Colombia Poised for Project Startups

Medellin, Colombia — The imminent startup of production from Cambridge Mineral Resources’ (CDGMF-O, CMR-L) Quintana property in Colombia’s Antioquia department — expected within months — will pass unnoticed in most quarters, as it is a rather minor development with production of just 15,000-20,000 oz. gold per year.

However, it will be the first project brought on-stream under the promotional drive of President Alvaro Uribe’s government to use mining as a tool to propel the economic and social development of the country. And this trickle will build to a more steady flow in the years to come as other projects come to fruition with companies such as Greystar Resources (GSL-T, GYSLF-O) and Colombia Goldfields (GOL-T, CGDF-O) looking to bring their respective Angostura and Marmato gold projects on-stream after the turn of the decade.

But with only 10% of Colombia explored, according to Mining Minister Hernan Martinez, the feeling is that the surface has barely been scratched, with the potential for pleasant surprises.

Indeed, a 200-km-long polymetallic body was recently discovered in Putamayo department, running between Ibague and Mocoa, said Carlos Uribe, former director of Colombia’s mining chamber, ANDI.

Colombia is rapidly becoming a sought-after destination for mining investment according to a variety of experts at the recent Colombia Mining III International Mining Show, in Medellin.

“Operating in Colombia is probably safer and a more prudent investment than operating in some of the neighbouring countries,” said Steve Wagner of London-based Control Risks Group, referring to Peru, Ecuador and Venezuela. “Civil unrest is down, the government has taken control of rural areas and investment in infrastructure is growing at an incredible pace.”

Wagner said that the government of President Alvaro Uribe is “really trying hard to do away with red tape for investors,” paving the way for the arrival of foreign capital in the country. Direct foreign investment was $6.46 billion in 2006, of which mining and quarrying accounted for $1.78 billion, according to government figures, while unemployment has fallen from 20% several years ago to 11.8%.

Most major international mining companies now have a presence in Colombia, including BHP Billiton (BHP-N, BLT-L), Glencore International, Rio Tinto (RTP-N, RIO-L), Anglo American (AAUKF-O, AAL-L), Companhia Vale do Rio Doce (RIO-N), private company B2 Gold (run by ex-Bema Gold executives), and Barrick Gold (ABX-N, ABX-T). Foreign expertise is coveted to help modernize Colombian mining, even though this may initially meet with resistance — particularly in the gold sector, where mining is generally performed by following veins underground.

“In Colombia, open-pit cyanide heap leaching is unheard of, so we need to change that mentality,” says Michael Smith, CEO of junior Continental Gold. “One of the biggest jobs is training people to think differently.”

However, Canadian junior exploration and mining companies are leading the push to discover new deposits and unlock the country’s mineral potential. An average of 1.5 new Canadian juniors a month are arriving in Colombia, Canada’s commercial attach Fernando Vargas said.

“Canada is driving this,” he said. “All the big companies are here now. Colombia is the poster child of the mining world and people are excited to come and work here now.”

Matthew Levin, Canada’s Ambassador to Colombia, described the involvement of Canadian companies in Colombia’s nascent modern mining industry as a “pretty spectacular success” at a breakfast for investors.

“Colombia is a country of considerable political stability and companies see that risk can be managed and dealt with,” said Levin, citing those as the principal reasons for Prime Minister Stephen Harper’s visit to the country earlier this year, the first by a Canadian leader.

There are signs that the vicious circle of violence that has hamstrung Colombia has been broken. Political instability caused by decades-long conflict between the government, guerrillas and paramilitary groups, was a disincentive to invest, as well as restricting economic growth and impeding job creation, poverty alleviation and efforts to reduce social exclusion — factors that fed the conflict. Since first elected in 2002, the Uribe government has aimed to convert this into a virtuous circle through leveraging foreign investment to generate growth and jobs, and to help engender in Colombian society the ability to tackle social issues and form the basis for a strong, sustainable democracy.

“The progress is nothing short of remarkable and the response of investors has also been remarkable,” Levin said. “There are real signs that the strategy of President Alvaro Uribe is working and there has been a real intensification of trade relations between Canada and Colombia with direct foreign investment growing very rapidly.”

Mining sector interest in Colombia saw the country included in the Fraser Institute’s annual survey of mining companies for the first time in 2007, but while it has fared well against regional peers such as Mexico and Peru in key indicators such as geological potential and regulatory framework, it is dogged by perceptions of security issues, which puzzles Fraser Institute director Fred McMahon.

“Speaking to people that are active here, I am getting the impression that the security situation is not as bad as the survey shows it is,” he said on the sidelines of the Medellin conference.

Colombia Goldfields is hoping to publish an inferred resource figure and scoping study by the end of the year for its 5.3-million-oz. Marmato gold project, in Colombia’s Caldas department, as it progresses towards the development of a mine capable of producing 360,000 oz. gold per year, said company president Ian Park.

The district has considerable upside potential with five other targets identified within several kilometres of Marmato. There could be as much as 15-20 million oz. gold combined between the Marmato, El Salto and Oro Fino deposits, said a source close to the company.

“We are defining a new gold district here outside of Marmato,” president and CEO Randy Martin said during an investor presentation, adding that a drill could be sent to the El Salto target at the end of the year, once drilling has been completed at Marmato.

The company is close to overcoming its main development hurdle, the consolidation of more than 100 mining claims on the mountain. Colombia Goldfields has negotiated purchase contracts with over 90% of the registered small-scale gold mines operating on Cerro Marmato — representing 99 of the 117 mines for a cost of $18.4 million.

“We can now see the light at the end of the tunnel,” Martin said.

The Marmato district is also being targeted by local firm Corporacion Minera de Colombia (CMC), which is exploring the Yarumalito and Guayabales gold properties.

“We have four thousand metres left to drill with the current program and hope to identify two million ounces of gold in each property,” said CMC geologist Mauricio Calle.

CMC is planning an initial public offering on the TSX Venture Exchange in October to raise funds, and its valuation will be watched closely by Colombia Goldfields, which listed on the main TSX board in August.

New blood

New exploration projects include Continental Gold’s seven gold properties with documented historical production and its access to another 30 in and around Antioquia department. The Canadian company has a 5-year exclusive option to obtain properties at a low cost from Grupo de Bullet, owned by Rob Allen, who acquired a number of properties in the 1990s when the civil conflict in Colombia scared away most mining companies, such as its Buritica and Berlin properties. The Buritica alluvial project was one of the biggest gold producers for Spain during the colonial period.

“We are in historic mining districts with deposits where there is potential for open-pit, multiple grams per tonne over broad areas,” Smith sa
ys. “We have blue-sky potential in an area of the country that has produced about forty per cent of South America’s gold.”

Smith predicts that in several years, the company could be producing 50,000 oz. gold per year.

The company is planning an IPO on the TSX Venture Exchange in the first quarter of 2008 that will capitalize 20-30% of the company, based on the valuation the company thinks it will achieve.

“Continental was valued at about $60 million in London earlier this year when we were looking at an AIM listing before the company sold Gromelote for $32 million,” Smith says, adding they expect the valuation will be around $30-60 million. “One of the biggest challenges we face now is making people aware of what we have and getting the word out to make the development happen.”

The company has joint ventures with AngloGold Ashanti (AU-N, AGD-L) on two porphyry copper-gold deposits called Dominical and Dohura, under which the major gold producer can earn up to a 75% interest over five years by making payments to Continental and investing in exploration.

“We are interested in joint ventures with mining companies as we are a mining company and I like to do business with people that are going to build a mine,” Smith says. “The (joint ventures) are structured so that the partners are committed to spend on the projects.”

Another new name is the Titiribi gold-copper-molybdenum porphyry complex under exploration by Medellin-based Goldplata Resources. The company is halfway through a 10,000-metre drill program with a view to bringing the project to the prefeasibility stage by the end of next year.

“We think this is a big orebody and should have the results of this drilling in about six months,” said senior geologist Alejandro Murillo.

While gold was the glitter that initially drew the attention of the mining world to Colombia, interest is increasing in its base metals potential. Continental Gold is looking to develop the Anza lead-zinc property, in which it has an interest. Values at Anza grade 15-20% zinc, 8-10% lead, 1-2% copper and 0.33 oz. (9.4 grams) gold per tonne.

“We are in the process of forming a joint venture with a local partner and we have a standing offer from Glencore International for the production,” Smith said.

Nikolaos Cacos, president, CEO and director of Vancouver-based Amera Resources (AMS-V, AJRSF-O), whose company is exploring southern Colombia for copper and gold, believes that the copper potential of Colombia is vast.

“We are targeting projects with truly world-class potential of one billion pounds or more of copper, or one million ounces or more of gold,” he said. “We are trying to identify a resource within two to five years and I am confident we can do it as Colombia is vastly underexplored. There are real opportunities to get big projects.”

Amera intends to take any significant discoveries through to the feasibility study stage before selling them to another company to develop.

“We are an exploration company and have no dreams of developing a mine,” Cacos said.

Despite the influx of exploration companies, Colombia still has a long way to go to match the exploration effort under way in Peru and Chile.

“There is a mining exploration boom in Colombia, but in terms of Latin America it is still small, and so there is still a lot of opportunity,” said mining consultant German del Corral.

Mining law

The Fraser Institute survey shows that Colombia ranks competitively compared with regional peers, but the government is in the process of making adjustments to various elements of the mining code to make the regulatory environment even more attractive to foreign miners, with a bill currently in congress.

“This country is safe to invest in. This is a democratic society that is genuinely interested in developing the conditions to invest in the country,” said Beatrice Duque, director of mines at the Ministry of Mines and Energy. “The taxation regime is very competitive, there are legal stability contracts available, and Colombia is the oldest democracy in Latin America — and there is the decided interest of the government to develop the sector.”

The bill proposes amending 17 of the more than 370 articles of the mining code, established in 2001, and could be implemented by the end of 2008.

“After six years of the 2001 mining code, there is evidence that we have to work on some elements,” Duque said. “The mining code opened the country and allowed anyone to ask for a mining title. This is good when people explore and develop mines, but we have seen a freezing of areas of land where people do not do any work and we want to put this in order.”

The proposed changes include: making people pay the mining canon or patent with the application for mining title to encourage them to be more discerning in the land they claim; implementing a 30-day pause period before making available mining claims that have returned to the state, to increase transparency; and implementing economic and technical requirements for those claiming mining titles.

— The author is a freelance writer based in Santiago, Chile.