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DE RUEHLP #1322/01 1632001
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R 112001Z JUN 08
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UNCLAS LA PAZ 001322 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EMIN EINV ELAB BO
SUBJECT: BOLIVIAN MINING: COOPERATIVE CHALLENGES 
 
¶1. Summary: On May 29 and 30 Emboff traveled with 
representatives of mining cooperatives, at their invitation, 
to visit cooperative mines and separation plants in north 
Potosi (note: As of June 9, this region is impassable due to 
road blockades by cooperatives, private miners, and treatment 
facilities, protesting the value-added-tax for internal 
mineral sales which the government has just started to 
charge. End note.)  A number of the cooperatives have 
reopened old mine workings that are once again profitable due 
to high world mineral prices.  The cooperatives are 
interested in finding sources for U.S. equipment, 
particularly high-quality used excavation and mineral 
processing equipment.  During the visit, Emboff was able to 
see environmental impact and investment issues of cooperative 
mines. Despite a need for equipment and investment, 
cooperatives are not set up to easily interact with U.S. 
markets.  End summary. 
 
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Basic Structure of Cooperatives 
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¶2. Cooperative mines can be organized in different ways, but 
generally they are associations of "partners" who own the 
right to a portion of the production of a certain area of a 
mine.  These partners can hire employees out of their income 
in order to produce more from their section of the mine: the 
employees are paid a fixed rate.  Cooperatives are defined 
under Bolivian law as "non-profit" social organizations, and 
therefore they do not pay income taxes.  In the north Potosi 
area of Llallagua and Uncia, each cooperative mine (with up 
to 1500 partners) is also a member of the local cooperative 
federation.  Decisions which are strictly internal to a 
cooperative (such as whether to pursue a new vein of ore that 
does not cross cooperative boundaries) are made by the 
leaders of each cooperative, sometimes with a vote of all 
partners.  The federation makes decisions that affect more 
than one cooperative (such as maintenance of a main mine 
portal from which multiple shafts belonging to different 
cooperatives branch off.)  All cooperatives contribute money 
to the federation to maintain joint use areas and equipment 
such as elevators. 
 
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Need for Equipment and Service 
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¶3. Whether theoretically the cooperatives are contributing to 
maintenance or not, the reality is that both shared and 
private areas are sadly undermaintained.  In one deposit 
mined by three cooperatives and roughly 4000 workers, Emboff 
saw an elevator used for ore and personnel that dated from 
the 1920s and seemed to have had little maintenance in the 
past decade.  The sides and floor of the elevator were rusted 
through, and there were no safety breaks that would impede a 
multiple-hundred foot fall when the ancient chain holding the 
elevator inevitably breaks.  A transformer within the mine 
had reportedly been maintained within the last year, but no 
one (not even the head of the federation) seemed to know what 
the maintenance had consisted of: there were no records of 
the oil changes that should be standard for an industrial 
transformer. 
 
¶4. Although the partners were most interested in the 
possibility of importing used trucks, digging equipment, and 
drills, Emboff also saw an obvious market for more basic 
supplies such as safety equipment.  Emboff's guide mentioned 
that a safety survey carried out earlier that year had 
resulted in the recommendation that the miners use 
respirators or masks because the ventilation system installed 
in the 1940s no longer functions.  Nevertheless, Emboff did 
not see a single worker with any form of respiratory 
protection.  Many of the workers were wearing construction 
hard-hats not certified for use in a mining environment, and 
the mining hardhat worn by Emboff's guide had a large crack 
running from the top down to the brim, secured by industrial 
staples.  Partners confirmed that there was no radio system 
for communication within the mine, nor any tag-board or 
sign-in sheet by which the miners' presence in underground 
could be tracked. 
 
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Safety Aside (and it is an aside) 
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¶5. Although one of the partners asked Emboff about the 
possibility of arranging safety lectures from U.S. mining 
experts, it is unclear how much a U.S. safety expert could 
help in a situation where the standards are so low and the 
partners seem unwilling or unable to implement suggestions. 
Despite the recommendation that respirators or masks be used, 
when Emboff asked about interest in buying these from the 
United States the partners demurred, saying that they would 
rather focus on production equipment.  Any U.S. safety expert 
would doubtless make another unpopular but obvious suggestion 
to improve mine safety: get the kids out of the mine. 
According to various partners, boys as young as fourteen work 
in the mine (Note: women do not generally work underground, 
as they are considered bad luck. End note.) Emboff's guide 
mentioned that he had started working in his grandfather's 
cooperative when he was seven. 
 
¶6. According to a representative of the federation, nineteen 
workers have died in this area in the first five months of 
2008; he was not sure of the number of deaths in the year 
before.  This mortality count only includes miners who died 
in accidents: as in other areas of Bolivia, deaths from 
dust-related lung disease and other causes indirectly or 
directly linked to mining are presumably high. 
 
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Unsafe for Man...and the Environment 
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¶7. Although there are mining safety regulations in Bolivia 
(which large companies are required to adhere to and which 
most international companies exceed), cooperativist miners 
explained that there are no mine safety inspectors to address 
any of the concerns listed above.  They seemed equally 
bemused by the idea of environmental inspectors, and there 
was clearly no concern about any level of environmental 
audit.  The sides of the road on the way into Llallagua look 
like a scene out of a post-apocalyptic movie: private mineral 
separation pits spill a toxic mix of mud and chemicals into 
the river, whose banks are stained orange with acid mine 
drainage.  At a separation facility belonging to one of the 
cooperatives, Emboff watched as the froth from a floatation 
process using chemicals and waste motor oil was methodically 
swept into the river by a bored employee.  "We need new 
equipment for that," explained the guide: not to avoid 
spilling the dirty mix into the river, but to automate it. 
 
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A Difficult Market for U.S. Equipment 
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¶8. Although there is an obvious need for earth-moving 
equipment as well as personal safety equipment such as boots, 
hard-hats and respirators, the market will likely be 
difficult for U.S. companies to access.  Each partner is 
responsible for buying equipment for his own use, and when 
Emboff asked about the possibility of pooling orders so as to 
negotiate a better price with sellers, the partners were 
interested but unsure how such a process would work. 
High-price purchases (such as a new winch for the failing 
elevator) would be negotiated with the federation, and each 
partner would technically have a vote on the final decision. 
The partners told Emboff that they are unable to access bank 
loans, so any large sale would probably need to be arranged 
as a loan from the U.S. equipment vendor that the 
cooperatives would pay back as they produce more. 
Nevertheless, federation representatives informed Emboff 
after the visit that they had already begun making contact 
with some of the companies listed in the USCS buyusa.com 
sites Emboff provided. 
 
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Equally Difficult for Investors 
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¶9. The cooperative mines in many cases have reopened mine 
workings abandoned since Bolivia's mining heyday in the 
1940s.  Like huts built on the ruins of mansions, the 
cooperative mines make low-tech use of the old tin barons' 
infrastucture.  Mines that still have tracks no longer have 
railroad cars, so the miners push old cars by hand until the 
cars break, and then the tracks are just one more obstacle 
for miners with sacks of mineral on their backs.  A number of 
partners reminisced to Emboff about the glory days of North 
Potosi, their boyhoods when the railroads gleamed "like 
silver," the company store had "the best food, the best 
toys," and the mines' movie palaces showed all the latest 
hits.  None of this remains: the old engineering headquarters 
have fallen into disrepair, and armed soldiers guard the 
sites that belong to the state mining company COMIBOL (either 
never having been opened to the cooperatives in 1952, or 
having reverted back to the State, as in the case of Huanuni 
mine.) 
 
¶10. Leaders of the federation have visions of this greatness 
returning.  One representative told Emboff that recent 
exploration suggests that the whole hill (now riddled with 
tunnels and worked by 5,000 cooperative miners) could be 
turned into an open pit mine.  When Emboff asked how a 
private company might be able to invest to make that scenario 
a reality, the partners explained that, since the 
cooperatives have the right to the concessions, any company 
would have to negotiate with them.  Reportedly concessions 
for another area with substantial tin deposits are managed by 
COMIBOL, requiring potential investors to either negotiate 
with the State or with the cooperatives' loosely-organized 
social groups.  As current tax levels yield a government take 
of over 70 percent in many cases, it is doubtful whether 
international investors will want to take on this challenge. 
(Note: A number of partners mentioned that "the Chinese" are 
interested in the area, but no one remembered an actual visit 
from any Chinese company.  The certainty of Chinese interest 
in Bolivian mining is widespread, although the evidence of it 
is so far scarce. End note.) 
 
¶11. The cooperatives are not able to efficiently recover 
mineral from their product.  One local separation plant in 
the area specializes in re-processing old mining waste, and 
the engineer at the plant admitted that even so, 30 percent 
of the mineral content is lost into the river.  The 
participation of international investors with better 
equipment and know-how could greatly improve this situation, 
but any investor would need to be very careful moving into an 
area with so much existing environmental damage: the 
government (or international environmental groups) could 
easily hold companies responsible for damage incurred before 
their arrival.  Involvement of large, international-class 
mining companies would doubtless improve the area's safety 
record, as well, but Emboff saw no evidence of current 
international investor interest. 
GOLDBERG