploration and mine development should be much more strongly empha- sized. COMIBOL should also consider the desirability of reviving projects with promising potential which had to be shelved due to lack of funds, among them mining of tin tailings 2/; and expansion projects for minerals with strong growth prospects such as zinc should be energetically pursued. While COMIBOL's decision to substantially increase investment is basically sound, its invest- ment program will have to be restructed to enhance its developmental impact. 1/ In 1971. Now, costs per metric ton of fine tin equivalent are said to be above US$36 for 45-50% grade and 85% recovery. 2/ There are substantial tin deposits in the large accumulated dumps ad- joining the historic mines, estimated by COMIBOL to contain more than 300,000 tons of fine metal equivalent. A US firm had started to pro- cess tailings at Catavi in 1970, was nationalized shortly afterwards but after a negotiated settlement, formed a joint venture with COMIBOL. How- ever, this operation was relinquished in 1973.  - 44 - Expansion of Smelting and Refining 100. ENAF's investment plans raise issues related to their magnitude in the light of competing claims on funds for priority projects in other sectors and more generally, the viability of establishing on a substantial scale a capital intensive, technically advanced metallurgical industry in Bolivia within a relatively short period. The Government's decision to expand smelting and refining has been motivated by the following considerations. First, net valued-added originating from mining and metallurgy would be enhanced, transport and realization costs incurred abroad reduced and conse- quently, net export receipts and fiscal revenues increased. Second, by exporting metals instead of concentrates, the sector's dependence on foreign firms would be reduced as markets would be broadened and Bolivia's sales outlets would not any longer be restricted to a small number of refine- ries and metal traders. Third, there would be some minor employment creation in smelting/ refining directly and in supplying industries. Finally, the basis would be laid for eventually establishing industries for processing non-ferrous metals (into plate, wire, rods etc.) which generally offer high returns. Beyond these general considerations, however, there is as yet no comprehensive analysis of the feasibility of an extensive metallurgical industry within the Bolivian economy nor a consistent policy for such industry. On the project level, hardly any rate of return nor market analysis have been made so far, over and above preliminary technical studies on some projects. Consequently, costs and benefits to the economy of expanding smelting and refining are not yet clearly established. 101. The feasibility of smelting and refining projects generally depends on energy costs, plant size and its effects on operating and investment costs, market prospects, long-term supply of concentrates, and availability of skilled manpower. The balance of these elements in recent years appears to have shifted somewhat in favor of countries like Bolivia with a cheap energy base, although investment costs since the early 1970's have increased signi- ficantly more than metal prices, thus reducing operating margins. While it is evident that a shift to exporting refined metals instead of concentrates would reduce transport and refining costs abroad 1/ and thus, increase net export earnings, viable mining operations would normally offer higher returns than smelting/ refining. Therefore, any gains from expanded, refining have to be weighted against the foregone benefits from a correspondingly higher investment in mining which at any rate, is bound to remain the more important segment of Bolivia's combined mining and metallurgical sector 2/. Turning to market conditions, metal markets are broader but also more complicated than those for unrefined minerals, requiring consistently high product quality, customer service and customer loyalty, and Bolivia would have to depend also 1/ This takes into account that on a volume basis, freight rates for metals are higher than for concentrates by about 15-20%. 2/ Value added from smelting/refining might range from less than 20% of gross sales for tin to 35% for zinc.  - 45 - in future on trading firms until enough experience in international metal markets has been gained to operate independently. Also, as mineral producing countries increasingly enter into smelting and refining, a shortage of concen- trates on international markets might develop, resulting in concentrates being traded at premium prices whereas on the other hand, overcapacities for refin- ing might emerge which could adversely affect metal prices. Furthermore, most industrial countries levy higher import duties on metals than concentrates which reduce the net gain from shifting to metal exports 1/. As regards the required size of investment, smelting and refining schemes in most cases have to be large-scale to be economical, which will result in substantial require- ments for--essentially foreign--financing, heavy financial charges and long payback periods for projects envisaged 2/. In some cases such as copper and lead, present mining output levels are too low or not enough mineral reserves have been proven to secure adequate supplies during the lifetime of individual projects; in other cases, the size of operations required to keep costs at internationally competitive levels might just not be attainable. In parti- cular, the viability of the planned copper refinery should be carefully reviewed since at present, this project appears to be below the minimum economic size and could be justified on import substitution grounds only 3/. Finally, qualified manpower requirements for successfully operating a smelting and refining industry are such that Bolivia will have to make great strides to meet those within the period envisaged to set up new plants. As an illustra- tion, ENAF estimates to require, over the next five years or so, about 180 university-educated engineers and business administrators, 290 medium-level technicians, and 700 skilled workers. 102. Given the danger of overextending Bolivia's technical and financial resources and of resource misallocation as a result of potentially overdimen- sioned and premature investment, a thorough analysis of individual smelting and refining projects is imperative before any firm investment decision is taken. Severe criteria for project selection should be applied including economic rate of return analysis, cost comparisons based on non-subsidized inputs in particular for energy, pay-back period, and market prospects for metals vs. concentrates; however, investment alternatives in mining and other sectors ought to be considered also in order to secure that the highest net 1/ Financial viability of the APT project (para 96) hinges on exemption from import tariffs in the U.S., the most important market for that product; otherwise, exemption from Bolivian taxes would be required to keep the project afloat. 2/ Pay-back periods in industrial countries for refineries are at least five years and in countries like Bolivia, probably closer to seven or eight years. 3/ However, a new technology applicable to smaller-scale (about 25,000 M.T. p.a.) copper refining has recently been developed in Canada. In the light of its results, above stated conclusions might have to be modified. (See Annex on smelting and refining projects).  - 46 - benefits accrue to the economy. It might emerge from this analysis that certain projects are recommendable on market grounds (e.g. smelting of low- grade tin concentrates which might become less and less marketable; APT plant) whereas others probably should be scaled down to their minimum economic size (zinc refinery) or deleted if inputs would have to be essentially imported and no comparative advantages on domestic and international markets could be attained in the foreseeable future (vanadium alloys plant; copper refinery). Nevertheless, even if marginal projects were deleted or postponed, the net contribution of a more feasible metallurgical investment program to value added and foreign exchange earnings would remain limited. The expansion of smelting and refining during 1976-85 would account for less than 1% of GDP while over the same period, the increase in net exports of about US$315 million, after allowing for debt service and imported current inputs, would shrink to just over $30 million (Table 8). 3. Prospects for Output and Productivity Growth 103. Short-term prospects for increasing output and productivity of Bolivian mining above historical levels are slim. While activity will pro- bably return to pre-1975 levels as markets improve, past neglect of explo- ration and mine development is bound to constraint productive capacity for at least two more years, despite accelerating investment by COMIBOL and medium mines, until new production facilities come on stream and measures to increase productivity take hold. In the metallurgical field, however, there will be an expansion of both tin and antimony refining as newly established capacities are entering into fuller use. 104. The immediate years ahead should therefore be used to introduce institutional and policy reforms in order to lay the basis for sustained growth and development later on. It should be possible, over the next two or three years, to establish more adequate management sytems including improved accounting and internal control in COMIBOL and the more important medium mines; to enact planned reforms in taxation, exploration and investment policies; to strenghten public institutions serving the mining sector; and to increase mining credit to more adequate levels. Over the medium term, there is a substantial potential to expand output from about a dozen medium and small mines, plus some COMIBOL mines, merely by intensified reserve develop- ment, moderate mechanization and upgrading of mine operations. There are also at least five known ore bodies that only lack completion of reserve development, project engineering and mineral testing for being brought into production 1/. 1/ This includes COMIBOL deposits at Mathilde, Bolivar (zinc) and Corocoro (copper) and deposits of private mines at Fabulosa, Porco (COMSUR - tin and zinc); Machacamarca, Pucro (EMUSA - tin and bismuth); Suca (Pabon-tin); and Tuntoco (tin). New projects with a promising potential appear to be Huari-Huari (Caballo Blanco - zinc, tin, silver, cadmium); Toltos (EMUSA - silver); Santa Barbara (Pabon - lead, silver); Animas (COMIBOL - lead, silver) and possibly alluvial gold deposits in Northern La Paz province (Camino Mines; Pabon). For details, see Annex I on mining prospects.  - 47 - Table 8: CONTRIBUTION OF SMELTING AND REFINING EXPANSION TO GDP, NET EXPORTS, AND BALANCE OF PAYMENTS, 1976-85 (1975 U.S.$ millions) 1976-85 1976-80 1981-85 Value-Added 175.5 15.8 159.7 Net Exports 313.4 28.2 285.2 Tin (152.5) (a2.h) (130.1) Zinc (116.6) (_) (116.6) APT; Alloys (3.2) T0.8) (2.4) Lead (30.8) (3.8) (27.0) Silver (10-3) (1.2) (9-1) Less: Debt Service 218.5 68.6 149.9 Interest (68.3) (36.4) (31-9) Amortization (150.2) (32.2) (118.0) Imports of Current Inputs 62.7 5.6 57.1 Net Balance of Payments Contribution 32.2 -46.o 78.2 Assumptions: Value-added equalling 56% of net exports Net exports equalling gross exports of metals less value of concentrates External loans financing 80% of fixed investment and working capital; interest of 9% p.a.; amortization: 10 years (including 3 years grace) Current imported inputs equalling 20% of net exports Source: ENAF; Mission estimates.  - 48 - Initial potential of most of these mines is 100-500 tons of ore per day, which is small by international standards but quite substantial for Bolivia's present mining capacity. 105. Over the longer term, Bolivia's mining potential will primarily depend on scope and quality of geological work, especially exploration. While large-sized deposits of the kind typical for neighboring Chile and Peru are unlikely to be discovered, it should be feasible, after some years of sustained exploration effort, to identify and develop some important new deposits in Bolivia's traditional mining areas and possibly, alluvial depo- sits in the Upper Beni region. The Mutun iron ore scheme might also be brought nearer to operations. 106. Among the factors determining growth of the mining and metallurgi- cal sector, markets do not appear to pose major constraints. It should be possible for Bolivia to either regain some lost market positions (e.g., for tin) or increase presently insignificant market shares for other minerals, provided that the industry's competitive position will improve. The Mission has also assumed that investment by and large will be carried out as planned with a possible lag of one year or so for mining projects and two years for metallurgical projects in order to allow for delays associated with project planning and financing. However, the copper refinery and latter two volati- zation projects have ben excluded from the tentative 1976-80 investment pro- gram since on technological and/or market grounds, their feasibility appears doubtful. In assessing the sector's future productive potential, it has to be borne in mind that any capacity increase resulting from planned investment will in part be compensated by declining output of those mines whose deposits become progressively exhausted. This is likely for COMIBOL and small mines whose output therefore is assumed to grow relatively slowly and to stagnate in later years. Furthermore, COMIBOL's structural problems are of such dimen- sions that productivity gains probably will only materialize after years of sustained investment and rationalization efforts. In contrast, medium mining can be expected to develop its potential more fully and significantly increase its share in mineral output on the strength of ongoing and planned investment. Finally, the share of mineral output refined domestically will increase sub- stantially in the wake of expansion and diversification of refining capacities. While probably falling short of Government goals set for 1980 (paragraph 96), refining might nevertheless increase by that year to 45% of mining output and to 65% by 1985. The bulk of refined metals also in future will have to be exported as the scope for developing metal processing industries in Bolivia and even within the larger Andean market appears to be fairly limited. 107. Attainable growth targets for mining and refining over the next decade are indicated in Table 9. In modification of Government and COMIBOL targets, it has been considered that market prospects probably will not fully permit, within the plan period, expansion evisaged for certain minerals (e.g., tin, copper, bismuth); and that at least for COMIBOL and small mines, output increases will mainly result from new schemes, with output of most existing mines bound to decline over the long term. On the other hand, fairly advanced medium mining expansion projects as well as expansion envisaged for small  - 49 - mines have been included to determine likely output growth over the medium to longer term. The latter schemes would result in a number of small mines developing into medium sized enterprises. On these assumptions, output growth in volume terms during 1976-80 is estimated to be 5.7% per year, i.e., somewhat below the Government's target, and less than 2%, on annual average, in the early 1980s when the effect of declining output in mines operating now is likely to become more important. Growth in value terms will probably be higher, around 9% per year during 1976-80 (and 5.5% in 1981-85), as real prices are likely to improve as a combined result of expected developments of international markets as well as increased importance of domestic refining. Growth of net exports should be of the same order of magnitude since also in future, mining and metallurgical output will have to be almost entirely exported whereas fiscal revenues from mining could increase somewhat faster if the change-over to a new mining tax is successfully completed within the envisaged period. On the other hand, employment generation will be rather less as capacity expansion will result primarily from increased labor produc- tivity and capital intensive investment. 108. The mining and metallurgical sector therefore will remain of key importance for growth and stability of the Bolivian economy at least over the medium term until other sectors are sufficiently developed to attain self- sustaining growth. Any improvement in performance and an important contribu- tion to economic growth notwithstanding, the share of mining and refining in GDP probably will continue to decline as newer sectors such as hydrocarbons and manufacturing are likely to benefit more strongly from the trend towards diversification of the economy.  - 50 - Table 9: PROJECTED GROWTH OF BOLIVIAN MINING AND REFINING OUTPUT, 1975-85 (1975 US$ Millions /1 and Percent) Increase p.a. Increase p.a. (Percent) (Percent) Share in Total Value Volume (Percent) 1975 1980 1985 1976-80 1981-85 1975-80 1981-85 1975 1980 1985 Total 236.6 364.5 476.2 9.0 5.5 5.7 1.7 100.0 100.0 100.0 By Mineral: Tin 148.6 200.1 234.3 6.1 3.2 2.0 -0.1 62.8 54.5 49.2 Other 88.0 164.4 241.9 13.3 8.0 11.6 3.7 37.2 45.5 50.8 By Producers: COMIBOL 165.8 184.8 208.0 2.2 2.4 0.1 0.6 70.1 50.7 43.7 Medium Mining 39.5 101.8 133.6 21.0 5.6 18.5 3.8 16.7 27.9 28.1 Small Mining /2 21.6 45.2 51.5 15.9 2.6 13.7 o.8 9.1 12.4 10.8 Smelting and Refining /3 9.7 32.7 83.1 27.5 20.5 25.8 10.0 4.1 9.0 17.4 Source: Table 11 of Statistical Appendix. /1 IBRD-projected mineral prices adjusted by inflation for 1976-85, using 1975 as base year. /2 Including expansion projects which will effectively transform some small mines into medium mines. /3 Net value added only.  - 51 - IV. EXTERNAL FINANCING REQUIREMENTS 109. The availability of external financing for mining, which in the past was one of the more serious obstacles to investment, has considerably improved since about 1974 when Bolivia's emergence as a minor hydrocarboa exporter changed the country's international credit standing. In addition to IDA Credit 455-BO of US$6.2 million, there have been loan commitments in 1974-75 from commercial banks,suppliers, and the Andean Development Corpora- tion totalling US$98 million, compared to less than US$60 million during the previous six years. The bulk of commitments was for ENAF's tin refining (expansion of existing capacities and construction of a low-grade smelter) but a significant share also went to COMIBOL for mining and beneficiation projects and to medium and small mines for working capital. Most recently, US$7 mil- lion and US$9 million, respectively, have been committed by IBRD for expansion of medium and potentially viable small mining firms; the latter operation includes considerable technical assistance to GEOBOL and BAMIN which partici- pate in project implementation. Alongside the increase in capital inflows, the entities involved have been gaining experience in international financing and the preparation of projects required for it. 110. If 1976-80 investment in the mining and metallurgical sector -- public as well as private -- were to approach US$390 million as appears possible, loans committed to date would finance just under 30% of that investment. In addition, direct foreign investment of about US$20 million could be expected to material- ize. Turning to domestic sources, cash flow of enterprises is likely to finance at most about 15% of investment (ranging from 35% for medium mines to less than 5% for ENAF), and not more than US$20 million can be expected to be contri- buted by Treasury/Central Bank allocations. This leaves over US$175 million of mining and metallurgical investments presently without financing, mainly on account of ENAF's large-scale projects. Even though for turn-key projects in the metallurgical field, up to 60-70% of financing can customarily be obtained from commercial banks and suppliers, there would still remain a financing gap of nearly US$90 million and close to US$50 million for smelting and refining projects alone. 111. External capital requirements of mining and refining investment have to be assessed in the context of borrowing requirements for the overall economy, and their likely impact on balance of payments and external debt will have to be an important consideration 1/. The magnitude of external capital needed for mining and refining over the next five years or so makes it impera- tive to apply severe criteria for project selection and maximum economies during project implementation. As a result of this selection process, external financing might have to be reserved for those mining and refining projects with the fastest pay-back period, the highest economic returns, and the most significant effect on the export capacity of the Bolivian economy. 1/ Total interest and amortization payments on existing loans obtained by COMIBOL and ENAF will amount to US$81.5 million during 1976-80.  - 52 - Table 10: PROJECTED MINING AND REFINING INVESTMENT AND FINANCING, 1976-80 (1975 US$ millions) TOTAL 1976-80 Government Mission Projection Projection INVESTMENT 467.7 389.7 GEOBOL; Other Exploration; Metallurgical Research 38.4 38.4 COMIBOL 113.5 63.0 Exploration (1.7) (3.0) Mining (15.3) (20.0) Ore Processing (96.6) (40.0) Medium Mining 51.0 65.0 Small Mining 21.5 20.0 Smelting and Refining 243.3 203.3 FINANCING .. 212.8 Cash Flow 56.0 COMIBOL (20.0) Medium Mining (23.0) Small Mining (3.0) ENAF (10.0) Treasury/Central Bank 20.0 External Loans/Grants Committed 116.8 to GEOBOL (3.0) to COMIBOL (34.1) Governments /6.5/ Commercial Banks; Other Financial Institutions /27.6/ to Medium Mining (15.0) to Small Mining (9.0) to ENAF (55.7) Commercial Banks; Suppliers /38.5/ West Germany /15.0/ CAF /2.2/ Direct Foreign Investment 20.0 WITHOUT FINANCING 176.9 Probably Obtainable through Suppliers' Credits 90.0 Financing to be Found 86.9 COMIBOL (8.9) ENAF (47.6) Other (30.4)  Al4' '" ~~~~~~~~~~~~~~~~ - ~~~~BOLIVIA 2 NE' r.r655T65Ainerl6Deosit and M jrMines 6; 2'AJLSFA6E6562 1 MN K Mneral LAe~oSi i- iolo jo,~~~~~~~~~~~~~~~~~~~~~~~~~~"1 0 032 '66 SAANSS 645 26,>.s,,i, 1,4,~~~~~~~~ Csqs 2355252554~0 --d -d SEMI, W-' I N,, NSA 312 S5S,N S MEN~~~~~~~~~~~~~~~~~~~~~~~~~E,,-d 0C 5AhSSSNSIAN K2E26M6A MA MAMA PEAs 32 T3,A56,6s, IRS A N,~~~tATEA 6 *~~~~~~~~~~~~~~~~4 66 2~~~~~~~~~~~   BR D '2398 COBIJA Pf_ t*'f;D 7 s~~~~E M4aA fSCA RtESEVE X tA -' j , tii.22 e 0 :00 0 0 t2~~~~~~~~~~htA 0 < X { , e O~~~~~~~~~ ~~~~Mngdolena a. ,'-- 0 I 0 0 v; 2 . % ~IXIAMAS 2 SatIn -~. L | P ER 0 g T~~~~~~~~~~~~~R N DAD ,j bAID FLA PAZLTSf nt M O '974 \ af H ;:~~~~~~~~~~~~~~~~~~~~~ < ~~~~~~SanJose| iisT + Xt > /;SAXlt~~~~~~~~~~~\A CRUZ <t OR iqu~~~~~~~~~~~~~Iia < : 0 \ , \!9tb~~~~ ~ ~~~Unc a T E U$ S ;- RRO -ui J '' L IA Y -n LA0 PA I9L - Q u d is c _ _ _ S CO~~r14BA7/BA K~ IC,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I C 5 SOUTH   STATISTICAL APPENDIX Table 1: Mining Exports, by Mineral, 1965-75 2: Mining Exports, by Sub-Sectors, 1965-75 3: Mining Taxation, 1965-74 4: Mining Credit, 1965-74 5: COMIBOL Profits and Loss Account, 1965-75 6: COMIBOL Operational Costs, 1972-74 7: COMIBOL Mineral Reserves, 1972-74 8: COMIBOL Mineral Mining, 1972-74 9: COMIBOL Mineral Processing, 1972-74 10: ENAF Profits and Loss Account, 1972-74 11: Projected Mining and Refining Output, by Sub-Sectors and Mineral, 1976-85 12: Projected Mineral Taxes, by Sub-Sectors, 1976-85 13: Projected Investment by Bolivian Mining Corporation (COMIBOL), 1976-80 14: Projected Investment by National Smelting Company (ENAF), 1976-80   CC 0 a CC C C N CC' CC H aa CC H -C C ft C 0 C C-- C-. C C C C C - - 0~~~~~~~~~~~~~~~~~~~0 H C <<C* <a- '-OaC- <a- <CC <--a-' -- - - C-D - - -< f <Cf < C < C < CoCa. ,oO.CCC CD - C-.D.AB.-.C . . B -C -C-O Ca Ca C'CCC CDC'C'-C-'C<C CaH CftC-~~~~~~~~CNN CDC..C.C'a VI < . . f. C . C. CC--CN C'-~C C '.C- C . ft-.C .Df. ft.'-fC j~ 'CftCC- 'CaB C- C C~'CW DC 'C ca C DCftCC a a- CD-CC Z CLD' D' - C CC C- -- - ----C'---- C---- --- - C- -- C'- C--C C---- C ft 0C C a DC C C C C- CCC C CC  Table 2: MINING EXPORTS, BY SECTORS, 1965-75 (iS$ '000) 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 TOTAL 124.810 131,467 131,345 138.969 167,167 204.917 173.326 174,134 225,920 386,016 312,893 COMIBOL 64,654 77,832 74,151 78,522 87,873 97,009 91,283 93,135 118,609 207,113 178,923 Medium Mining 22,766 27,405 30,333 35,029 39,999 52,894 32,825 31,521 44,923 70,628 55,101 Small Mining 19,220 18,440 18,773 20,756 26,838 34,142 22,512 20,547 18,610 37,719 18,766 Other 18,170 6,837 4,658 4,658 12,389 20,849 2,841 4,316 11,453 15,062 8,600 ENAF - 953 3,430 4 68 23 23,865 24,615 32,325 55,494 51,503 COMIBOL 64,654 77,832 74.151 78.522 87.873 97.009 91.283 93,135 118,609 207,113 178,923 Tin, Concentrated (53,704) (62,207) (58,704) (59,080) (64,596) (64,378) (51,491) (59,186) (67,272) (121,141) (98,142) Zinc (1,274) (1,930) (1,403) (1,088) (1,260) (1,427) (14,340) (13,914) (20,244) (25,285) (27,377) Antimony, Cnncentra-ed (25) (-) (-) (-3 (-3 () () (-) (-) (-) (-) Tung.ten (319) (1,399) (2,617) (3,089) (3,284) (6,335) (5,010) (3,533) (4,104) (8,419) (8,977) Copper (1,322) (2,819) (2,474) (2,813) (4,691) (4,967) (3,731) (3,746) (5,720) (6,938) (3,606) Lead (2,166) (2,604) (1,799) (2,087) (2,959) (3,190) (3,351) (3,532) (5,435) (8,394) (6,310) Silver (4,412) (5,512) (5,351) (8,415) (8,307) (8,505) (7,324) (6,400) (11,141) (23,764) (25,922) Bismuth (1,415) (1,350) (1,776) (1,929) (2,763) (7,697) (5,344) (2,428) (4,168) (12,183) (7,259) Gold (6,689) (10,798) (11,558) (12,738) (13,597) (18,882) (20,908) (5,674) (1,716) (5,706) (-) Cadmium (-I (-) (-) (-) (-) (492) (670) (391) (430) (983) (1,329) Other '9' ) (16) (9) (- ~ ~ ~ 94' ) ~ MEDIUM MINING 22.766 27,405 30.333 35.029 39.999 52,894 32,825 31,521 44,923 70,628 55,101 Tin, Cmonentrated 14,466 16,460 17,708 20,769 23,015 23,272 17,367 16,546 19,291 27,946 19,740 Zinc 757 1,513 1,692 1,391 653 203 57 995 4,675 9,086 10,617 Antimnuy, Concentrated 3,961 3,049 3,855 3,566 6,220 16,540 5,189 5,048 10,146 16,919 10,868 Tungsten 1,581 2,925 3,861 4,780 5,368 7,734 6,606 5,113 5,439 9,886 10,459 Copper 1,016 2,277 2,390 3,260 3,558 4,098 3,280 3,586 5,086 6,652 3,232 Lead 696 826 566 712 538 545 234 204 209 56 104 Silver 230 310 228 537 635 482 93 29 35 39 46 Bi-sinth 20 29 23 12 78 20 - - 41 43 34 Gold 2 - 10 1 4 - - - - - - Cadmium 38 16 - - - Other - - 3 - - - - - SMALL MINING 19,220 18,440 18,773 20,756 26,838 34,142 22,512 20,547 18.610 37,719 18,766 Tin, Cuncentrated 11,374 10,660 10,896 12,502 14,707 13,823 12,987 13,070 10,491 22,999 10,229 Zinc 2,128 1,531 1,012 11 11 663 487 - - 635 481 Antimeny, Conccetrated 1,880 1,619 1,137 972 1,821 8,797 2,726 2,563 3,498 6,389 3,444 T-ngste- 330 753 1,281 1,582 2,333 3,322 1,576 1,308 1,349 2,196 2,123 Copper 442 600 1,075 1,261 2,352 2,947 1,133 1,077 1,194 1,335 8 Iead 2,466 2,559 2,323 2,248 2,363 2,987 2,352 1,409 1,352 2,025 514 Slicer 576 710 1,032 2,159 1,755 1,254 921 1,018 705 2,061 1,967 rinm-th 12 7 15 16 34 215 331 102 21 79 - Gold - - - 1 1,461 134 - - - - - Other 13 - - 4 2 - - - - OTHER EXPORTERS 18,170 6,837 8,088 4.662 12,457 20,872 26,706 4,316 11,453 15,062 8,600 Tie, (7uceeteated 13,422 2,996 141 182 91 551 168 124 1,613 2,235 1,620 z1ci 87 - 335 488 51894 12,025 387 529 1,044 2,317 1,155 Antimnuy, C-ccentrated 45 619 1,418 1,496 2,959 5,589 1,126 1,470 3,709 5,754 2,704 Tungste- - 29 212 248 159 187 418 330 236 399 694 Coppe- 738 493 462 395 355 487 154 353 1,441 1,074 415 Lead 338 380 235 86 985 1,085 11 684 1,352 1,008 427 silver 82 52 59 89 152 291 4 143 680 977 575 Bis-uth - 6 35 4 25 - 117 116 148 151 235 Gold 2,936 541 17 12 19 17 1 - - - Sulfur 189 1,169 1,480 1,553 1,573 476 310 526 1,155 1,022 709 other 333 552 266 107 202 117 145 93 77 125 65 ENAF - 953 3,430 4 68 23 23,865 24,61) 32,325 55. 494 51,503 Tin, Refined - 953 3,430 4 68 23 23,865 24,615 32,325 55,494 51,379 Antimony, Reficed - - - - - - - - - - 124 Sorce: Miniotey of Miming and Metallurgy.  Table 3: MINING TAXATION, 1965-74 ($b millions) 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 COMIBOL 37.4 37.2 73.2 53.2 91.2 129.3 78.1 156.3 450.2 873.1 Royalties 37.4 37.2 64.8 53.2 91.2 100.8 61.5 78.8 229.8 531.9 Export taxes - - - - - - - 73.1 178.0 283.2 Import duties - - 8.4 - - 28.5 16.6 4.4 42.4 58.0 Medium Mining 20.8 22.0 28.9 29.2 47.7 146.7 44.2 31.8 217.6 387.1 Royalties 20.8 22.0 20.5 20.3 38.3 118.2 29.3 24.5 113.2 228.2 Export taxes - - - - - - - 3.3 66.2 106.7 Import duties - - 8.4 8.9 9.4 28.5 14.9 4.0 38.2 52.2 Small Mining (Bamin) 30.2 12.3 11.9 12.9 23.6 56.0 18.1 40.6 121.4 221.1 Royalties 30.2 12.3 11.9 12.9 23.6 56.0 18.1 18.6 49.2 129.7 Export taxes - - - - - -- - 22.0 72.2 91.4 Source: Institute for International Development, Harvard University.  Table 4: MINING SECTOR CSEDIT, 1965-74 ($b millions) December 31 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 TOTAL 92.1 66.4 59.2 79.8 89.8 108.6 106.7 152.6 272.2 436.6 Financing of Mineral Stocks 31.8 35.0 39.3 52.3 54.3 69.5 64.2 105.2 161.5 302.7 Other 60.3 31.4 19.9 27.5 35.5 39.1 42.5 47.4 110.7 133.9 9pecialized Bank3 92.1 66.4 59.2 79.8 89.8 108.6 106.7 152.6 271.5 436.6 Commercial Banks - - - - - - - - 0.7 - Share of Mining in Banking 20.9 13.9 10.2 11.1 10.3 10.3 9.0 9.0 9.8 9.9 System Credit (Percent) Source: Central Bank  Table 5 COMIBOL PROFITS AND LOSS ACOOUNT, 1965-75 (US$'000) Estimated 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Income 80,287 85,111 81,310 81,509 445 1 28,018 136,121 238,424 198,773 Sale of Minerals 78,569 82,264 79,167 79,663 92,963 97,458 98,258 127,289 133,930 237,380 197,792 Other 1,718 2,847 2,143 1,846 1,769 2,255 3,187 729 2,191 1,044 981 Expenditures 76,170 75.455 79.975 78.266 78.856 90,665 91.465 124,056 128,560 222,198 194.023 Wages, Salaries and Social Benefits 23,493 18,594 19,487 19,487 19,992 21,490 25,791 25,355 23,710 32,450 32,650 Materials 11,096 10,327 12,006 10,393 12,711 14,293 8,300 11,479 11,816 14,634 18,394 Mineral Purchases 8,195 7,486 8,594 6,397 7,197 9,495 12,492 9,834 9,950 15,800 18,869 Depreciation 1,700 2,003 1,894 1,599 1,700 1,801 2,096 2,644 2,766 3,278 3,360 Administrative Costs .. , .. .. .. .. 3,483 3,497 4,949 5,050 Financing Charges 2,399 2,298 2,795 2,795 3,199 2,702 2,644 2,644 5,403 8,362 8,967 Realization Costs 17,896 18,089 18,290 17,694 18,990 21,389 37,742 37,764 34,350 57,960 52,782 Taxes 1,001 4,872 1,010 404 598 3,502 9,091 18,353 23,150 59,320 45,400 Royalties (1,001) (,.) (303) (404) (598) (1,103) (7,694) (9,713) (9,840) (39,860) (32,200) Export Tax (-) (-) (-) (-) (-) (-) (-) (8,308) (11,190) (16,560) (11,200) Other (-) (,,) (707) (-) (-) (2,399) (1,397) (332) (2,120) (2,900) (1,000) Other 10,390 11,786 15,899 19,497 14,469 15,993 6,700 12,500 13,918 25,445 Operating Profit or Loss 4,117 9,656 1,335 3,243 15,876 9,048 9.980 3,962 7.561 16,226 4,750 Less: 1,995 3,884 1.995 2,896 4.503 ,149 7374 3637 Worker Profit Sharing 1,599 2,800 1,397 2,197 3,897 3,796 2,197 2,372 3,919 6,454 2,827 Global (312) (1,910) (1,728) Profitable Mines (2,060) (3,009) (4,726) Income Tax 396 1,084 598 699 606 202 202 604 230 920 810 Net Profit or Loss 2.122 5,772 -660 347 11.373 5,050 7,581 986 3.412 8,852 Memorandum Item Legal Reserve .. .. 1,396 1,462 2,137 2,815 1,966 - 1,402 575 Development Reserve .. . - - - - - 175 4,206 1,693 Reserve for Other Investment .. .. - - - - - - 11,215 2,371 1/ Import duties; foreign exchange tax other. 2/ Trading post subsidy; expenditures on social services 3/ Paid on behalf of employees SOURCE: CODMIBOL; IMF; Mission Estimates.  Table 6: 4451231 OPERATIONAL. COSTS, 1972-74 (U.S.$/lb of Mete1) Tin ZOne Aft1e-ov1/ T..g.t.. Cone- Lend silve B0on i-th Cadoelm (Geld (/ 1972 1973 1974 197-2 -1973 1974 1972 1973- 1970J4.1 17972- 1973 1974 1972 1973 1974 1972 1973 1974 1972 1973 1974 1972 1973 1974 1972 1973 1974 1972 1973 1974 L.b-r 0.42 0.41 0.64 0.02 0.03 0.04 0.32 0.60 0.57 0.99 0.12 0.11 0.17 0.05 0.03 0.04 0.33 0.52 0.87 0.84 0.84 2.21 0.45 0.37 0.46 8.90 12.27 48.05 W.gep .od S.1-n.. (0.24) (0.22) (0.31) (0.01) (0.01) (0.02) (0.20) (0.37) (0.31) (0.48) 5.58 (0.04) (0.06) (0.03) (0.02) (0.02) (0.20) (0.28) (0.42) (0.52) (0.46) (1.07) (0.28) (0.20) (0.22) (5.52) (6.65) (23.33) Other Lb.b-Ie.t.d (0.16) (0.19) (0.33) (0.005 (0.02) (0.02) (0.12) (0.23) (0.26) (0.51) (0.04) (0.05) (0.69) (0.02) (0.01) (0.02) (0.13) (0.24) (0.45) (0.32) (0.38) (1.14) (0.17) (0.17) (0.24) (0.38) (5.62) (24.72) m.t.ni.1 Sept. 0.17 0.17 0.22 0.01 0.01 0.02 0.1) 0.24 0.24 0.34 0.00 0.0) 0.06 0.02 0.01 0.91 0.13 0.22 0.30 0.34 0.36 0.76 0.10 0.16 0.16 3.59 5.20 16.49 Energy 0.05 0.06 0.06 OaOl 0.04 0.07 0.06 0.09 0.00 0.01 0.02 0.01 . . 0.04 0.04 0.Oi 0.10 0.10 0.19 0.05 0.04 0.04 1.03 1.44 4.22 Kine-e Pe-h.... 0.21 0.10 0.33 0.01 . 0.02 0.14 0.19 0.26 0.01 0.06 0.00 0.09 0.02 0.01 0.02 0.16 0.23 6.44 0.41 0.38 0.13 0.22 0.07 0.24 4.32 5.50 24.06 V-el.= Prd.Ietio Cost, 0.04 0.06 0.10 . . 0.01 9.03 0.05 0.03 0.1) 0.01 0.02 0.03 . . 0.01 0.03 0.Oi 0.13 0.07 0.12 0.33 0.04 0.00 0.07 0.78 1.79 7.19 D.epnr .tie 0.04 0.04 0.0) 5 0.0) 0.05 0.04 0.00 0.01 0.01 0.01 . . 0.03 0.05 0.07 0.07 0.08 0.17 0.01 0.04 0.04 0.76 1.22 3.69 P-od..ti.. C..t. 0.93 0.91 1.39 0.05 0.06 0.10 0.70 1.31 1.20 2.10 0.26 0.25 0.37 0.10 0.06 0.09 0.11 1.10 1.88 1.89 1.99 4.79 0.99 0.83 1.00 19.37 27.41 104.18 Ad.Onistr.tive Coat. 0.05 0.05 0.07 . . 0.01 0.04 0.07 0.07 0.15 0.01 0.01 0.02 0.01 0.01. 0.04 0.06 0.10 0.18 0.11 0.86 0.06 0.05 0.05 1.09 1.54 5.58 Fi-1nein Co.t. 0.03 0.08 0.13 . 0.01 0.01 0.03 0.05 0.10 0.19 0.01 0.02 0.03 . 0.01 0.01 0.03 0.09 0.17 0.07 0.15 0.43 0.04 O0Z07 0.09 0.72 2.16 9.42 Op-rtiog Co.t. - m- 1.01 1.05 1.59 0.05 0.07 0.11 0.77 0.03 1.46 2.44 0.29 0.29 0.43 0.11 0.07 0.10 0.77 1.31 2.10 2.01 2.14 0.48 1.08 0.94 1.15 21.18 31.11 119.18 R..lie.ti-n Coet. 0.30 0.40 0.63 0.10 0.15 0.23 -- 0.24 0.26 0.40 0.19 0.23 0.20 0.07 0.11 0.10 0.88 1.60 1.66 1.92 2.32 2.26 1.57 1.82 1.04 20.35 37.34 16.47 R.velries 0.18 0.37 0.78 . 0.01 0.02 --0.15 0.23 1.04 0.00 0.00 0.10 . 0.01 0.01 0.07 0.23 0.32 0.12 0.26 0.34 0.04 0.16 0.19 -- -- 0.16 Oth.r T-ec 0.07 0.23 0.24 . 0.01 0.01 --0.07 0. 17 0.21 0.02 0.09 0.06 0.01 0.01 0.01 0.08 0.10 0.14 0.18 0.18 0.15 0.13 0.12 0.07 1.27 -- 0.15 Op-rting Cones - Tot.l 1.64 2.13 3.24 0.16 0.24 0.37 0.77 1.89 2.11 4.12 0.52 0.69 0.79 0.19 0.20 0.22 1.81 3.43 4.27 4.23 4.89 8.23 2.82 3.05 3.24 42.79 68.44 135.95 M-rgin -vrAvo-g. Quot.tion(.) 7.3 32.8 5.2 12.5 12.0 1.1 -10.3 0.2 7.2 -- 34.5 .23.0 -21.1 23.0 3.6 7.7 24.8 2.6 3.3 30.3 0.1 9.6 18.2 2.3 35.5 34.4 3.3 1/ No p-odeetio. o 01 S-oree 08080OL  Table 2: COMIBOL MINERAL RESERVES, 1972-74 (Metric Tons '000) Dec. 31, 1972 Dec. 31, 1973 Dec, 31, 1974 Metal Content Fine Metal Metal Content Fine Metal Metal Content Fine Metal Mineral (Bercent) Equivalent Mineral (Percent) Equivalent Mineral (Percent) Equivalent INTERIOR MINE Tin Proven 8,423.6 0.82 68.9 10,721.0 0.77 83.0 10,490.6 0.71 74.7 Probable 7,067.0 1.24 87.8 7,037.6 1.22 85.7 7,509.7 1.22 91.6 Inaccessible 1,909.0 1.62 30.9 2,097.6 1.67 35.1 2,177.0 1.74 37.9 Zinc Proven 874.8 13.53 118.3 982.2 13.36 131.3 1,698.6 10.76 182.8 Probable 2,667.7 6.74 179.9 1,402.2 11.68 163.7 3,248.7 8.22 267.3 Inaccessible 78.9 7.68 6.1 2,337.7 6.05 141.4 536.2 6.95 37.3 Tungsten Proven 14.7 1.64 0.2 10.0 1.74 0.2 10.0 1.74 0.2 Probable 22.4 1.34 0.3 19.0 1.31 0.2 19.0 1.31 0.2 Inaccessible 16.6 1.18 0.2 38.1 1.30 0.5 38.1 1.30 0.5 Copper Proven 424.0 1.55 6.6 526.9 1.67 8.8 494.2 1.85 9.1 Probable 563.4 2.54 14.3 689.3 2.58 17.8 695.7 2.33 16.2 Inaccessible 17.4 0.58 0.1 89.7 2.86 2.6 84.2 2.86 2.4 Lead Proven 845.3 2.42 20.4 775.9 2.39 18.6 700.8 2.51 17.6 Probable 684.4 3.70 25.3 889.5 3.23 28.7 1,131.0 2.74 31.0 Inaccessible 97.8 4.01 3.9 691.2 '2.08 14.4 205.2 3.13 6.4 Silver Proven 323.6 0.063 0.2 392.4 0.055 0.2 414.3 0.048 0.2 Probable 1,678.4 0.035 0.6 1,668.7 0.033 0.6 1,878.3 0.034 0.6 Inaccessible 195.4 0.057 0.1 249.4 0.047 0.1 226.8 0.046 0.1 Bismuth Proven 407.9 1.03 4.2 416.0 0.97 4.0 377.4 0.97 3.7 Probable 332.3 1.39 4.6 380.8 1.29 4.9 454.7 1.23 5.6 Inaccessible 17.4 1.15 0.2 17.4 1.15 0.2 16.3 1.07 0.2 TAILINGS AND BY-PRODUCTS Tin 153,821.4 0.21 317.1 174,596.6 0.30 528.0 185,336.6 0.29 534.9 Zinc 7,521.6 3.27 246.3 12,555.2 5.52 693.1 14,117.5 5.45 769.9 Tungsten ... ... ,,, 67.0 1.37 0.9 67.0 1.37 0.9 Copper 699.5 2.54 17.8 2,154.4 2.32 49.9 3,387.7 1.31 44.4 Lead 88.0 1.55 1.4 2,545.2 2.49 63.3 2,223.5 2.54 56.6 Silver 8,355.3 0.009 0.7 10,642.9 0.015 1.6 10,506.9 0.015 1.6 Bismuth 254.7 0.44 1.1 1,068.6 0.96 10.3 1,100.0 0.96 10.5 Source: OOMIBOL  Table 8: ODMG9OL MINIFJL INING, 1972-74 (Hetric Ton. 000) 1972 1973 1974 Mineral Mid Mta Ctet pie Mt lMid Metal Content Fine Metal Mineral Mined Metal Content Pine Metal Percent ) S euiveieni (Parent) E-uivalent (Ptriont) Equiva1ent 8Ll}elh8Y 4,350.5 4.068.7 4,285.0 Tin (Sn.) 21.5 20.S 20.0 Interior Mine (.) (16.0) (14.3) Tailir,g0 (1.6) (1.2) Paircngs (1.3) (3.2) (4.5) Zirch(Zne 38.2 40.8 32.6 Interior Mite (G) (39.3) (31.8) riligs ( (1.5) (0.8) Pur-he)- Tungten (Prch.ese. only) 1.0 1.0 1.0 Copper 3.0 3.8 3.2 Interior Mine (,.) (3.6) (3.1) Tailinge/By.PwdctO ( -) Purchase (0.1) (0.2) (0.1) Lead 1352 14.1 12.1 Interior Mine (12.9) (11.6) TWilinge (0.7) (0.1) Purschee (0.7) (0.5) (0.4) Silver 0,2 0.2 0.1 Interot Mine 0.2 0.2 0.1 Tailings Purchases (-, () (-3 iamnith 0,6 0.6 0.5 Interior Mnio 0.6 0.5 0.5 Taiinegs(-() Purchase. (0.1) Cadniun 0.1 0.2 0.1 Gold (kg) 13.0 6.9 0.3 Own Production (11.7) (5.7) (0.3) Pur.hasos (1.3) (1,2) (-) Tin One 3.101.6 0.77 23.9 3.183.9 22.7 Interior Mine 2,906.8 0.78 22.0 2,984.3 0.72 21,4 Tailings 106.7 0.40 D.9 16129 0.52 0.8 Purchoee 8.2 2.82 0.2 37.9 1.28 0.5 Tin_Silrer_CopPer CIoplen Ones 44.2 4.80 Interior Mitt 42.8 43.1 Sn, 0.41 0.2 0.25 0.1 Ag. 0.025 0.01 0.018 0.01 0.34 0.1 0.26 D.1 Taflings t1.3 - 0.8 Sn. 0.31 0.26 D.01 Ag. 0.14 0.012 - Ou. 0.21 0015 0.01 Tin-SilLer-LC-d Conplen Oree 266.0 Interior Mine- 153.5 8n. 0.97 1.4 1.74 1,2 Z. 0.037 0.05 0,033 0.06 Pb, 1,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I86 2,8 1.63 2.8 Tailinge 112.5 23 S.. 0.62 0.7 Ag. 0.008 0.01 lb. 21 0.24 0.3 Tin-Silver Conplen Oren- - 99.1 S.. 0.40 0.4 Ag. 3t 0.001 _ Coppc Ores o 0,6 1.34 0.-1 Coppnr-Bianzth Coplnn Ores 137i.6 1388 mntntior Min 137.0 cu. 0.60 0.8 0 61 0 S 0.55 0.8 0.53 0.7 Tailiogs -- 1.8 0.45 0.01 BI: ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0.35 0.01 107.7 95.3 Copper-Slve-r CoLpleo Ores 107.6 95.2 Interior Mine 3.07 3o 3.26 3.1 C5. 0.001 0.011 .Ag, 0.1 0.1 P-rch..e. 6.17 - 5.62 0.01 ou 0,002 - 0.004 - Ag. Leod Silver'Zinc C-pIen Oree 26.6 194.1 Interior Mire ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~193.7 Interior Hine 0.92 0.2 2.96 5.8 Ph. 0 016 0.01 0.037 0.07 Ag. 6.51 1.7 4.18 0.1 TZln.e __ 0.4 T.ilng 0 34 Ph. 0.30 - 0.010 - An, 1/ 5,11 - TOn.Leai-llnc Ceniplen Ores. 13.6 0.7 -- Sn 4.800 Pb. Trace. 2n C 1/ Trecee Zinc-Silver Cotiplex Ores' -- 8,7 7 0.7 Zn. 0.045 ZInc-Lead Coeplon Ores 26051 2 In_terio.r Mine201 5. Znt 13.83 36.0 12.19 30.6 Fb. 15.8 0.07 2.3 B.3 1.07 2.7 TZni.. 9.20 1.5 9.0 7 3. Thn 2.38 0.4 0,80 0.1 Lead-Silver Co npleo Oro 95.4 Interior ine 8923.86 3.4 356 2 8 Ag. 0.037 0.03 0.033 0.03 p-rhae 6.2 5.5 Ph. 3.97 0.2 3.47 0.2 A. 6,2 0.028 - 0.027 - , oat ova ilabie - _llar then e-nllest -nit choen Sn-rter CONISOL  94~~~~~ -wwc =Os _OW= Q , 55 55 55 55 5 5 '5 55 5? 57 ,,5 .5 5 7 , _, , , 44