The early days of the new Colombian gold rush

Medellin, Colombia — One of South America’s historically richest gold-producing nations appears poised to regain a crown that was stolen off of its head by years of endemic corruption, crime and warfare.

Colombia is finally awakening from the social and political nightmare that robbed it of foreign direct investment for the last many decades.

And while no one here would say things are perfect – the narco guerilla FARC outfit is still active in contained parts of the country – positive changes are so palpable that miners at the country’s fifth mining convention in Medellin, are unabashedly exuberant over the country’s mining potential.

Long known as the home to significant coal and nickel deposits, much of the new enthusiasm centres around gold.

Junior and senior gold mining companies alike are being buoyed by high grades that aren’t being found with such consistency anywhere else in the world. Indeed it is only because of the country’s recent troubled past that such prospective gold deposits remain undeveloped today.

Such recent turmoil has left Colombia with no significant hard rock mines to speak of, with most of what there is in terms of the gold production, coming by way of alluvial methods.

But things appear set to change — although not without the usual growing pains that go along with the blossoming of a new sector into the economy.

Challenges facing companies considering setting up shop in Colombia consist of both the geological and the political variety.

In fact the only thing more complicated than Colombia’s recent political and social issues, is perhaps its geology.

Situated at the top of the continent, the country’s geological activity has been driven by to great forces moving in different directions.

From the west comes the Pacific plate, smashing into the continent and causing the Andes Mountains which stretch all along South America’s western side. But unlike its neighbors to the south, Colombia is also at a point where the Caribbean plate crashes down on it from the north. The result is a mountain formation that splits into three distinct lines in the heart of the country, the eastern, central and western, with all three being home to significant gold discoveries.

Making matters more challenging for gold explorers is the lack of geological data available to assess it. The country’s recent issues, combined with a jagged mountainous terrain, made geophysical surveys spotty at best.

While the ministry of mines says it has begun flying surveys, it admits that to date, they have been done at very wide intervals, leaving companies to fill in the gaps themselves.

And more challenges on the political side could be facing miners as well.

The government is currently in the process of ratifying a new mining code. The code only awaits president Alvaro Uribe’s signature – something he has yet to provide – to become law, and most experts here believe that will happen, in some form, by the end of this year.

There are four major contentious issue with the mining code as it stands today.

Firstly, there is talk of banning all mining above the 3,500 metre level. This amendment was pushed for by the former minister of the environment to protect what was deemed to be sensitive high altitude ecosystems. Most major projects currently in the country do not fall above that threshold — the exception being Greystar Resources (GSL-T) massive Angostura project.

The company, however, says it is in compliance with the terms of reference for its ongoing Environmental Impact study, has a strong social and environmental track record, and has the backing of the International Financing Corporation (a branch of the World Bank that has a 13% stake in Angostura) making it hard to imagine that such a late-in-the-game amendment to the mining code could stop its development.

Another aspect of the code raising some eyebrows here is its intent to give property rights to artisanal miners that have worked a given claim. While details are scant on how such a policy would be implemented it could cause severe title headaches for prospective companies if it goes through.

Next on the list is the government’s stated intention to no longer automatically renew 30-year mining licenses for an additional 30 years. The government wants the right to review a given project after 30 years, and then only issue a 20-year permit at its own discretion. Such a move would cause companies considering investing in mine expansions to seriously reconsider.

Lastly the new code proposes a relatively hefty fee of roughly $8 per ha. per year to be paid by companies on exploration ground.

While such a move angers companies that had first mover status here and staked much of the country, it is being applauded by junior miners looking for a way in.

The move was designed to break up any monopolizing of claims by a few players, and allow serious juniors to move in and get exploring quickly. The fee is eliminated once a company gets a project into production.

However the mining code ultimately pans out, what is clear is that this is a watershed time for the gold mining industry in the country.

With increased security opening up many unexplored and highly prospective regions, companies are currently only scratching the surface of Colombia’s potential.

It can only be hoped that the companies that are well positioned here today set a positive example on the corporate social responsibility side, so that the government and the population alike will be amenable to the future growth of the industry.