Right now, Colombia is mostly in the discovery stage...
SOME exploration projects in Colombia are advancing to the mine definition stage, says Paul Harris, the Colombia-based editor and publisher of the Colombia Gold Letter, and with the government starting to provide the level of administration that the sector needs, the country is poised for great things. In this interview with The Gold Report, Harris discusses the implications of Colombia's 2001 mining code.
The Gold Report: What makes Colombia an appealing mining jurisdiction to investors?
Paul Harris: Colombia has gold and it's high grade. There hasn't been a great deal of modern exploration and so there are probably a lot of deposits yet to be found. In the past 10 or 15 years around 90 million ounces have been discovered here.
TGR: How are investors affected by the recent news that the mining code in Colombia might not change, as it was previously thought?
Paul Harris: Effectively, Law 1382 of 2010 is dead and buried, so Colombia is left with Law 685 from 2001. This is generally considered a good thing in the mining and exploration sector because it is a technically based law, and people on both the government and the exploration mining sides are familiar with it. We can now expect the ministry to issue some administrative instruments to correct specific clauses. For example, Law 685 said you can't mine in the famous páramos, but it never defined what the páramos were. That needs a regulation that can be implemented via an administrative instrument. It doesn't need the drafting of a new law.
TGR: Are páramos similar to the national parks in the United States?
Paul Harris: No. A páramo is a specific ecosystem that typically occurs above 3,000 meters elevation. It is a rare ecosystem that has characteristic flora and fauna. Páramos should be well defined to ensure that they're protected and also so that land that is not páramo can be available for exploration and mining or, indeed, other economic activity.
TGR: Does the government of Colombia have a firm grasp on how this industry works?
Paul Harris: It's getting there. Colombia didn't have the financial resources dedicated to the sector to cope with the flood of the interest it received in the past five or ten years. That has changed. This government has created the National Mining Agency and fully funded it, so it's able to do its job. Initial signs indicate that it's progressing well. One of its first tasks was to clear the backlog of concession applications. It's now down to about 7,000 from a backlog of 19,000.
When we come out of this process, the sector should be in better shape. The market retrenchment of the last 18–24 months is also showing the government that having gold in the ground is not enough. It is starting to understand why inefficient administration can be slow death to juniors that may not know where their next fund raise is coming from. It is also awaking to the fact that capital is highly mobile and that despite its gold endowment, it still has to compete with other mining jurisdictions by offering attractive business terms. The explorers that came in 2009 or earlier, unfortunately, as the first to hit the beach, were naturally the first to run into all the snags.
TGR: What has the industry in Colombia achieved since the exploration rush there in 2009?
Paul Harris: If you think of the mine lifecycle curve, right now we're in the discovery stage. About 10 gold ore bodies have had resources defined and quantified in resource statements. The question is whether some can now go on and become mines in the next three to five years. It takes several years to go from a discovery to a resource to a feasible mining project to its implementation. Environmental and community issues will make it increasingly challenging to develop mines, and projects will have to be better than they were in the past. In this, Colombia is no different than anywhere else.
TGR: About 40% of the 65 tonnes of gold produced in Colombia last year was extracted from unlicensed mines. How is that affecting legitimate industry players? Are illegal miners influencing public opinion?
Paul Harris: It is important to distinguish between the traditional, artisanal miners that work without a license and are technically illegal, and the criminal miners that are part of organized crime. Typically exploration companies will not work on concessions near criminal mining.
In the past, criminal groups in Colombia had various economic activities, such as kidnapping and growing and selling cocaine. Former President Alvaro Uribe put a lot of heat on the criminal groups about the kidnapping, and it became a difficult business model for them. If you kidnap people, you've got to feed and transport them. They're bulky. They're visible. The logistics are complicated. The same is true with cocaine. It's a bulky commodity that needs to be transported and protected. It's a high-cost business model, whereas illegal gold production isn't. Gold is relatively small, easy to transport and something you can sell anywhere. It's easy, quick money.
TGR: How is the government addressing this?
Paul Harris: It has started directing resources to it. In April the armed forces actually destroyed some of the excavators that criminal miners used to take gold out of the alluvial areas. Criminal mining has negative repercussions for everybody. The Colombian government isn't getting taxes or royalties, and local communities are exploited as people are forced to work without health benefits or proper pay and sometimes at gunpoint. The exploration sector suffers because companies cannot go and work in those areas. The only way to address it is to take the fight to the criminals and destroy their equipment.
TGR: Do you have one last piece of advice for Colombian investors?
Paul Harris: Patience. Exploration and mining is a long game. If you expect to get rich quick you better go to a casino, spin the wheel or put it on the horses.