Colombia has accounted for around a tenth of worldwide Gold Mining discoveries over the last decade or so...
BEING 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 interview with The Gold Report.
The Gold Report: Paul, having lived in Colombia for four years and Chile before that, you have seen a resurgence of Gold 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 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?
Paul Harris: 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?
Paul Harris: 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.
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?
Paul Harris: 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.
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, US, 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?
Paul Harris: 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, 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: A couple of the companies that you mention in your newsletter share management team members with 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?
Paul Harris: 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.
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.
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