Colombia Calling Ranked as the largest historical gold producer in South America, with past production of more than 80 million oz., Colombia's gold potential has never been a secret.But due to extreme political and social unrest over the last 50 years, much...
miningmarkets.ca
March 1, 2010
by Anthony Vaccaro
Ranked as the largest historical gold producer in South America, with past production of more than 80 million oz., Colombia’s gold potential has never been a secret.
But due to extreme political and social unrest over the last 50 years, much of that potential has remained untouched by modern exploration and mining methods.
With the election of President Alvaro Uribe in 2002, however, things began to improve. Combined with a new, business-friendly economic policy, an empowered military backed by a firm security agenda planted the seeds of change.
Since 2002, the country has seen its homicide rate drop by 44% and kidnap-pings — once so rampant — have fallen by 85%. Opposite those declines, economic indicators have been marching steadily upward.
Such remarkable progress, largely due to the military’s clampdown on areas controlled by narco-guerillas such as the left-wing rebel groups Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN), has opened a window for juniors. The increased security has allowed Greystar Resources (GSL-T) to build up its 11.6-million-oz. Angostura project, and Ventana Gold (VEN-T) to make its La Bodega discovery, and drawn in more juniors searching for the next big find.
While the country has made great strides both in containing the FARC and ELN, and making the streets of its larger cities safer, Colombia is by no means the next Switzerland.
Medellin, the capital of Antioquia Department and the place where most Western mining companies set up shop, saw its murder rate increase by 64% in 2009 to 1,431. That is in a city with a population of 3.8 million, about 1 million more than Toronto, which recorded 62 murders in 2009.
The reorganization of some of the paramilitary groups that Uribe worked so hard to demobilize is seen as a chief culprit behind the recent spike in Medellin’s violent crime rate.
Also of concern is a recent upswing in activity by the FARC and ELN. The two groups have agreed to join forces, and their murder of the governor of Caqueta state in December shows that they can still strike at the upper echelons of power.
In total, FARC activities are up 30% from 2008, according to Colombian think tank Nuevo Arco Iris.
Clearly, investing in Colombia is not for the faint of heart. Still, for those who can handle the heat, Colombia can offer some serious returns on investment. While Greystar and Ventana’s stories are well-known — with robust valuations to prove it — there are still several juniors just getting their exploration programs into gear that could present significant upside. The following are some of those best positioned to make headway this year.
Medoro Resources (MRS-V)
Medoro Resources and its Marmato deposit, 80 km south of Medellin, is shaping up to be one of the most intriguing stories in Colombia’s burgeoning gold mining scene.
The company’s origins trace back to the team that cofounded and built Bolivar Gold — Serafino Iacono, Jose Francisco Arata and Miguel de la Campa. The three executives are also behind Colombia-focused oil producer Pacific Rubiales Energy (PRE-T)– one of the TSX’s highest gaining stocks in 2009.
While Medoro was initially known for a gold project it had in Venezuela, Hugo Chavez helped to cool the company’s interest in the country, and Medoro’s management turned their eyes west to Colombia.
Iacono and Arata — who stepped down from Medoro’s board last year but still serve as advisers — set Medoro on a new path by steering it towards the Marmato gold project, which was as well known for its substantial gold mineralization as it was for the difficulty of getting at it.
While consisting of one gold system, Marmato had come to be divided into three zones, each held by a different party.
On top of that, the system’s high-grade veinlets had attracted a small crowd of artisanal miners that held licences in one of the zones.
Medoro’s task from the beginning was simple, yet daunting: Unify Marmato.
It began the process by acquiring the deposit’s Zona Alta, the highest-altitude zone in the mountainous district and the one possessing the most high-grade, open-pittable mineralization. It bought out Zona Alta’s owner, Colombia Goldfields, in October for 35 million shares and 1.12 million warrants.
Next, it set its sights on a connecting hill to the northwest, which hosts a zone known as Echandia. By purchasing the zone’s owner, privately held Colombia Gold, it locked that bit up. That merger, which closed in January, cost Medoro 33.3 million shares and $2.6 million.
Lastly, it had to acquire the zone directly beneath Zona Alta, Zona Baja.
Medoro expected to have the acquisition of that zone and the company that holds it — Mineros Nacionales — sewn up by mid-February. Medoro is paying US$35 million in cash for the company.
To get all of those acquisitions done, and then to tackle a project of Marmato’s scale, Medoro knew it would need a ton of money.
On the strength of Iacono’s and Francisco Arata’s reputation for putting together winning projects, as well as red hot gold prices, the company put together a massive financing last October that netted it roughly $96 million.
Medoro’s president and chief executive John Hick says the company will need every penny.
Beyond the costs associated with the three big acquisitions, capital is needed to move the town of Marmato, which sits at the base of the mountain.
While the government has already begun moving the town, Medoro will likely be on the hook for $20 to $30 million, spread out over the next couple of years.
Then there’s the remaining artisanal miners, whose mining licences Medora still has to purchase. Of the 120 or so artisanals that originally worked Zona Alta, only 15 remain. Still, Hick pegs the cost of settling with the small-scale miners at $10 to $15 million.
Of greater interest to ounce-in-the-ground hungry investors, however, is the upcoming exploration and infilldrill program.
Hick says the plan is to spend roughly $40 million over the next two years, to upgrade the resource and on exploration drilling.
That could bring significant upside to what is already a very promising project.
At this early stage, Zona Alta — where Colombia Goldfields spent US$81 million between 2005 and June 2009 — has measured and indicated resources of 88.2 million tonnes grading 0.82 gram gold per tonne and 4.65 grams silver for 2.3 million oz. gold and 13.1 million oz. silver. Another 27 million tonnes sit in the inferred category, grading 1.21 grams gold and 6.74 grams silver for 1.07 million oz. gold and 5.9 million oz. silver.
The Echandia zone hosts measured and indicated resources of 48.5 million tonnes grading 0.69 gram gold for 1.08 million oz. The property has another 10.6 million inferred tonnes grading 0.8 gram gold for 274,000 oz.
As for Zona Baja, Mineros Nacionales has been operating an underground mine onsite, producing 25,000 oz. gold per year, based on an 800-tonne-per-day operation.
While drilling will be carried out on all three zones, Hick says Zona Alta and Zona Baja will get much of the early attention because of the two zones’ proven richness.
Still, the ultimate goal will be to bring all three zones into one global resource.
Located in the heart of Colombia’s western Cordillera, roughly 100 km north of AngloGold Ashanti’s (AU-N) La Colosa gold project, the system is being interpreted as a large porphyry with grades ranging from 0.3 gram to 2 grams gold, with systems of veinlets running through the deposit that can grade as high as 12 grams to 15 grams gold.
While Hick says it’s too soon to estimate when a scoping study could be done, investors’ appetites will be whetted by a steady supply of both drilling and metallurgical results over the coming year.
“The goal is that by the time we’ve improved the resource by making it bigger and of better quality,
the feasibility study will be coming in right behind it,” Hick says. |
