Sale of Cerro Matoso: owner considers that the country risk for investing in Colombia is high

Last week it became known that the Australian mining company South32 intends to sell Cerro Matoso, which has been producing nickel in the department of Córdoba for more than 40 years.

In an interview, Cerro Matoso president Ricardo Gaviria explained the reasons for this decision, which was reviewed more than a year ago. “South32 believes that there is much less risk in investing in the United States, Canada, Chile, Argentina or Peru,” he said.

He also said that the sale of the company is not bad news and that they will continue to move forward with their plans to expand their operations to other areas.

In terms of production, we are ahead of target. The target for fiscal year 2025, which runs from July 2024 to June 2025, is around 35,500 tons and we are projecting that we can end up with 700 or 800 tons above that.

From a cost budget perspective, we are complying and doing quite well. We have met our environmental and social obligations, but it is also important to mention that in the last six months we have done two interesting things.

First, we were able to carry out the first test of imported ore. There were 60,000 tons that arrived on two ships from Guatemala to Cartagena and Tolú. Technically, mixing it with our ore worked very well.

We also obtained all the approvals and consultations that we had to do with the community of Pueblo Flecha (Córdoba) for a new area where we will begin to extract minerals in fiscal year 2026, which starts on July 1, 2025.

Although we are doing well on budget and above the production target, unfortunately the price is not helping us. On the financial side, we are going to be cash positive, although nothing compared to some previous years.

Over the last three years, the price has been quite depressed. In 2022, it was at $21,000 per tonne and now we are at a very low price of $13,000 per tonne , which leaves us with a very small margin.

These businesses require a significant margin, not only to cover their operating costs, but also to cover the capital that must be invested to maintain the equipment.

We have kept the company's costs very stable and, of course, we are also affected by inflation. The challenge for management is to maintain stable costs in order to try to have positive cash flow and not leave the market.

The sale of Cerro Matoso was first reviewed more than 12 months ago, but is more in line with South32's strategy to focus on copper and zinc.

The parent company also believes that Cerro Matoso, in the hands of other owners, could enhance some opportunities, something that could not be achieved with the policies and guidelines that South32 has.

That process is underway. We know that there are some potential buyers who have been looking at the data room and we are waiting for them to let us know when they will come to visit the operation.

This has been handled directly with the Australian Investment and Divestment team. We have been working on all the information required and answering questions, but at this stage we do not know who the potential buyers are or when they are coming.

No, because the base price also depends on who is doing the valuation. If a buyer considers the country risk to be high, as South32 does, the value of the company decreases.

But if a buyer considers that there is no risk to operate here or that this is his only investment option, he does not have to put the country risk on it, since he has nothing to compare it with.

If it is a company that is willing to set up a self-generation plant, stay in the country and make some investments, the value of the company increases. The price depends on who is looking at it.

South32 believes that there is much less risk in investing in the United States, Canada, Chile, Argentina or Peru.

This is not the fault of this Government. What is happening is that Colombia has not decided to be a mining country and I have said this in many forums for 10 years.

When former President Juan Manuel Santos spoke about the mining locomotive, I thought that this was going to take off, but it didn't. Political will is needed and we need to forget that speaking well of mining takes away popularity.

These processes can last 12 or 18 months, but it can also happen that in the end nothing happens.

In any case, we as a management team have to tell the new owner, or South32, that in order to be sustainable, we have to operate under conditions that have to be much more agile and faster.

At some point, some decisions and risks will have to be taken, but of course under control. To do this, all aspects must be considered and a major task must be undertaken.

I think that selling a company is not bad news, many companies are sold. The important thing here is that those who define the future of a company are its management team and its employees.

We are willing to continue working, to continue being efficient and to transform ourselves to move the business forward.

Cerro Matoso's mining contract with the Colombian state expires in 2044, but everything depends on the price of nickel because resources become reserves to the extent that their extraction is economically viable.

This new area will not increase the company's production, it is simply to try to maintain production at a level of 32,000 or 34,000 tons per year. It is an extension of what we have to compensate for what is no longer being produced.

The National Mining Agency (ANM) has responded, although it is not moving at the speed one would expect. There should be a certain sense of urgency, but not all state institutions move at the same speed.

We have that title to the north of the municipality of Planeta Rica and we need it to be able to explore that area and check if it is economically exploitable. We still need to hold a public hearing and for the ANM to make a final decision.

It is a more expensive mineral, but it allows us to increase production because it has a higher nickel content. In addition, when mixed with our mineral, it provides us with resources that could never be extracted from the earth.

We are waiting to finish reviewing with the ANM the entire protocol that we created to define how the royalties for that mineral that is mixed with the imported mineral are calculated.

Once we have that cleared up, we start importing. The idea is to import 500,000 tons a year to increase nickel production; however, everything depends on the grade of the mineral.

In 2023, one of our natural gas suppliers had problems with its wells and priority was given to residential users; however, that has now been resolved.

We have an 18-megawatt self-generation plant and at times we have had to shut it down to use that gas for the mining process.

The issue of not exploring natural gas is a risk, not only for us but also for the country. Also, if for some reason there is a shortage of gas in the country and residential consumption is prioritized, we could be affected.

The revenue has been lower in both royalties and taxes. In 2024 we paid only 112 billion pesos in taxes, when a year earlier it had been 733 billion pesos because 2022 was a very good year.

In royalties, last year we paid 277 billion pesos compared to 486 billion pesos in 2023. This decrease was also due to the fall in the price of nickel.