I would avoid Argentina or Ecuador at this point, which are both run by populist but mining unfriendly regimes. Especially when you can still find an extremely undervalued junior in a much more business friendly jurisdiction such as Colombia which has free trade agreements with both Canada and U.S. For example Gran Colombia (GCM.TO) with a $125 million market cap and production growth profile to over 600,000 oz per year in few years time from their 2 main projects. They are currently producing around 100,000 oz per year and will be closing shortly on their gold linked notes debt financing that will allow them to raise production to 200,000 oz per year at their Sergovia mine by end of 2014. This is one of Frank Holmes favorite juniors and his funds own 49 million shares or 12% of Gran Colombia. There has also been considerable insider buying over the past year and is still ongoing. When their first mine (which by the way has grades comparable to or higher than Dynasty's Zaruma mine in Ecuador) is producing at 200,000 oz per year the cash flow from it should be sufficient to fund the development of their second mine which is expected to be an open pit mine producing over 400,000 oz per year. GCM is IMO by far the most undervalued junior producer out there and it has 2 world class projects in Colombia. Colombia at one time in the past use to be the one of the largest producers of gold in the world but was out of the picture the last 40 years or so due to internal strife, which now appears to have pretty much wound down. It has 2 out of the largest 20 undeveloped gold deposits worldwide, one of which is owned by Anglogold and the other is owned by Gran Colombia.
Carlos Andres of Frontier Research report recommends both IRL & Gran Colombia in the link below:
theaureport.com
TGR: What are some other junior explorers that you believe have been unfairly punished by events beyond their control, or that are unusually undervalued due to perceived risk?
CA: Gran Colombia stands out in this regard. It sits in the junior ranks in the sense that it is continuing exploration on two very promising mining areas in Colombia. In reality, it has several legacy operating gold mines with large underlying deposits that are currently under development and hence is masquerading as a junior. The company's Marmato deposit has over 12 Moz gold and 75 Moz silver and yet it's valuation on an enterprise value per ounce level is around US$20 or 1.3% of the gold price. That's unbelievably low.
Marmato is in the heart of a historic mining district in the center of Colombia dating back to the centuries when the Spanish controlled it. The company is developing an open-pit mine, scheduled to begin production in 2015.
In the meantime, Gran Colombia is deriving cash flow from the existing underground mine, which produces about 30 Koz/year. The company has another well-known historic holding formerly known as the Frontino gold mine but recently renamed Segovia. Three or four underground mines are currently producing over 100 Koz/year. Segovia has 1.4 Moz so far, but it's going to get a lot bigger. So the company has cash flow from legacy operations, a world-class deposit at Marmato, lots of silver, a solid deposit at Segovia, with tremendous exploration upside.
TGR: The deposits tend to be high-grade underground vein deposits in Colombia, but they're difficult to exploit en masse. There are these smaller high-grade operations, but nothing at scale. That's what Gran Colombia is trying to do with the pit at Marmato. Do you think that it will prove successful?
CA: I do. Gran Colombia has a very experienced management team that has developed large gold deposits before. Although Marmato is operating a legacy underground mine, the massive deposit is being developed with a large open-pit bulk-mining design in mind. The drill results look good and I expect the company to be able to rationalize the pit dynamics and the grade.
TGR: These older operations that Gran Colombia is running have been grandfathered into the new mining act there. However, there have been very promising, much larger deposits that have not been green-lighted. What makes you think that this one will be?
CA: Because the management team has already accomplished what no other mining company would even attempt. Both Frontino (now Segovia) and Marmato had some significant legacy issues that had previously caused miners to shun them like the plague. Frontino had a $200M legacy pension problem from a bankruptcy in the '70s. Marmato was previously fragmented into dozens of different ownership interests. In addition, the historic town of Marmato, which sat right in the middle of the deposit, had been partially destroyed by a landslide, creating a humanitarian dilemma.
All of these issues have been completely resolved by Gran Colombia management. The company was able to raise the $200M in capital markets to resolve the pension issue in exchange for a 100% unfettered interest in Frontino. It consolidated all of the individual land holdings at Marmato so that it now has 100% ownership of the entire site. Gran Colombia has also aided the government in rebuilding the city of Marmato further down the hillside, which has been completed. All of this was considered impossible.
Atypically, the management team hails from the region and is well connected. Executive Co-Chairmen Serafino Iacono and Miguel de la Campa are from Venezuela and were responsible for finding and defining one of the larger deposits in South America. Their success with Bolivar Gold and later Pacific Rubiales established a tremendous reputation for them both and so they are able to open doors that few others can. In addition, the President and Chief Executive Maria Consuela Araujo is the former Minister of Foreign Relations and former Minister of Culture in Colombia. That gives you some idea of the pedigree of management.
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