By Diana Delgado
BOGOTA (Reuters) - Colombia's ban on mining in highland ecosystems could be a double-edged sword -- it may attract illegal miners to the delicate areas where established mining companies cannot operate.
The example of Canada's Greystar -- which last month withdrew permit requests for its gold and silver project over environmental concerns -- has crystallized Colombia's dilemma of trying to balance environmental concerns while boosting investment in its oil and mining sectors.
"That gold will be extracted by someone. It won't be a company with good practices. It won't be a company that had eliminated the use of mercury," said Cesar Diaz, executive director of the Colombian Chamber of Mining.
The fear is that small miners will come into already explored areas with rudimentary techniques that utilize mercury to separate gold and pollute rivers and soil -- Colombia has tens of thousands of both legal and illegal miners.
Since 2009, Colombia's mining code has forbidden working in so-called "paramo" ecosystems located above 3,200 meters. Under the old law it was not banned and the government had granted titles to companies such as Greystar above that altitude.
Analysts say that thousands of small illegal miners could occupy the Greystar areas located above paramo with the hope of finding the yellow metal and pocketing gains from record high gold prices of around $1,400 an ounce.
"The miner already knows where the company drilled as there are pylons where the company got geology sampling. And they are awaiting the company to leave those areas to extract the gold," said Diego Ramirez, a miner, who sold his titles in a nearby area to Canada's Norvista.
"If they start mining there, contamination will be worse as the use of mercury is key for artisanal mining."
Greystar -- one of a clutch of mainly Canadian explorers searching for gold -- is not alone in dealing with environmental hurdles. Authorities are also discussing a water permit for AngloGold Ashanti.
Greystar's gold project has shown one of the risks facing oil and mining operations in Colombia, where increased security is attracting a wave of investors to exploit rich resources, even as environmentalists push for stricter control.
"The main consideration the government has here is whether to prefer artisanal mining or organized mining companies," said Alfonso Gomez, an executive at Canada's Galway Resources, which has projects adjacent to Greystar.
In Colombia, gold deposits under-explored for years are attracting miners after security fears ebbed under ex-President Alvaro Uribe. Before 1937, when decades of conflict began, Colombia was South America's top gold producer.
"Once gold is publicly known in quantity and location, there will be people mining it in the area, and the worst environmental mining stories ... could happen once again," said Juan Mejia with the brokerage Interbolsa.
The 80,000-hectare (198,000 acres) area on which the Greystar project rests will make it difficult to police, Mejia said.
Environmentalists, however, reject that, calling on the government to adequately enforce the law.
"As long as there are controls by local authorities, we do not think there will be the presence of illegal miners in the area," said Gonzalo Pena Ortiz, an environmentalist and professor at UIS University in Bucaramanga.
(Writing by Jack Kimball; Editing by Alden Bentley)