Richard Gallo

South American Gold Mining: Today’s Colombia

A few months back, I was relaxing on a patio overlooking Calle Uruguay, Panama City’s only real nightlife strip, and chatting with a couple of expat banker buddies who are active in the mining industry. They had just returned from Colombia and were going on about the country’s many opportunities. Because Colombia was only a 90-minute flight away, my partner and I decided to jump on a plane to Bogotá, meet with our local contacts and look at opportunities.

The airport was unimpressive, especially for such a large city like Bogotá, but I was told they had plans to expand. We checked into the Bohème Royal hotel. The place was a great value and was near plenty of restaurants and shops. The concierge confirmed that the streets were safe, so we dropped our bags and decided to take a stroll around the neighborhood.

As we walked, I couldn’t help reflecting on how much trauma the country had endured. The destabilizing effect of the war on drugs, the divide between the rich and poor, and the rise of leftist gorillas had given the country a bad reputation. Many travelers and businesspeople had come to see Colombia as a place to be avoided.

However, after looking around, talking with locals and viewing the data, I was impressed. The country’s police and military seemed to have been successful in driving out most drug traffickers and revolutionary guerrillas from the territory. Politicians have been active in addressing human and labor rights concerns, enforcing capitalist friendly investment rules and securing the passage of anti-corruption legislation. But despite the government’s progress, it has been a struggle to get the message out to the rest of the world.

After three days of meetings, presentations and socializing, I was convinced that the country had immense potential. Colombia has experienced a strong recovery from the global economic downturn, recouping two investment grade credit ratings so far this year. According to Finance Minister Juan Carlos Echeverry, the country's deficits should shrink in 2012, with expected growth to stay strong at around 5 percent. A World Bank “Doing Business” report said that “Colombia has been one of the top 10 reforming economies for three consecutive years: 2008, 2009 and 2010.”

When looking at the country's gold mining industry, it’s hard not to predict a continued trend of productivity. Columbia’s drastic reduction in the number of kidnappings and attacks by the Revolutionary Armed Forces of Colombia (FARC) has created safer conditions for exploration. This has caused a surge of foreign investment into the sector.

Current President Juan Manuel Santos has made resource extraction a centerpiece of his economic plan, which is predicted to further encourage the flow of foreign capital. In his inaugural speech last August he was quoted as saying, mining would be one of the five motors for Colombia’s progress. His administration has also pledged Col$1 billion (US$568,180.53) of the nation’s General Legislative Budget to the mining sector. These funds will be invested in regions with significant mining potential. It has been reported that the head of the country’s miners association, Asomineros Group, has predicted that Colombia's mining investment may be as high as $4.5 billion over the next 10 years.

The boom in Colombian gold mining is not without negative consequences. The high price of gold has contributed to a rash of illegal mining. Many of the remaining paramilitary groups have jumped into the industry with hopes of finding new revenue. Many environmental concerns could also be added to the list. President Santos has pledged to crack down on all these problems.

Nevertheless, mining company activity has been fast and furious. Ventana Gold Corp. (VEN.TO) went public in November 2008, but quickly plummeted to 4 cents a share when markets went into a free fall. The company share price soon skyrocketed to over C$12.00 on a takeover bid by Brazilian billionaire Eike Batista, who had previously acquired 17.6 percent of the company. The deal was accepted at C$13.06.

Not every venture has been without problems. The AIM-listed Greystar Resources Ltd.  (TSE:GSL) share price took a pounding as environmentalists and locals successfully pressured the Columbia government to refuse a permit needed by the company to develop an open pit mine for the Angostura project in Páramo of Santurbán. The company has since resubmitted its application, proposing to move underground. Either way, this has caused the company major delays.

Despite Greystar’s problems, AngloGold Ashanti (NYSE:AU) remains confident and has announced plans to spend an additional $300 million over the next three years on its projects. Carlos Slim, the world’s richest person, according to Forbes Magazine, has said he is seeking to boost his investments in Colombia. Goldcorp Inc. (NYSE:GG) said in March that it was keeping an eye on early-stage gold projects in Colombia. All this has juniors rushing into the country. "In a sense it is a new frontier, where you have good geology that has been under-explored," said Robert Doyle, who sits on the board of Medoro Resources (TSX:MRS), a company which was once a Canadian junior but that is now a powerhouse in the area due to its merger with Gran Colombia Gold Corp.

         As the world hungers for natural resources, the momentum is certainly helping the industry. If the Colombian government can continue to improve conditions and if gold prices stay as strong as it seems they will, then foreign investment will continue to pour into the nation. How this will affect the average Colombian, which is the real test of long-term political stability, remains to be seen. My bet is that the long-term trend will be positive. Opportunities will expand for both mining industry service providers, as well as savvy investors.

Author Richard Gallo Gallo International Inc