Gran Colombia struggles with violence in Colombia

Several acts of violence in recent weeks have marred Gran Colombia Gold‘s (GCM-T) ambitious growth plans in Colombia’s gold fields.

Most recently, the company reports that its Mazamorras exploration camp in southwest Colombia was attacked by “unknown invaders” who set fires causing “considerable damage” to the buildings. The company reports that no employees or contractors were injured in the attack.

Gran Colombia had budgeted US$3.8 million this year to explore copper-gold porphyry targets on the 60-sq.-km Mazamorras property, located in the department of Narino. It is not yet clear how much the company’s exploration goals for the year have been affected. The company secured the property in early 2010 with a commitment to pay US$4 million in cash between February 2010 and November 2012, along with a work commitment of US$4.75 million over the same period.

The news comes several weeks after Jose Reinel Restrepo, a 36-year-old parish priest, was shot dead near Marmato. While no motive for the unsolved murder has been determined, Restrepo was a vocal opponent of Gran Colombia’s planned open-pit Marmato mine, which requires the relocation of some 10,000 people living in Marmato and the surrounding area.

Gran Colombia issued a Spanish press release on Sept. 2 that called for a full and swift investigation of what took place, and reiterated the company’s complete rejection of any acts of violence.

The company needs to relocate residents to access the significant gold resource sitting near and underneath the town. The most recent resource on Marmato estimates 307 million measured and indicated tonnes grading 1 gram gold per tonne and 6.5 grams silver per tonne for 10 million contained oz. gold and 64 million contained oz. silver. Inferred resources add 68 million tonnes grading 1.1 grams gold and 5.1 grams silver for 2.4 million oz. gold and 11 million oz. silver.

Gran Colombia also needs to relocate residents because of the amount of waste rock it will generate from the open pit. The preliminary economic assessment, based on a run-of-mine volume of 283 million tonnes, estimates the mine would have a 3.35-for-1 strip ratio and will require waste dump and tailings capacity of 1.2 billion tonnes.

The study stated that the steep terrain, heavy rainfall and scale of the waste rock facilities presents a  challenge, noting that “the extreme nature of these facilities represents significant potential to pollute groundwater and surface water if not properly designed, constructed, operated and closed.”

Some artisanal workers in the area are protesting the project as a threat to their traditional livelihood, but the centuries-long history of small-scale mining in the area is actually helping Gran Colombia with its relocation efforts. Because the steep hillsides have been so extensively disturbed by mining, the Ministry of the Interior and Justice has declared Marmato to be a public emergency due to the risks of landslides and has already started relocating the town. Gran Colombia plans to accelerate the program with an estimated US$35-million budget, though detailed plans and consultations are still in the works.

The May preliminary economic assessment established that the company could produce 7.2 million oz. gold over 21 years at a cash cost of US$584.3 per oz. gold. Based on a 40,000-tonne-per-day open pit using contract mining and assuming US$1,200 oz. gold, the study outlined a net present value of US$509 million with a 10% discount.

Gran Colombia secured the Marmato project earlier this year as part of the all-share merger with Medoro Resources that the two companies completed in June. The company is targeting 2016 for first production.

Relating to Gran Colombia’s underground operations, Rafael Tobon Zea, the leader of the metals and mineworkers union Sintramienergetica, was shot dead on July 26 in El Campo district.

Rafael Tobon worked at Frontino Gold Mines for 15 years before it was acquired while bankrupt by Gran Colombia for US$200 million in early 2010, and was still active with the union representing workers at the Frontino operations. The union opposed Gran Colombia’s takeover and launched an unsuccessful legal fight for control of the mines. Thanks to the acquisition, Gran Colombia is the largest underground gold producer in the country, and expects to produce 90,000 oz. gold this year.

Since acquiring the mines Gran Colombia has struggled to contain costs, with second quarter cash costs estimated at US$1,448 per oz. gold. The company had been unable to lay off staff for a year after the acquisition because of a provision of the takeover, but when the time lapsed in September the company laid off 603 employees, or 42% of the workforce, to trim costs, leaving 825 workers employed. The company also changed how much it pays for ore sourced from small mines operated on its property, from 70% of the market price to 55%. Gran Colombia reports that the measures will save more than US$2 million a month, or US$400 per oz. gold.

The company is not implicated in either death, but the murders do highlight the sometimes tense and dangerous environment that the company is working in. Colombia has the highest union murder rate in the world, with more than 1,700 union members killed in the past decade, including 51 killed last year. Despite improvements in recent years, Colombia’s murder rate still stands at 33.4 per 100,000 inhabitants, according to a recent UN report.

On news of the vandalism, Gran Colombia’s share price dropped 2¢ to 66¢. The company has a 52-week share price range between 51¢ and $2.35, with 390 million shares outstanding. Gran Colombia is currently working through a 38-million share buyback.