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
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