No change of pace

Seems like it's been a couple of months since I last posted. 2005 was a full year with visits to Peru, Bolivia, Colombia, and then three weeks in Brazil in December that took in five major cities and a number of smaller ones that left little time for sightseeing.

It is hardly surprising that I have had little time to buy anything for my new apartment, as you can see, although the main things have now been completed: the floor, the painting and the blinds. I should go and buy some furniture but it's so hot here that it seems more sensible to work on the tan as all will for anything else fades.

2006 is going to be another hectic year. Gavin and I will be working on at least three more books this year, I have a trip to Buenos Aires coming up and I am putting together some projects for Colombia, Bolivia and Brazil that will hopefully come together. And I hope to visit Europe in the July or August for a week's work and three weeks holiday, one of which I want to take a week in Spain or France, and maybe a week or two in Eastern Europe.

I should also be starting a Masters in International Studies in April.

Best wishes for the year ahead.

Paul

Spicing up IT with Open Source

By Paul Harris in Santiago (November 2005)
Chile is one of Latin America’s leading lights in the development of Open Source software, an upstart that is challenging the domain of licensed software. Open Source software is often labelled “free” software but that is neither accurate nor does it do the concept justice. Open Source may not mean much for anyone beyond the periphery of IT circles but Lan.com and Paris.cl are using it, which may make you curious about what it is and why should Chilean companies know about it?

Open Source software is software whose code is open for all to use and develop with software products generated by the Open Source community generally distributed free of charge, while the public is generally barred from access to code as found in Microsoft products that are traditionally available for a license fee.

In the computer world there are the server back end and the desktop front end. Open Source is having a big impact on the server software market and will become the dominant business model through the success of the Internet in facilitating new collaboration, production and distribution methods, says Tim Delhaes, product architect at Chile’s first Open Source company Humano2. “While Open Source is not an alternative all the time but if you are not considering it as an option you are definitely making a mistake,” he says.

By looking into Open Source you are in good company, he continues. “About 70% of all websites - Google, Amazon and Hotmail – run on Open Source software. Linux, Apache, My SQL and PHP – reffered to as LAMP - are the three infrastructure products that put companies on the net. Why pay for a licence for an e-commerce package when you can get the same software that Google uses for free?” he asks.

Cost is seen as the initial advantage as not having to buy software licenses either represents huge potential savings to companies or a change in their spending habits. Hardware companies love this because IT budgets are spent on hardware. “Software licences are like tomatoes as they have a limited life and then you loose them and have to buy more. The effect of Open Source software on the hardware market is like when you subsidise gasoline; people buy bigger and better performing cars, so big hardware manufacturers like IBM, Intel and Hewlett Packard are making lots of money, with Open Source related revenues of over $3 billion in 2003 according to eWeek.com,” he says.

Eduardo Pooley, Microsoft’s regional business and applications manager, counters that free Open Source software does not have zero cost because of the higher total cost that follows the zero initial payment due to development, training support and other costs that are incurred. “Overall it is still cheaper with a company like Microsoft,” he says underscoring the viewpoint divergence between the traditional and the new.

Open Source is certainly developing new business opportunities in local markets as companies form to provide services with different business models using Open Source such as Red Hat (packages and distributes code in distinct versions), MySQL (relational database server), JBoss’s business model is professional services such as consulting, integration and training while companies like Sugar CRM and Santiago’s Humano2.com pioneer web hosting services. “Open Source today is like the Internet was the moment that Jeff Bezos put books on the web,” says Delhaes.

Paris.cl - the online e-commerce store of retailer Almacenes Paris - works closely with another Open Source firm, Netred, to develop its business and its own developers commonly use Open Source development tools, says Patrico Perez, head of development projects for online sales at Paris’ parent company Cencosud. “Our developers use Open Source tools such as [development toolset] Eclipse a lot. It is very exciting and allows us to do things we couldn’t do before,” he says.

Despite some notable early movers, the IT industry is divided on just how much Open Source will change the industry and how fast its penetration will be. “Open source is still up to five years away from mainstream use in enterprise IT infrastructures, despite the progress made in the commercialisation of the platform,” www.silicon.com blogger Andy McCue said in September quoting a Gartner study.

Microsoft potentially has a lot to loose if Open Source software starts to erode its software license revenue base, but the company seems certain it is not going to loose out in the server market. “Microsoft has not lost out against Open Source. People don’t change Windows for Linux. It is a very dynamic sector and for each front end – the web, email, blogs – there is a server. Linux does well but it is only for techies as most people just want to plug and play. 90% of people just want software to function. How many companies really modify code?” asks Pooley.

DESKTOP

Despite its strength in the server environment Open Source software is just starting to gain strength in the desktop environment. The Open Source web browser Firefox celebrated its first anniversary in Chile in November, which is equal or better than Microsoft’s Internet Explorer in terms of security, velocity and functionality, according to Delhaes, who says it shows that the collaborative production methodology can produce higher quality products at a lower price.

Delhaes says Finnish cell phone producer Nokia is a key supporter of Firefox because it knows every cell phone will soon connect to the Internet and therefore need a browser. “Nokia has the choice between shipping a free Open Source browser like Firefox or paying millions of dollars in license fees to Microsoft for Windows,” he says. Google is even paying $1 to download Firefox with its toolbar.

Paris.cl has been one of the first Chilean companies to respond to the growth in the penetration of Firefox browsers. “In 2004 Internet Explorer accounted for 99.6 percent of our website traffic, this year it is 94.3 percent with Firefox having grown from 0.2 percent to 4.9 percent. The 5 percent implies the whole site has to work with Firefox, which has been the case since October 2005,” says Perez.

5% Firefox may not sound much but it is enough for Paris.cl to see an opportunity for differentiation while ensuring it does not lose potential customers, and from 2006, Perez says the company will undertake more commercial initiatives using Open Source software such as website plug-ins. In countries with higher penetration like Germany (25% Firefox) web businesses cannot afford to ignore it. “You cannot force a user to change their browser, but you can change your server,” says Delhaes.

The growth of Firefox is a big deal according to Delhaes who believes the browser is the desktop of the future, the application through which people access all the tools they need from email (Hotmail and Gmail) to office applications. “Whoever dominates the client interface in which the browser is an essential part, controls access to the network and what applications run,” he says.

Perez thinks Firefox competes well with Microsoft’s Internet Explorer. “I think Firefox is more secure and quicker than Internet Explorer because it is less popular and so is less subject to attack,” he said.

Microsoft’s Pooley says there are many popular myths about the company’s Open Source rivals, which he supports with a body of evidence including studies by respected research groups and industry commentators. As Firefox’s popularity grows hackers will take more interest in ransacking it destroying its reputation as secure application, a problem Microsoft has been dealing with for years for its Internet Explorer web browser. “Firefox was secure while it was unknown but attacks and viruses start with volume. It is difficult to have a program that has no problems of compatibility or security once it reaches a critical mass,” he says.

Pooley’s view is shared by blogger George Ou, an advanced networking and server architecture expert. “Now that Firefox has become the first viable contender to Microsoft Internet Explorer in years, its popularity has brought with it some unwanted attention. Firefox not only has more vulnerabilities per month than Internet Explorer, but it is now surpassing Internet Explorer for the number of exploits available for public download in recent months,” he said.
Delhaes counters that because software is produced using Open Source methodologies does not mean it is open to hackers and viruses. All software has failures or vulnerabilities but as more and more people are looking at the source code, there will be fewer and fewer errors.

Businesses adopt new technology at different rates depending on their fears and risk profile. Although part of a larger group, the nature of Paris.cl’s business allows it to accept a higher degree of risk to explore future technologies. The website has a big change coming up as it is working towards migrating from its IBM 4.1 platform to the IBM 5.6 platform to have a full Java [Open Source] e-commerce store. “Big companies are trapped and have no liberty to change [software platforms]. We are not a traditional company, we have more flexibility, are not tied to any [software system] and can take technological change initiatives through developing the parts of the business that are not sensitive to change,” Perez said.

However, he notes that flexibility comes at a price. “We have two development teams and it is costly to develop in parallel,” he says, noting that “in 2006 we are going to seriously analyse whether we can make [Open Source] changes in the heart of the e-store.”

DIGITAL DIVIDE

Delhaes says Microsoft completely misses the point. “Microsoft talks about total cost of ownership or TCO, but it is not a question of how much money but where the money goes. Does it go to Microsoft or stay in your country?” he asks.

The money spent on license fees is staggering: over $120 million a year just by Brazil’s federal government and more than $100 million a year in Chile says Delhaes. Savings on license fees through Open Source can release funds for other uses such as health and education and help breach the digital divide.

Breaching the digital divide is increasingly on the agenda of Latin American governments that do not want to get too far left behind by the developed world. The topic has been given added impetus this year through an initiative by MIT Media Lab founder Nicholas Negroponte with a plan to build a $100 Linux PCs. Argentina has stolen a march on its neighbours and committed to manufacture up to one million of these PCs.

Chile has yet to move on the initiative because of a big software lobby, says Delhaes. “Instead of spending $100 million on software licences the government could give one million $100 laptops to kids in schools,” he says.

Breaching the digital divide is about more than cheap computers and concerns developing local IT industries. Open Source provides a great opportunity by allowing local firms to develop and fix software rather than simply re-installing it or relying on expensive engineers from foreign companies. “By offering the possibility to develop and fix things yourself through Linux server software countries develop their own capacity to fill the digital divide. The dollars stay in country not at multi-national software companies,” says Delhaes. “

However, reports from China, where the government has supported Open Source initiatives, say enthusiasm is waning. “The strong support for the free operating system has been detrimental to the development of software products in the country,” says Zou Bian, a researcher at the Chinese Software Industry Association (CSIA) according to Chinese English language news website China Daily, due to the difficulty of generating income streams. But as Delhaes points out, “there are many business models and not all work.”

Microsoft says it is doing its part too, through its participation in the My First PC initiative that Pooley says removes the three barriers of price, fear and availability. In its first three months 60,000 of the PCs have been sold which contain a simplified, cut-down version of Windows that is one third of the cost of traditional Windows. The PCs cost 249,000 pesos payable in 36 instalments.

What is certain is that through the Internet the Open Source is here to stay and will spread to other sectors says Delhaes. “Open Source software is not an isolated phenomena. Open Source is part of global change in intellectual property. In many industries the Internet suddenly reduced the cost of distribution as well as R&D. The most affected industries – including software, music and bio technology – are undergoing radical changes. This change is creating great opportunities for everyone: customers, IT companies, and governments,” he says.
ENDS

Uribe clears road to El Dorado

By Paul Harris in Medellin (November 2005)
The kidnapping of a Canadian mining contractor by Colombia’s FARC guerrilla group was the final straw for Toronto exploration junior Greystar Resources. The much publicised kidnapping lasted six-months after which the company, like many other miners, packed up shop and abandoned the country in 1999 amid a deteriorating security situation and a plummeting gold price.

While the reality of Colombia’s civil conflict is not bombs failing through the air as portrayed in the Brad Pitt film Mr & Mrs Smith, horror stories like Greystar’s made Colombia a pariah for most mining investors.

“We went in with a high degree of ignorance of the conditions. We had minimum security and worked on the ‘good faith’ principle,” says exploration vice president Frederick Felder of the company’s early days in Colombia.

But Greystar knew there was gold there, and with a rising gold price, Felder returned with his exploration team in 2003 to find it. Greystar now has eight drill rigs working and the company’s successful return has made it something of a poster child for Colombian authorities keen to show that the country is safe for investors and ripe for investment.

ECONOMIC POLICY

Since he was elected in 2002 President Alvaro Uribe has re-established government control through much of the country with hard-line military intervention and the miners are starting to return following dramatic falls in both the murder and kidnapping rates. "Colombia will be attractive for investors," Uribe told a Medellin convention hall packed with miners November 18. “Colombia is ready to be a major mining country,” he said.

Economic development is a key part of the peace process and Uribe believes attracting foreign investment to kick-start the economy is paramount to bring about change. Political stability is allowing Colombia to start catching up with its Latin peers and direct foreign investment grew 34.7% in 2004 to $2.4 billion. This is better than Peru and Venezuela but behind the growth rates of Mexico, Chile, Brazil and Argentina, according to Eclac, the United Nation’s economic commission for Latin America.

Mining is already 14 percent of GDP. Colombia produces about 55 million tpy of coal of which 50 million tonnes is exported to Europe and the US by Alabama’s Drummond Co and Cerro Cerrajon (owned by three of the world’s four largest coal miners BHP Billiton, Rio Tinto and Glencore). Even without modern mining Colombia produced about 50 tonnes of gold in 2004. “This 50 tonnes implies gigantic potential to develop gold mining activity,” says Eduardo Chaparro, mining analyst at Eclac, adding that Peru’s gold production 20 years ago was 50 tonnes and today it is over 400 tonnes.

Colombia is gold country and has attracted adventurers, plunderers and pirates for almost 500 years and with gold at US$500/oz and world production falling to an eight-year low in 2004, foreign miners are warming to the country. Colombia’s three belts of Andean cordillera have not been tackled with modern technology but they contain gold, silver, platinum, copper, tin and nickel. It is “very probable that there exist large undiscovered reserves,” says Archak Bedrossian, an international gold consultant and trader.

“The odds of finding a large ore body may be greater than in highly explored nations such as Canada, Peru, Indonesia, the Philippines,” says Dr James Otto, international mining law expert at the University of Colorado.

Canadian financier James Sikora, president and CEO of Primecap Resources, is so impressed with Colombia that he relocated his family to Medellin in July from Edmonton, Alberta so he can work on the gold-silver Golondrina property the company acquired in southwestern Narino department. "There are great projects at really great prices here. We think Colombia has so much potential that we are going to seek a listing here," he says.

MAKING THINGS RIGHT FOR MINING INVESTORS

Good geology is seldom enough to attract mining investment. Miners want stable business conditions and a favourable tax regime, aspects Colombia has been working to improve. A new mining code in 2001 aimed to “bring legal conditions for mining in Colombia in-line with world trends … to obtain better competitiveness as a nation with other Latin American states," says Beatrice Duque, of the ministry of mines and energy.

Mining institutions have also been overhauled which has seen the creation of Ingeominas to unite resource administration and geological services in the same office to improve efficiency and more services are being made available on-line.

Uribe has also implemented some of the most compeititive taxation conditions in the world, not just Latin America. "Congress has approved a law so that we can form tax stability agreements with investors and we are working to reduce taxes,” Uribe said during a remarkable three-hour discourse at the Medellin mining event where he demanded delegates ask him what needs to be done to make Colombia more attractive for miners.

Uribe’s personal commitment is winning converts in many quarters of the international mining community. "Colombia is a lot better than I thought. Seeing President Uribe [in Medellin] was impressive," says Peter Baxter, exploration manager of Vancouver's Bema Gold.
“We regard President Uribe as, perhaps, one of the most driven, dedicated, intelligent and engaging heads of state we have ever come across,” says Colin Andrew, managing director of London-based Cambridge Mineral Resources that announced during the Medellin event that it had signed options on several gold properties in Antioquia department. “Colombia has distinguished itself in the world economy by passing laws facilitating investment and getting rid of red tape associated with forming and operating a business,” says Sikora.

TURNING THE CORNER

Uribe’s efforts are already bearing fruit. Colombia jumped seven spots in the World Economic Forum’s 2005 Global Competitiveness Report to 57 of 117 countries, placing it above emerging mining nations such as Russia, Mozambique, Indonesia and Mongolia. In Latin America it is bettered only be Chile, Uruguay, Mexico and El Salvador.

Mining sector GDP grew 7.0 percent between 2003-2004 while the country grew 3.5 percent. Foreign investment in mining reached $1.246 billion in the same period, and mining exports increased 24.0 percent $3.098 billion.

However, most North American miners spend their dollars in countries that score favourably in the Fraser Institute mining attractiveness rankings. While Chile scores 91 out of 100, Peru 82, Brazil 74, Argentina 59 and South Africa 56, Colombia has yet to be ranked.

Gold giant Barrick Gold, active in Chile, Argentina and Peru, says it is “not ready for Colombia. It is the kind of place where the larger companies look to junior’s to go in and see what is there. Large companies see what comes up and go in and either indirectly fund exploration or take a stake,” says vice president Vince Borg.

COMPETITION WITH OTHER COUNTRIES

Colombia has strong competition for mining investment dollars but it is looking a better bet according to Daniel Linsker, Latin American analyst of UK-based risk consultants Control Risks Group. “Colombia is very institutionalised and offers a more stable political regime, lower taxes and the best security of tenure for mining companies [compared to Peru and Venezuela], ” he says.

Chile is the leading regional mining light generating $16.9 billion in mining exports in 2004 from a total of $29 billion. Mining posted $6.9 billion in Peru from a total of $12.5 billion, but in Colombia mining generated $3 billion of $16.5 billion in exports.

Colombia also beats out most of Africa according to Linsker. “You face the same problems Colombia has in Africa but without the political stability,” he says, and miners are coming around to this thinking. “Whether or not kidnapping outweighs the dangers of malaria, AIDS … or military action is a debateable point, but I would rate Colombia well ahead of much of west and central Africa in terms of its potential and ability to do work. If stabilization continues [Colombia] will become one of the most sought after addresses in the mining world,” says Andrew.

Big mining companies continue to poke around neighbourhoods that make Colombia seem benign. Arizona’s Phelps Dodge is working on a copper project in the DR Congo, which is virtualy at the bottom of political attractiveness and security tables.

THE RETURN TO EL DORADO?

The first major to engage in Colombia is South Africa's AngloGold Ashanti which has amassed a “huge land package” in Antioquia and Bolivar departments through subsidiary Sociedad Kedahda says exploration manager Chris Lodder as it looks for deposits containing over 5 million oz. Bullish exploration by AngloGold Ashanti could create opportunities for other miners according to Bema Gold’s Baxter. "They may pass on opportunities that do not have significant impact on their balance sheet and farm them out to smaller opportunities," he says.

But it is a Canadian junior Greystar Resources that is in the vanguard of Colombia gold mining renaissance, as it puts the troubles of the past behind it and works towards a feasibility study for its 10 million oz Angostura gold property near Bucaramanga, in Santander department, having so far spent $48 million on the project. “It is always good to be in a country that has been overlooked," says Felder.

Colombia has a golden future and with President Uribe permitted and willing to run for re-election in July 2006, many feel it will achieve it.

Safety first

President Uribe has taken great steps to improve Colombia’s security situation and to improve the safety of investors, but this does not mean that the country is out of the woods yet as Felder found out when he returned to Angostora in 2003.

“We returned and found that there were about 300 land mines on the property,” he says. The ties Grerystar Resources had fostered with Colombia’s army following the kidnappings had made the company a military target. Looking for microscopic particles of gold is difficult at the best of times but drilling in densely foliated minefields is not something they teach at mining schools.

“We didn’t know what to do. We had to get a commitment from the military to help us and for two years and eight months we had a team of three people and two dogs working on a metre by metre grid checking for mines,” says Felder.

“We had to tackle a different kind of mine engineering back then,” says company president David Rovig, who can make light of the situation now that the property is cleared.
ENDS