Insider Secrets for Finding Winning Colombia Juniors
Thu, Sep 6, 2012
Living in Colombia gives Paul Harris, publisher of the Colombia Gold Letter, invaluable first-hand knowledge of the exploration scene there. On a macro level, mining development in Colombia will create opportunities for massive wealth generation for company shareholders, for local communities and for the government and could move Colombia into the ranks of the developed nations. On a micro level, junior explorers still have to navigate through an as-yet-untested permitting process. Once the first junior does that, Harris sees the floodgates opening up. Read more in this exclusive Gold Report interview.
Insider Secrets for Finding Winning Colombia Juniors
The Gold Report: Paul, having lived in Colombia for four years and Chile before that, you have seen a resurgence of mining and gold exploration. What sets Colombia apart from other Latin American countries in terms of the potential for discovering gold and other metals?
Paul Harris: It has to be the extensive mineral endowment. For more than 500 years, from before the Spaniards arrived until the early 20th century, Colombia was the biggest gold producer in South America and one of the biggest in the world. But from the 1940s until the start of this decade, production fell because of civil conflicts in Colombia.
With the election of President Álvaro Uribe in 2002, security started improving to the extent that explorers could once again come to Colombia and work safely. They brought with them lots of new exploration technologies and practices that dramatically enhanced their ability to find gold.
A handful of people, such as Robert Allen, president of Group de Bullet, and Robert Carrington, CEO of Colombian Mines Corp. (CMJ:TSX.V), have been in Colombia for 20 years, and toughed it out through the difficult times. They staked land, put projects together and have done generative exploration. Now that investor interest has returned to Colombia, they, and more recent arrivals, are putting deals together, starting companies and getting projects moving.
TGR: We saw a lot of activity in 2010, but since then many of the junior exploration companies have not made rapid progress in developing projects. Would you agree?
PH: Investors seem to have become accustomed to instant success. In mineral exploration there is no instant success. It takes time to explore a property and discover mineralization. Once you discover it, you need time to define a resource, to prove it up and to show that it may be economic to mine. Typically, it takes 5 to 15 years to bring a discovery into production. So, no, I do not think it is accurate to say that development in Colombia is taking too much time.
In the last 10 or 15 years, perhaps 80 million ounces (Moz) of gold have been discovered in Colombia, accounting for about 10% of the discoveries worldwide in that time. Many projects are progressing from discovery to resource definition; and a handful are now at the prefeasibility study phase. So, yes, projects are progressing. However, it remains to be seen how quickly and efficiently those projects go into production and that will depend on the interface with government processes.
TGR: What is the permitting process? Are there many layers of bureaucracy to navigate?
PH: Yes, there are. Here in Antioquia, for example, the provincial government has delegated the authority to administer mining concessions. A company has to deal with the departmental government in addition to the central government as represented by the ministry, not to mention the mayor’s office in the community where a company is active.
Officials at each level of government have markedly different degrees of understanding of mining and exploration and different expectations. A lot of education often needs to be undertaken to ensure the officials a company is dealing with understand what the company is trying to do and the potential implications—positive and negative.
“In the last 10 or 15 years, perhaps 80 Moz of gold have been discovered in Colombia.”
One of the main criticisms of the exploration sector here is that the government is not doing enough to cut out red tape and make the administrative processes more efficient, easier and faster, and aligning the implementation of mining policy at the different levels of government.
TGR: Is the process in Colombia more restrictive or more difficult than in other Latin American countries?
PH: It is probably better than some and worse than others. It is increasingly difficult to advance projects in countries such as Venezuela and Ecuador and, lately, Argentina. Peru and Chile have more established mining traditions, so their rules and regulations are more tried and tested.
Colombia has a relatively recent mining code dating from 2001. A lot of the rules and regulations dictating what a company has to do to get into production have never been tested because modern mining as we understand it today is a relatively recent arrival to Colombia. Because no company has been through that process, there is no precedent or track record to follow yet.
TGR: In your view, which companies are the farthest down that unmarked path?
PH: There are eight or nine companies with published NI 43-101 resource statements. AngloGold Ashanti Ltd.’s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) La Colosa project is one of the most advanced projects. AngloGold Ashanti’s and B2Gold Corp.’s (BTO:TSX; BGLPF:OTCQX) Gramalote project is another.
Some of the stories that are becoming better known include Continental Gold Ltd.’s (CNL:TSX; CGOOF:OTCQX) Buriticá project. The company put out an initial 2.5 Moz gold resource earlier in 2012, and it is expected that it will update that soon: high-grade, lots of gold, exactly what the market and majors are after. Continental keeps finding new veins or new mineralized areas. The company is also advancing various technical studies and starting to put infrastructure in place for a mine development, so Buriticá looks as if it might be the first modern mine to go into production in Colombia.
Elsewhere in Antioquia province, there is Red Eagle Mining Corp.’s (RD:TSX.V) Santa Rosa project. Again, it has very good drill results and good intersects, with disseminated mineralization over good intervals and high-grade kickers, and, perhaps best of all, it is near surface. If Santa Rosa has enough tonnage to become a mine, it presents an opportunity for a low-cost mining solution.
TGR: Investors will be relieved to see some of these projects move into production.
PH: I think the sector is waiting for that first project with bated breath, especially after the recent installment of disappointing news from Eco Oro Minerals Corp. (EOM:TSX.V) of the National Minerals Agency wanting it to return 54% of its concession for being in a paramo ecosystem—and that’s the 54% that hosts approximately 70% of its resource.
“Once one project is permitted, it will set a precedent for how the permitting process should go.”
Once one project is permitted, it will set a precedent for how the permitting process should go, in addition to giving Colombia—its communities and government—a much clearer idea of what modern mining with modern environmental control and remediation processes is all about. If the first project is developed well, it should open the floodgates for companies to advance their projects to production in a more streamlined way because the processes in the Mining Code will have finally been worked through.
Fortunately, the day after the Eco Oro news, Continental Gold helped the sector breathe a collective sigh of relief when it announced that it had obtained approval to extend its environmental impact assessment in order to build a 6 kilometer (km) road into the valley where its future mine operations will be and to develop a 1km access tunnel into the mountain. This is very positive news and shows that modern mining is possible in Colombia.
Colombia has a very real opportunity to take giant steps toward becoming a developed nation. Mining presents the opportunity to generate significant wealth for shareholders, for the community and for the government.
The government could use that money for development projects, infrastructure, developing new economic sectors, housing structure and education. Virtually all developed nations got to that status on the back of natural resource development: UK, Germany, U.S., Canada and Australia, for example. Chile is knocking on the door of obtaining developed status on the back of promoting investment in the copper sector 30 years ago. Colombia has a very similar opportunity through gold, coal and oil.
At the end of the day, it is important to remember that a mining company’s job is to extract resources in the most efficient way possible in order to maximize the creation of wealth. That wealth will be distributed to a company’s shareholders, workers, communities and government. It is the government’s job to create projects to spend that money on and it is the job of the citizens of Colombia to demand that the government spends that money well on projects that further development and create a better tomorrow.
There is tremendous potential here in Colombia, and not just in the mining sector. One of the beauties of Colombia is that it is a multi-faceted economy including tourism, mining, oil and gas, light manufacturing, textiles, clothing design, food and energy production. Using the wealth the mining sector can generate, the government can do a lot to improve the lives of its people and promote and advance the development of other economic sectors.
TGR: Living in Colombia, do you visit projects before you write about them?
PH: I try to visit as many as I can because nothing beats firsthand knowledge to understand what is going on and gain an appreciation for the potential for success or pitfalls of a project. I am not a geologist or a technical person, but, if you can see projects, if you can see physical gold in the cores such as at Buriticá, or hold a lump of massive sulphide mineralization from an outcrop such as the one CuOro Resources Corp. (CUA:TSX.V) has at Santa Elena, you get a much better feel for what is going on than from what comes across in press releases. That kind of on-the-ground observation is very important and hopefully enables me to write more authoritatively about the companies I cover.
TGR: Which companies might be most interesting to investors?
Waymar put out very good drill results at its Anzá project, including 40.5 meters (m) at 14.1 grams per ton (g/t) gold. Atico put out 41m at 6.49% copper and 13.26 g/t gold. Both companies saw their stock prices increase at least 50% on the day of these news releases.
TGR: The brain trust behind Atico is the group behind Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), is it not?
PH: That is right. Fortuna Silver’s management is very involved in Atico. It is a volcanogenic massive sulfide (VMS) deposit and the company is looking for copper-gold. There has been a small-scale copper mine there for 10 or 20 years, but it only exploited one mineral lens. The VMS theoretical model says that there are typically several mineralized lenses and so Atico is looking for these other lenses both to expand the resource at the existing mine and to discover new areas for mining.
“Management and fundraising ability are fundamental points to look out for investors.”
The other main copper play in Colombia is CuOro Resources, with its Santa Elena project. This is another high-grade, near-surface VMS deposit. The company is about 20,000m through a 25,000m phase-one drill program and has had some very good drill results including 6m at 4.9% copper in July. It is a well-funded company and has CA$8–9 million (M) in the bank. It also recently announced an agreement with the Pacific Road Resources Fund, which is a very large natural resource investment fund, for a two-phase financing option that could end up being $47.5M.
TGR: Its listing on the OTCQX tells me that CuOro is keen to reach out to North American investors.
PH: Yes, the OTCQX listing means that it will be simpler for U.S. investors to buy the stock. The company has an interesting story. CuOro’s CEO, Robert Sedgemore, was chief engineer at Minera Escondida, the big copper mine in Chile, and so he knows copper and the major copper players very well.
Santa Elena is an exploration project with high-grade copper and some silver, gold and zinc. But it is a VMS project, so as with Atico, the trick is exploring to discover the different lenses of mineralization that the VMS model says should be present. CuOro has found some of them, but not all, and if it is able to do so, it should be able to build up a very interesting amount of mineralization tonnage.
TGR: A recent issue of the Colombia Gold Letter featured an interview with Sunward Resources Ltd.’s (SWD:TSX.V) president and CEO, Colin Andrew. Tell us more about Titiribi.
PH: The Titiribi project is a string of porphyry gold ore bodies that Sunward has been exploring. To date, it has discovered over 11 Moz gold in all resource categories. Now it is starting to do the metallurgical test work and other technical studies to advance the project to a prefeasibility study level.
Titiribi is in a very good area in terms of infrastructure. It is close to the Pan-American Highway and there are power lines nearby. The government of Antioquia is upgrading the roads in the area and a railway project to the Pacific Ocean port of Buenaventura is underway as well. If Titiribi becomes a mine, it will benefit from all these developments.
Sunward raised money early and had the treasury to be able to focus on identifying and defining resources without the distraction of what subsequently happened to the financial markets and worrying about whether it will be able to get funding again, a dilemma facing many other companies.
TGR: A couple of the companies that you mention in your newsletter—Solvista Gold Corp. (SVV:TSX.V; SVVZF:OTCQX) and Calvista Gold Corp. (TSX:CVZ)—share management team members with Norvista Resources Corp., a private merchant bank out of Toronto dedicated to investing in the natural resources sector. Does this kind of access to capital markets give these companies more breathing room for development?
PH: Management and fundraising ability are key. The companies that have the best chance of success are those with good access to funding and good management.
In the current downtrend in the market we are seeing companies struggle because they have spent all their money or did not raise enough. Investors should look at how much cash is on hand to get an idea of how long a company can last before it has to refinance. That often depends on the management group behind the company and that group’s fundraising ability.
Talking specifically about Solvista, it has two exploration projects in Colombia. They are Caramanta and Guadalupe, both in Antioquia. The company started drilling on both projects this year but has not released any drill results.
TGR: Is Caramanta Solvista’s flagship project?
PH: Yes. It is in a very interesting district, in the Middle Cauca Gold Belt, close to the Marmato project operated by Gran Colombia Gold Corp. (GCM:TSX.V), which has 14.4 Moz gold. Caramanta is in that porphyry belt where a lot of mineralization has been discovered. A little further north is Bellhaven Copper & Gold Inc.’s (BHV:TSX.V) La Mina project and Colombia Crest Gold Corp.’s (CLB:TSX.V; EAT:FSE) Venecia project.
TGR: Bellhaven is another company with a very powerful management group, including Paul Zweng as an adviser and Patrick Highsmith as CEO. Can you tell us more about Bellhaven?
PH: I first met Patrick at the turn of the year and visited La Mina not long ago. Patrick is very energetic and has tremendous experience with several major companies, so he knows what he is doing and how to drive a project forward, setting the right goals and achieving them.
In general, the exploration scene here in Colombia has attracted very experienced, high-profile people who have had careers with the big names: BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCQX), Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and so on. They see a lot of opportunity here. Certainly Patrick sees potential at La Mina.
TGR: Does B2Gold have assets in Colombia?
PH: Yes, it is involved in a couple of joint ventures with AngloGold Ashanti on the Gramalote and Quebradona projects in Antioquia. It also has the Mocoa copper project in Putumayo in addition to other concessions; B2Gold is very active here.
TGR: Paul, thank you for filling us in on some of the more macro issues in Colombia and taking us to the micro level, addressing the prospects of several that show such promise.
Paul Harris is a mining information expert with over 12 years of experience as an analyst, journalist and researcher about the mining industry, of which he has spent nine years in Latin America, including four years in Colombia and five in Chile. Harris has written for leading industry publications and business newspapers around the world and produced reports for leading consultancy firms prior to starting the Colombia Gold Letter.
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1) Sally Lowder of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: B2Gold Corp., Continental Gold Ltd., Red Eagle Mining Corp., Fortuna Silver Mines Inc., Solvista Gold Corp. and Bellhaven Copper & Gold Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Paul Harris: I personally and/or my family own shares of the following companies mentioned in this interview: Cuoro Resources Corp., Continental Gold Ltd., Solvista Gold Corp., Colombia Crest Gold Corp. and Waymar Resources Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
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