Colombia attracting mining’s heavy hitters

Marmato, Colombia — Efforts by Colombian authorities to attract international mining investment are bearing fruit as the ranks of foreign investors taking a serious look at the country swell. A year ago, barely a handful of companies even considered Colombia a mining destination, but the country now courts interest from Brazil’s Companhia Vale do Rio Doce (CVRD) (RIO-N), Canada’s Aur Resources (AUR-T, AURRF-O) and Bema Gold (BGO-T, BGO-N), and Chile’s Antofagasta Minerals amongst others.

The number of Canadian juniors operating in Colombia increases by 1.4 companies a month, according to Canadian embassy officials.

“There are over fifty Canadian juniors active in Colombia, which has doubled since last year,” says Fernando Vargas, trade commissioner at the embassy.

Local companies such as Medelln-based Inciti are also emerging to promote projects to foreign investors.

Even Canada’s Fraser Institute is getting in on the act and will include Colombia in its 2006-07 mining investment attractiveness survey, a key step to measure perceptions of its competitiveness with regional competitors Chile, Peru and Mexico.

Colombian President Alvaro Uribe is keen to promote a competitive mining code, legal and taxation regime but he says the government must not explicitly favour the mining sector and must maintain a stable regulatory environment for investors and resist temptation to make periodic minor amendments to the laws and mining code.

“To keep changing the law means it will be unstable. Tax in Colombia needs to stimulate growth. We need a stable tax structure and lowering taxation does not guarantee growth in the country,” the president told delegates at September’s second international mining show in Medelln.

This stance struck a chord with Fred McMahon, director of the Centre for Globalization Studies at the Fraser Institute.

“I was very impressed,” he said. “(Maintaining) the standard of the rule of law is fundamental and something that many presidents miss.”

To attract foreign miners, state geological survey Ingeominas has developed a real-time, on-line geological database and has dramatically increased basic exploration spending (US$10 million this year). Base geological data now exists for 50% of the country, some 125,000 sq. km, with many potential targets identified.

“We have discovered 15 projects that we have already evaluated,” says the survey’s director general, Julian Villarruel.

Ingeominas will launch Colombia’s first-ever mining concession auctions in October with two polymetallic and one gold concession on offer, and three coal projects to follow in November, that will follow Peru’s successful model for auctioning copper projects. The main project is the Pantanos Pegadorcito porphory copper-molybdenum property in Antioquia department, which contains 62 million tonnes of resources grading over 1% copper. The smaller Acandi copper-molybdenum property in Choco department and the Taraira gold property in Vaupes department, which contains an estimated resource of 43.5 tonnes of gold will also be auctioned.

An auction will also decide the fate of bankrupt gold mine Frontino in the Segovia district of Antioquia. The process will start Oct. 15 when the minimum value for the project will be approved, says liquidator Ivan Correa. A minimum price tag of about US$140 million is expected, of which US$120 million will clear the company’s debts and pension obligations.

“This will leave the company free and in the clear,” Correa says.

The winning bidder will have to invest about US$15 million in exploration to increase reserves from current levels of 217,000 oz. proven and 382,000 oz. probable. A further US$18 million needs to be spent to upgrade and modernize capital equipment and mining operations to increase production to 120,000 oz. from 49,600 oz. in 2005.

Marmato

There is already artisanal mining activity on many of the best prospects, which means wide-ranging challenges for project development.

To advance its 5-million-oz. gold project at Marmato mountain in Caldas department, Canadian junior Colombian Goldfields has to complete the purchase of 120 small-scale mining operations (it bought 62 in August) and shut down 26 small-scale mills that discharge arsenic and mercury-contaminated water directly into rivers.

“Contamination of the river has to stop, so we are working with the government to buy and shut down the mills on the mountain,” says president Ian Park. “We would like to get all the mills closed and torn down by the end of 2007.”

Colombian Goldfields has spent US$17 million to date on the project and before year-end Park hopes to start a feasibility study. Up to US$20 million will be spent in 2007 on drilling and up to US$10 million to relocate 2,000 inhabitants from Marmato mountain. At the same time Park is seeking to list the company on the Toronto Stock Exchange by the end of the year.

Greystar Resources (GSL-T, GYSLF-O), the foreign front-runner in Colombia, hopes to complete the feasibility study for its 10-million-oz. Angostura gold property near Bucaramanga in Santander department by the end of 2007. The company has spent US$45 million on the project to date, says executive vice-president Frederick Felder. Development of the oxide orebody could cost up to US$150 million with a further US$200 million needed to exploit the sulphides.

Having taken a huge land position in Colombia, AngloGold Ashanti (au-n) is in the process of turning over every rock in the country. It began a partner strategy in 2006 with other major and mid-tier miners, including Antofogasta and Bema Gold, to explore for base metals and follow up on second-tier gold targets, says Chris Lodder, the company’s exploration manager for South America. AngloGold Ashanti has systematically explored over 50,000 sq. km of prospective gold-copper belts and generated 17 projects for drilling. The company expects to have inferred resources for two of them in 2007. A further 34,000 sq. km will be explored through 2007, with drilling to start on 10 new projects as well.

London-based Cambridge Mineral Resources (CMR) (CMR-L) is following a diametrically opposed development strategy to AngloGold Ashanti and has a cluster strategy of smaller projects with higher grades and lower startup costs. The company aims to produce about 100,000 oz. gold a year by 2008, says managing director Colin Andrew.

“If you have the ability to do small mines, you can build to a significant production without the infrastructure, or exploration costs (of a large mine),” he says.

Following spending of US$2.6 million this year, the company will decide in December whether to proceed with its Quintana project, which would produce up to 8,000 oz. per year with development work on a second 12,000-oz.-per-year deposit, to start in January. CMR has five other projects in Antioquia department near the Frontino gold mine and will spend up to US$12 million through 2008.

“2007 will be a very big year with three or four mines to come on and a major expansion at one of them,” Andrew says.

Colombia is clearly benefiting from a window of opportunity provided by high metal prices, but 2007 and 2008 will be key for the country as leading projects reach the make-or-break stage.

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