BOGOTA, Colombia -- Colombia willrevert to its previous mining code on May 11, a high court ruled last week. The change comes both as a relief to miners and prospectors in the country and a looming monkey wrench for the handling of illegal mining.
The fresh constitutional court ruling also could spark a return of investor money into the democratic nation's mining companies.
The high court last week declined to extend the current mining code, which took effect in 2011 after claims that the previous code was unfair to native populations, not to mention difficult to enforce.
Reversion to the old code stems from an effort to consult with Colombia's indigenous communities, largely Indian Americans, on the provisions of what is known as Law 1382 of 2010. The "native" population of the country probably accounts 4 percent of the country's 47 million people and perhaps more.
"The code that took effect in 2011 was rushed through, poorly drafted, with loose words and some certainly misguided policies," says Samuel Pelaez, a mining analyst at U.S. Global Investors (GROW in USA) in Texas.
Colombia's slogan, or one of them, is Everything Is Easy. Todo es facil. This is entirely dream world thinking when it comes to mining and government.
For instance, the 2011 code that (now) expires in May has a provision for consultations with affected communities: something the previous code didn’t have. Say what? "It was clear that the courts, favorable to President Santos, would not ratify the code," says Mr. Pelaez.
Juan Manuel Santos faces elections in about 14 months. Miners says his regulators' handling of miners' claims in the gold, silver and copper-rich country (coal, nickel, oil and gypsum, too) is far inferior to that of his predecessor, Alvaro Uribe.
The federal and provincial levels appear "broken" when it comes to Colombia's fast recovering mining and energy fields. As many as 20,000 applications for concessions (earlier this year) were gathering dust amid processing snafus. We are talking years of delays.
The Ministry of Mining & Energy vows to resume the electronic processing of concession applications by early July.
Yet this is the fourth and perhaps fifth time (my count)thatmining regulators have had to postpone the process of granting or denying permits and other applications. The government points to technological and database snafus. The mining industry sees this as a tug of war between traditional farmers-ranchers and miners. (Economists and historians interpret these database delays [read: bureaucracy] as a way that government, any government, pampers its traditional supporters: coffee and flower growers, rice, beans, sugar cane.)
Our TCR take is that miners, starting cross-your-fingers on May 11, at the very least can utilize the code that was in place when they applied for mining and exploration licenses and permits. Por favor, DO NOT hold your breath on that date, say several in-country analysts. Delays and civil protests are de rigueur in Colombia.
Colombia's government could have used these two years to weigh in on what native populations and local work forces have to say about their mining neighbours.
Last week's court ruling is yet another whiplash, albeit a productive one this time, for a Colombia legal environment that is bulky, bloated and tardy in all its mining decisions -- at the federal and provincial levels. President Santos has a lot to answer for on the resources front if he is to continue to lead a nation that will grow about 4 percent this year, lagging the pace of its red-hot neighbour, Panama (and not to mention gold and copper-laden Peru).
Panama's growth will almost double Colombia's pace this year.
There are a growing number of observers who believe the nation's growth would have fared much better and perhaps matched Panama's acceleration if Mr. Uribe had received a third term. But then, there is that constitutional court he would have faced.
In the past three years, Colombia has benefited from two ground-breaking free trade pacts with Canada, which came first, and the USA. Exports to those two nations are rising smartly. Tourism, not including Secret Service agents in Cartagena, is also advancing thanks to the red carpets that former President Uribe laid.
In 22 or so tours of Colombia since 2007, I have to conclude that it is the nation's local communities, the towns, villages, cooperatives and so on, that welcome mineral development. THEY ARE THE KEY TO MINING AND ENERGY.
Mayors, town councils, village leaders and cooperatives generally favor the fresh waves of miners and prospectors in their locales -- and strive to provide their potential employers with productive employees, supplies and good roads.
Some miners and prospectors actually give stakes equity stakes to local mining cooperatives in exchange for property rights, local guidance and mining expertise.
We saw this type of partnership happen at Calvista, a Canada-traded company that was sold to a Brazilian operator in October 2012. Atico Mining is taking a similar partnership approach at El Roble, a producing gold and copper mine that it is negotiating to purchase this year.
"We are talking about new jobs, cleaner water, better infrastructure and foreign direct investment," says Robert Allen, founder and CEO of Grupo de Bullet, the largest controller of Colombia mineral concessions. Mr. Allen is from Arkansas and has lived part time or full time in the country since 1983 or so.
Jeffrey Brooks, an American geologist who has been in the country the past six or seven years, says, "Many times, we build the roads, improve the water supply and leave properties better off than when illegals work the land." Mr. Brooks was instrumental in discovering and developing porphyry gold, silver and copper deposits at El Marmato, now owned by Gran Colombia Gold (GCM), and (currently) at Caramanta for Calvista sister company Solvista Gold (SVV).
For plenty of Colombians, mining and exploration on their face threaten a landscape of pastoral beauty and a work-scape of coffee-tree growing, sugar cane harvesting and other agricultural and ranching occupations.
Yet given a choice, farmers and ranchers are turning to mining, legally and illegally, to benefit from higher commodity prices. "We gave residents at El Marmato an opportunity to work cattle at a nearby ranch, and most went right back to mining," says Maria Consuelo Araujo, CEO of Gran Colombia Gold and a former government minister of culture and foreign affairs. "For some, mining is in their generational blood, and for others, the reliable income beats other choices."
[Attached photo: CEO Consuelo Araujo at Segovia with local miner -- photo Thom Calandra]
Colombia once was the continent's largest gold producer. That went out the window by 1940 amid violence, bureaucracy, political power struggles and narcotics trafficking. Illegal miners were glad to take up the slack.
At present, illegal miners are found in nearly every jurisdiction of Colombia. Mr. Pelaez and others see signs that government and companies are cooperating to promote 50-50 toll mining and verifiable ore that can be branded as free of mercury and subject to taxes. U.S. Global, the asset manager that Mr. Pelaez works for, is a 12 percent owner of the country's largest active gold and silver miner, Gran Colombia.
Some 40 percent of all the gold mined each year in Colombia comes from illegal squatters and invaders. Some say it is in their blood. Yet their activities cause landslides, pollute water supplies, including the Cauca River at El Marmato, and invite graft, corruption and extortion by criminals.
Gabriel Bayona, an independent mining analyst and consultant at OPHIR Mining Resources & Investment in the city of Medellin, says the court action this week opens others cans of worms.
"Measurements to regulate small scale mining and mechanized alluvial extraction could disappear, which is inconsistent with President Santos' recent decrees against illegal mining. Legalization of small and informal mining could collapse, which is clearly unsustainable," says Mr. Bayona, who services mining companies, property owners and investors.
In addition, protected areas such as wetlands appear to have looser guidelines for mining development than those outlined in Colombia's national development plan. "Inconsistencies must be solved," he says.
No two mining projects have a longer history of turmoil and untapped riches than El Marmato and Segovia. Marmato is one of the 20 largest and relatively undeveloped gold-silver deposits in the world, with 14.37 million ounces of 1 gram per tonne gold in the measured and indicated category. Some say locals have mined it for 500 years running.
I have been there several times, and only recently, under Gran Colombia's new ownership, has it advanced beyond being a toxic nightmare of mercury-blue streaked landslides and filthy water. El Marmato is likely to be joint-ventured out this year or early next to a large mining company in what could be a billion-dollar transaction, Gran Colombia spokesman Roy Macdonald said in an investor presentation I attended last week.
GCM's other flagship producing mine, Segovia, along with the surrounding areas of Remedios and Otu, have produced as much as 5 million ounces of high-grade gold (average 13 grams per tonne by some estimates) in the past 150 years. The area is ripe for consolidation, something Gran Colombia, Grupo de Bullet and two or three other operators are discussing.
Gran Colombia Gold controls both El Marmato and the 27 known veins of Segovia. Both produce gold and silver for the Canada-run company.
Our three cents: Gran Colombia at El Marmato and Segovia has helped to organize legal mining units, has made headway in shutting down mom-pop mills that use mercury and has launched a bank (at Segovia) that can boast several thousand new bank accounts in a year. Most of the bank deposits (plus new housing, security forces, improved schools and proper water filtering) come from Gran ColombiaGold income or related toll mining income.
Bob Neill, an executive at Grupo de Bullet, the holder of minerals concessions in Colombia, tells me the government had a chance to show it could improve upon existing mining code but dropped the ball.
Mr. Neill, one of a growing number of North Americans, Europeans and Latin Americans who are under the age of 40 and live in Colombia full time to manage mining and prospector properties (not including energy), says, "I think it's positive for companies in Colombia although the fact that this issue was not resolved in the allotted time definitely reflects poorly on the government's ability to get its house in order."
A lot is at stake here. For investors, the promise of Colombia's rich mineral (and energy) deposits long have been tainted by decades of violence, drug running, messy politics and socialist kidnappings. In other words, Colombia prospectors and miners, many run by Canadians, Australians and Americans, are getting crushed.
The devastation to market capitalization for Colombia prospectors has been among the worst of any jurisdiction in the world in the dwindling market for metals equities these past 27 months. (This week, thank goodness, is an exception in the stock and commodities markets.)
Former President Uribe tends to a cattle ranch outside of Medellin. Under his guidance, acres with mining concessions rose eight fold to 21.08 million.
Mr. Uribe was during his years in the palace a champion of the mining and energy segments in his country.
Mining and energy, in large part because of the enormous foreign direct investment that he encouraged in his eight years as president, will account for as much as 13 percent of economic output by the year 2020, independent analysts forecast.
Gloria Carrington, president of Colombian Mines (CMJ), another large holder of mineral concessions in Colombia, says at this point, any change in code is a positive.
Ms. Carrington has organized a group of Medellin-based prospectors and miners in the country's leading mining department, Antioquia. The group meets regularly with mining ministry regulators and provincial officials to clarify what can be mystifying and bureaucratic operating procedures. She is a native of Medellin.
For our Stockhouse readers, the largely unreported news about the May 11 reversion is almost surely another buying opportunity for shares of Solvista Gold, Gran Colombia, Seafield Resources (SFF), Atico Mining (ATY) and several other prospectors we consider worthy at The Calandra Report. (I own them all -- purchased at market prices. I receive no fees or other compensation, including stock, for any of our TCR research.)
[Solvista shares will return to $1.10, I believe, in the wake of its next Caramanta assays. Atico's next round of assays, the first in at least 14 years outside El Roble Mine, likely will send ATY shares far above a recent high of $1 Canadian.]
At the risk of being hung in effigy by well meaning environmentalists and other warm and fuzzed-out social forces, I will close this piece with a comment from Mr. Pelaez, who grew up in the capital city of Bogota.
"Colombians think large multinational miners are a danger to the environment while small (most of them illegal) mining operations aren’t. This is of course as misinformed as it can get," he says from San Antionio, Texas.
The 2014 presidential election almost surely will pit forces cloaked in the goodness of clean water/land preservation and warm fuzzies against standing President Santos. For his part, Mr. Santos, sitting on the resource fence, now has no choice. The fence is now electric. Mr. Santos must ally himself with Colombia's mining and energy interests if his nation is to fulfill what once were promises of outsized (greater than 4 percent yearly) economic growth and foreign direct investment in future years.
Resources
1. I think Anthony Vaccaro at TheNorthern Miner is doing a yeoman's job of tracking the mess of mining regulations. See: https://www.northernminer.com/news/delving-deeper-into-colombias-mining-issues/1002159085/
2. For background on the country's mining coda, please see: https://www.nortonrose.com/knowledge/publications/59448/amendment-to-the-mining-code.
3. Gabriel Bayona is founder of OPHIR Mining Resources & Investment. He can be contacted at info@ophirmri.com. I have followed this young analyst's work for several years. He is brilliant and an overarching believer in his country's under-mined resources.
Note: Grupo de Bullet owns large stakes in Solvista Gold and Continental Gold (CNL), among others. Gran Colombia Gold (GCM) and Solvista Gold (SVV) are two of the 9 TCR target investments. So are Atico Mining and Seafield Resources in Colombia. Also: Apologies for dropping accents in Spanish words.
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