When the Spanish conquistadores conquered the area that is nowadays known as Colombia they also encountered the Muisca people living in the Eastern ranges of the Andes mountains. The story goes that one of their chiefs covered himself with gold dust before going for a ritual dip in the nearby Lake Guatavita. The chief was nick-named El Dorado. The story about this chief merged with a myth about a legendary golden city. On one of the many expeditions to find the mythical El Dorado a distant relation of Pizarro found the first passage from the Andes through the Amazon to the Atlantic Ocean. However, like many before and after this young man, his search for El Dorado was in vain.
Fast forward about five centuries and people are looking for a modern version of El Dorado again in the mountains of Colombia. The past 10 years have brought increased security to rural areas previously off-limits to exploration due to a drug war that had stifled the country for many years prior. Policies favoring foreign investment were implemented and mining exploration and development was actively promoted. Mining now accounts for approximately 2.4% of the Colombian GDP. Traditional Colombian mining products include coal, nickel and emeralds; these days exploration for gold, silver and iron ore is gaining in importance in addition to exploration for gas and oil.
In 2011 the government re-organized the state bodies regulating mining activities and since August 2012 a new National Mining Agency has taken control over issuing the necessary licenses for exploration and mining. This change was greeted with a good dose of skepticism and protest. So far the results as viewed by mining companies have been mixed. Two large projects have received extensions to their licenses. BHP will continue to exploit the Cerro Matoso mine, the second-largest Nickel mine in the world; and Votoratim of Brazil will continue to mine for coal. On the other hand, a wilderness park has been created putting exploration for gold in this particular area into question, especially affecting Canadian junior explorer Eco Oro Minerals (OTCPK:GYSLF).
Country risk in Colombia is regarded as moderate (rating 42), on a similar level with Peru, or Turkey, when using a system of quantification as introduced in this article. The most recent annual Fraser Institute survey of mining companies gives low marks for the overall Policy Potential Index but high marks for mineral potential.
It seems, that it is still very early days for the application of modern exploration methods for precious metals in Colombia and many opportunities are to be had in this country. Anglo Gold Ashanti (NYSE:AU) has found an elephant deposit called La Colosa about 150km to the West of capital Bogota. A preliminary feasibility study is expected for later in the year for this porphyry project with an inferred resource of 16.2M ounces of gold. Due to environmental concerns, the projected start of production has been postponed from 2016 to 2019. B2Gold (BGLPF.PK) has made another large discovery called Gramalote, which they are developing in joint venture with AngloGold Ashanti. The inferred resource currently stands at 2.4M ounces and a final feasibility study is anticipated towards the end of this year.
AngloGold Ashanti is the only major gold miner in the country. Additionally, there is a host of junior exploration companies at work. For example, Goff Corp (OTCQX:CGOOF) controls exploration rights to the La Frontera project and has been releasing a string of promising news reports. It is still early days for it and much work will need to be done in order to arrive at a NI 43-101 resource statement for this bulk tonnage project.
A small number of juniors have gone through the process of proving up a resource and conducting all necessary studies to start mine development in Colombia. Continental Gold seems the most promising among this group. The high-grade Buritica project has a measured and indicated resource of 1.64M ounces of gold at a whopping grade of 13.6 grams of gold per ton plus silver and zinc credits to boot. Infrastructure at its projected mine is outstanding with paved road access, grid power and plenty of water available. Drilling is still ongoing and deposits are still open while other studies are finalized. A recently completed metallurgical study indicates very high recoveries for a standard gravity concentration plus cyanidation process. At present a tunnel is being constructed to access the ore situated behind a steep hillside. This tunnel will enable further detailed exploration and subsequent mine development. Commercial production is currently targeted for 2016. The company is well financed and has strong institutional support.
In conclusion, we believe that Colombia is an emerging precious metal mining legislation that deserves attention by investors with a strong risk tolerance. A variety of options exist to gain exposure to this country for mining in general, and precious metals in particular. Many of these options are achieved through junior exploration and development companies, which have their own inherent risks. But remember: in Colombia one may add the discovery of El Dorado to the list of potential rewards.