Mining Leaders: Colombia 2013

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6 lead article: Colombia Expects 14 leader insight

28 lead article: Bounty of the Caribbean 32 feature interview

With the support of: J. M. Santos · Engine of Prosperity

15 box: The Man to Crack the Code?

16 Q&A

L. Moretzsohn · CCX · Partners with Nature

34 company focus

J. M. Sánchez · Carbocoque M. C. García · ANM · License to Drill Publisher: Freestone Publishing Field Research Country Coordinator: Gabriella Von Ille

18 article: A Turn of Fraser 20 Q&A: The Bank’s Behind It 21 leader insight

A. Ruíz · Inter-American Coal

Country Editors: Emma Tracey & Grant Sunderland Project Assistants: Zaydi Mallarino & Carolina Marín Serna Headquarters Regional Editor: Mathew Youkee Production Editor: Samantha Eyler Sub-editors: Emma Crowley & Jesse Snyder Art Director: Miguel Camacho Torres

D. Linsker · Control Risks · The Risk Remains

22 company focus: CCCC 23 Q&A: A Changing Chamber 24 Q&A

Design Assistant: Camilo Patiño Díaz

41 company focus:

International Media Coordinator: Karen Delgado Executive Directors

Printed in Bogotá by JARC Design

36 Lead Issue: Roads to Growth 38 project roundup 40 leader insight

R. Stovash · CER · A Stalled Locomotive

Administrative Manager: Silvia González

Charlotte de Casabianca & Raluca Monac

35 Q&A

J. A. Ocampo · Columbia · Perils of the Boom

25 analysis: Closing the Gulf 26 Event profile: IX Colombia Minera

J. C. Quintero · Carboandes

2013

Mining Leaders

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gold

67 Q&A

J. Carrelo · Eco Oro · A New Approach

42 lead article: Unfulfilled Promise 47 analysis: Golden Rule 49 Q&A

68 70 71 72 73 75

project roundup: Other Belts project focus: Mejía box: Prior Analytics project focus: Córdoba box: Geology of the Córdoba Department leader insight

J. I. Gutiérrez · CIIGSA · Mineral Arts C. Andrew · Sunward · Close to the Sun Cover Photo: Gran Colombia Gold

50 feature interview: Ari Sussman 52 project focus

base metals & uranium

I. Slater · Red Eagle · Santa Rosa

53 company focus: Ashmont Resources 54 gold resource estimates 2012 56 company focus

76 lead article: Out with the Gold, D. Wiley ·Touchstone Gold

58 company focus

For subscriptions and sales info, visit: WWW.MINING-LEADERS.COM

in with the New

79 box: Iron Will 82 project focus: El Roble 83 Q&A

J. López · Tolima Gold

59 60 62 63

box: Majors and their Minorities project roundup: Mid-Cauca Belt project focus: Quinchía company focus

R. Carrington · The Pioneer’s Perspective

84 lead issue: The Auction Block 86 Q&A

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K. Cunningham · Miranda Gold

64 company focus: Llave Oro 65 market focus: Illegal Mining

R. Spencer · U3O8 Corp. · Uranium Nation

87 box: The Blue Gold Rush

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mining technology & services

88 lead article: Modern Times 94 company focus

Oliver Hoelzer · Liebherr

95 box: Clearing Customs 96 company focus: ISAENG 97 project focus: Boart Longyear 98 PRoject focus: Komatsu 99 box: Barranquilla Beckons 100 company focus

CONSULTANCY, financial & legal services

112 lead article: Taking Stock 116 Q&A

S. Petrovich · AK Drilling International

118 legal overview: The Lay of the Land 120 supplement: A Capital Achievement 121 company focus

122 company focus: Knight Piésold 123 box: Power Generation 124 Q&A: Making the Investment Grade 125 leader insight

D. Arce Rojas · Less Talk, More Auction E. Rodríguez · Shell Colombia

103 market focus: Raw Materials 104 lead issue: Colombia’s Got Talent 106 Q&A: Tag Team 107 company focus: Geopolimeros 108 mts roundup 110 company focus: Rex Ingeniería 111 market focus: Geophysics & Geomapping

132 lead article: The Only Risk is Wanting to Stay 136 hotel listing 140 directory · advertisers’ index

M. Pérez, D. Sanclemente·SFA·One-Stop Shop

F. Jaramillo · Downing Teal

101 market focus: Technology & Automation 102 company focus

ml recommends

126 company focus

W. Feragotto · Golder Associates

127 Q&A: In the Bag 128 company focus: C&MA 129 market focus: Environmental Regulation 130 company focus: Alianza W.J.

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politics & economy

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lead article

Colombia

Expects C

PHOTO: Presidencia de la República de Colombia

olombian politics has seen some dramatic twists in 2012.

Junior mining companies are well acquainted with volatile markets, but even by their standards, the rapid swings in Colombia’s presidential approval ratings take some beating.

Having experienced an uncommonly long honeymoon period with Colombians following his election in August 2010, Juan Manuel Santos has seen support for his presidency repeatedly drop and rise in response to major domestic and international developments. A series of notable victories against the country’s guerilla insurgency was followed up by an escalation of rebel attacks and, later, a wellreceived return to peace negotiations. A major land restoration program that aimed to compensate the victims of the country’s decades-old conflict was introduced in 2011 to broad public support, but voters’ attitudes toward Santos’s administration soon soured after a farcical breakdown of a proposed judicial reform.

The diplomatic capital Colombia had garnered after hosting the 2012 Summit of the Americas dissipated quickly when the country withdrew from a treaty subjecting it to the compulsory jurisdiction of the International Court of Justice after The Hague ruled in favor of Nicaragua over swathes of disputed maritime territory. It is too Mining Leaders

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lead article

90%

of seats in congress controlled

by Santos’s Partido de la U

Former president Uribe has become one of the most trenchant and vocal critics of his former Minister of Defense

early to tell if Santos’s political bank book will be in debit or credit when the next presidential elections come around in 2014, but one thing is for sure: the man elected in 2010 as a continuity candidate for outgoing president Álvaro Uribe has turned out to be anything but.

In April 2012 the leaders of the western hemisphere descended on the colonial Caribbean city of Cartagena for the sixth Summit of the Americas. It was a fitting culmination to a hectic 18 months of international diplomacy for Juan Manuel Santos. No Colombian president has visited as many foreign countries and attended as many international events as Santos, and the globetrotting bogotano could count traditional allies as well as new friends among the heads of state in attendance. One of Santos’s first tasks as president was to oversee the normalization of relations with the country’s two leftist neighbors, Venezuela and Ecuador; his success in this regard has provided a trade boost and vital cooperation for military maneuvers in the border regions and for the peace process. Santos has also diversified the country’s international trade relations, pushing through longdelayed free trade agreements with the United States, Canada, and the European Union. He has also pushed to increase ties with Asian growth economies, where Colombia expects to find its most important customers for

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its current raw-materials bonanza.

Colombia’s growing presence on the international stage has bequeathed it a nonpermanent seat on the UN Security Council, and the country has made a formal application for membership of the Organisation of Economic Cooperation and Development (OECD).

The opening of the Summit of the Americas should have cemented Colombia’s role as a growing regional player, but the international media had a juicier story to tell, as a prostitution scandal surrounding US Secret Service agents stole the headlines. It seems a recurrent theme in Colombian politics—and one that frustrates locals to no end—that the country’s positive progress is often overshadowed by

sensationalist headlines that seem to confirm the tired stereotypes dogging Colombia for decades. The security situation is a case in point.

As Minister of Defense during the Uribe presidency, Santos oversaw some of the military’s most notable successes, including the killing of the FARC’s second-in-command, Raúl Reyes, and freed many hostages, including Ingrid Betancourt, a former presidential candidate. As president he made good on his promise not to take a step backwards in the fight against the guerillas by eliminating two more members of the FARC’s Secretariat and devastating the ranks of its second-tier commanders in coordinated attacks in the Meta and Arauca provinces.

With its numbers dwindling and facing a military armed with far better weaponry and intelligence, the FARC is now unable to undertake the aggressive head-tohead military campaigns it favored in the

Number of annual attacks by the FARC, 1997–2011

Source: www.arcoiris.com

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Chancellor María Angela Holguín joined Santos and Ecuadorian president Rafael Correa in the first Binational Colombian-Ecuadorian Cabinet meeting in December 2012

1990s. The result has been a shift toward traditional guerilla tactics. In May the FARC placed two bombs in downtown Bogotá. Police managed to defuse the first, but the second, placed on the car of former Minister of the Interior Fernando Londoño, killed five people, although the minister himself survived. The attacks made international headlines and, combined with an increased rate of guerilla attacks in the provinces, heightened the public’s impression that security in Colombia was deteriorating.

Given his previous victories, it would be hard to argue that Santos is soft on security—but that is exactly what his predecessor Álvaro Uribe has done, converting himself into the de facto leader of the Colombian opposition in the process. Much of Uribe’s criticism has stuck, and having peaked over 80%, Santos’ approval ratings dropped below 50% in the middle of the year, with nearly 70% of Colombians polled saying they disapproved of his handling of security issues.

At the heart of the growing conflict between Santos and Uribe is a disagreement over what should be the cornerstone of Colombian policy. Uribe structured his eightyear presidency on the principle of “democratic security”; Santos has since shifted the focus to “democratic prosperity.” With a Gini index score of 55.9, Colombia remains one of the

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most unequal countries in one of the most unequal regions in the world.

The country has 3 million internally displaced persons, a number second only to Sudan. According to the United Nations Development Pro­ gramme, more than half of land is held by 1.15% of landowners, and nearly four-fifths of potential arable land remains underused. Santos has tried to tackle these issues by introducing a land restitution program, known as the Victims’ Law, for the displaced victims of the conflict. By the end of

55.9

Colombia’s GINI coefficient in 2010, above regional average of 50.0 2012, more than 26,000 claims had been made for a total of nearly two million hectares. Uribe has attacked the policy for providing equal rights to groups, regardless of whether they were displaced by the guerillas or the military, and for being premature in a country where the internal conflict is ongoing.

Santos, for his part, contends that his two primary goals—maintaining a tough stance toward the guerrillas while

also promulgating social policies to tackle the fundamental inequalities in Colombia—are not mutually exclusive.

The growing animosity between Santos and Uribe is leading to cracks in the strong coalition that made reforms such as the Victims’ Law possible.

Santos’s Party of the U heads a group of five parties­­­—including the traditional Liberal and Conservative parties— that together control close to 90% of seats in the legislature. In June 2012 the president was forced to reject a bill to reform the judicial system after numerous amendments from senators had warped it out of recognition.

Initially intended as a law to update a judiciary system that has proved less than optimal in tackling crime, the final version included measures that would have prevented the Supreme Court from trying senators. The failure of the bill led to a wholesale cabinet reshuffle as the president attempted to get his legislative agenda back on track.

Although the debacle is unlikely to have major repercussions in this term, the Party of the U’s cozy majority may be threatened by a breakaway group headed by Uribe once campaigning for senate elections begins in 2013.

Although the constitution bans former presidents from running for a third term, Uribe will likely run for senate or possibly for the vice-presidency, with the recently created Pure Democratic

The Key or the Caguán?

In 2011 President Santos told reporters that, while the door to peace talks was then currently closed to the FARC, the government had not “thrown the key to dialogue into the sea.” In August 2012 it became clear that the key had been firmly withdrawn from the presidential pocket. In March of 2012, Santos had made a visit to Cuba, ostensibly to discuss the exclusion of the Caribbean state from the upcoming Summit of the Americas. Months later it was leaked that the president’s real mission had been to hold exploratory talks with FARC leaders towards restarting the peace process. The news was met with a mixture of cautious optimism and skepticism.

The new peace process must be viewed in the context of those that have gone before it. Three times previously, under the governments of Belisario Betancur, César Gaviria, and Andrés Pastrana, attempts to negotiate an end to the conflict have been frustrated. The last of those, between 1999 and 2002, sticks firmly in the mind of many Colombians. In an episode popularly known as “El Caguán”—after the province in which the government established a demilitarized zone for the guerillas—the guerilla used its safe zone to rearm and refinance to the extent that they were capable of attacking the capital when talks broke down.

Critics of the current process argue that El Caguán proves that the FARC have no interest in true talks and must not be offered the opportunity to catch breath again.

The experience of El Caguán has clearly influenced the government conditions for opening talks. While the FARC announced a twomonth unilateral ceasefire beginning on November 20—with the proviso that it will defend itself if attacked—the government has

analysis made clear that it will continue with military operations until a final peace deal is signed. The current process is also the first time that the end to the conflict is an explicit goal of the talks. The other four areas subject to discussion are agrarian reform, the future participation of guerillas in Colombian politics, a solution to the country’s drug problem, and recognition and compensation for victims of the conflict. Despite FARC Secretariat member Iván Márquez’s calls for the nationalization of the natural resources industries, the country’s economic policy is not open to discussion.

The clear demarcation of the topics that are and are not open to negotiation is a source of optimism for the talks. More importantly, the recent military successes against top and middle FARC leadership and the guerilla group’s dwindling number of foot soldiers means that the government can negotiate from a stronger position than previously. The peace process is also backed by popular support, with two-thirds of Colombians saying they are positive about the talks. Finally, Santos’ canny diplomacy seems, to an extent, to have eased tensions with the region’s leftist presidents. Raúl Castro and Hugo Chávez seem set to play important roles in the negotiating process.

On the other hand, in addition to doubts about the guerillas’ true intentions, there are fears that, even should a lasting deal be made, it will have little impact on the security situation. The disarmament of the paramilitaries in the 2000s led to the formation of criminal bands (known as Bacrim) that quickly filled the power vacuum.

The government will need to assure that the guerillas do not take over and run the significant illegal mining, cocaine, and extortion interests they have built up. The FARC have made it clear that the Havana Process will not be short and there is a risk that its could drag on through the presidential campaign of 2014. Ending the decades-old conflict would cement Santos as one of the country’s most successful presidents. Failure could cost him reelection.

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lead article

75,000KM2 Maritime territory ceded to nicaragua in November ICJ ruling

In red: the area of Colombian waters lost to Nicaragua as a result of the International Court of Justice ruling

Center party functioning as a potential electoral vehicle for his supporters.

Having spent the middle of the year answering questions about security and dealing with the aftermath of the judicial reform debacle, the news that the Colombian government had entered into peace discussions with the FARC for the first time in over a decade was greeted with alacrity. Although most Colombians remain skeptical of the guerillas’ intentions, surveys reported that they were also positive that the process may, this time, bear fruit (see Analysis on page 11).

But the sense of diplomatic optimism was short-circuited when in November 2012 the International Court of Justice at The Hague ruled on a longstanding territorial dispute between Colombia and Nicaragua. Although the Court rejected the Central American nation’s claim to a number of islets in the Caribbean, it also ordered a major redrawing of maritime borders that resulted in Colombia losing over 75,000 square kilometers of its national waters. The loss of fishing and oil exploration rights in these areas will be a blow to both the local and national economies, but its effect on the national mood proved even weightier. Santos’ approval rates plummeted to 49% and the president promptly announced Colombia’s withdrawal from the 1948 Bogotá Pact, which obligates member Latin American states to resolve territorial disputes through the international court.

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In comparison to the twists and turns of Colombian politics, the country’s economy has ticked along steadily. The economy expanded by 4.8% in the first half of 2012, following growth of 5.9% in 2011. Inflation has held steady in the range of 3–4% and the central bank’s interest rate dropped 50 basis points between July and August to 4.75% by November 2012. While other countries in the region, most notably Brazil, have experienced rapid accelerations and slowdowns in recent years, Colombia has maintained strong and steady growth that has made it one of the most world’s most attractive emerging markets. FDI surpassed $17 billion in 2012, up from just $2 billion in 2000. The raw materials sectors account for an estimated 60% of this figure, however, and the ominous

Dutch disease—whereby capital inflows lead to currency appreciation, which then makes other export sectors less competitive in international markets— threatens to exacerbate the Colombian economy’s weak spot, employment. The strengthening of the peso since 2009 has led to rising costs for the country’s labor-intensive industries such as textile and flower exporters, even as the proportion of Colombians out of work hovers around one in ten.

Following a failed attempt to introduce a new tax bill in the first half of 2012, the newly appointed Finance Minister, Mauricio Cárdenas, put forward a more ambitious bill in October 2012.

The new legislation aims to tackle tax evasion, boost formal employment in

Santos’s approval ratings

Source: www.colombiareports.com

labor-intensive sectors, and introduce a more progressive taxation policy. Payroll taxes are set to drop from 29.5% to 16%, allowing labor-intensive industries to cut their production costs by an estimated 18%. Meanwhile corporate tax will fall from 33% to 25% with an additional 8% tax on profits, benefiting start-up companies. Personal income tax rates will be graduated between 5% and 15% depending on income brackets, with the country’s poorest citizens being exempt.

The reform is expected to be passed before the end of 2012.

Most economic forecasts for the country anticipate growth of around 5% for 2013. The huge potential of Colombia’s hydrocarbons and minerals industries will be the most important driver of the economy. However, bottlenecks, both in terms of physical infrastructure and bureaucratic procedure, are holding back the investment and development of projects. There are few countries in the world that have a comparable combination of highly prospective and underexplored territory coupled with a pro-investment central government. But with Colombia’s decentralized political system, the message from Bogotá is not always adhered to in the regions. Much needs to be done for the country to achieve its economic potential, but Santos has shown an ambition and drive that suggest he could be the man for the job.

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leader insight

Juan Manuel Santos President Republic of Colombia

Engine of prosperity At the beginning of our government, we identified the mining sector as one of five “locomotives,” or engines of development, with the potential to drive economic growth in the coming decade. Along with agriculture, housing, infrastructure, and innovation, we believe that mining—supported by effective institutions—can have a major impact in our nation’s prosperity. The mining and oil sectors is increasingly important to Colombia. For starters, the sector’s GDP is growing at rates of over 15% per year. In 2012, oil production increased from 914,000 to 943,000 barrels a day on average and coal production from 85 to 92Mt per year. The mining and oil sectors combined contributed over $16 billion dollars to the country between taxes, dividends, and royalties.

These resources, which are basically a quarter of the non-financial public sector’s total tax and royalty income, will finance public spending in key sectors such as infrastructure, security, health, education, and anti-poverty programs.

Colombia has always been a mining country. Our mining tradition goes back to pre-Columbian times; the legend of El Dorado, for example, is said to have originated in Colombia. We are also the largest producer of emeralds and one of the largest exporters of ferronickel and thermal coal in the world. We also have great potential to produce other minerals such as gold, iron ore, and metallurgic coal.

Historically, however, the mining industry’s growth and the benefits it can provide in terms of revenue and jobs have been hampered for two reasons: absence of security and a lack of institutional capacity to meet the needs of miners and the communities affected by mining operations. Nevertheless, we are actively working on these two fronts and groundbreaking results are being achieved.

In terms of security, Colombia’s improvements are dramatic and well known worldwide. Homicides have been cut in half and kidnappings have decreased by more than 90%. Vast areas of the country previously considered off-limits are now in the exploration phase. The army is operating over twenty Special Infrastructure Battalions to protect strategic roads, pipelines, and mining projects. We know that security is essential to the oil and mining industries, and we are committed to working together to ensure their safety.

On the second issue, 2012 will be remembered as the year when the Colombian mining sector’s institutions were organized. We created

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the Vice Ministry of Mines, within the Ministry of Mines and Energy, with two pivotal functions: to design policy to promote responsible mining, and to help small miners that work in the informal sector without titles or modern technology to formalize their activities and comply with labor, environmental, and safety regulations. At the same time, we created the National Minerals Agency (ANM) to administer Colombia’s mineral resources. The ANM will conduct a more effective supervision of the industry. During 2013 it will inspect more than 9,500 mining titles. To do so, the ANM is currently modernizing the mining registry with state-of-the-art technology in order to have up-to-date information on all mining activity throughout the country.

Additionally, the former Ingeominas was reformed as the Colombian Geological Service, specialized in improving quality and quantity of available knowledge of our nation’s geology. We only have basic geological knowledge for 52% of the country, so much work remains to be done in this regard. Last year, we also declared 20.5 million hectares (18% of the country’s total) as Strategic Mining Areas. In these areas, we suspended the principle of “first-come, first-served,” with the purpose of auctioning exploration rights in the same way we do for the oil and gas sector. The objective is to attract the best companies with experience in responsible mining.

These reforms will transform mining in Colombia into a world-class sector. We are also working on various transparency initiatives, such as the Extractive Industries Transparency Initiative (EITI), to increase public confidence in the sector. And to perfect this institutional transformation, we have decided to reform the mining code in the coming year. The project is currently in consultations with various indigenous and Afro-Colombian ethnic groups, and will be presented to Congress in 2013. Our ambition is to develop legislation that protects the environment and allows for the wholesome development of the mining industry. It is a daunting challenge, but we firmly believe that Colombia can lead and set an example for other countries in the process of developing their natural-resource wealth and investing it wisely.

The mining industry is certainly a crucial partner in Colombia’s future.

We will continue to encourage its growth because we believe that mining—with high environmental and social standards—can deliver countless benefits and prosperity to all our citizens.

The Man to crack the code?

BOX

One of the principal consequences of the government’s failed attempt to introduce judicial reform was a major cabinet reshuffle as President Juan Manuel Santos sought to get his legislative agenda back on track. The incumbent Minister of Mines and Energy Mauricio Cárdenas was switched to the Finance Ministry, and Federico Renjifo, then Minister of the Interior, brought in as his replacement. In the late 1980s and early 1990s, the Valle de Cauca native, a lawyer by training, served as ViceMinister of Economic Development and of Mines and Energy.

There is reason to believe that the expertise of Renjifo, a former board member of state oil company Ecopetrol, lies more on the hydrocarbons side of his mandate than the mining side. Nevertheless, in his first months in charge Renjifo has set out to tackle some of the mining industry’s most intractable issues. One of his first tasks was to oversee the contract negotiations with BHP Billiton for the extension of its production contract at the Cerro Matoso ferronickel mine. In November he pledged nearly $17 million of funding to help artisanal miners formalize their existing operations. He has also stated that the government will take a cautious approach to the increase on mining royalties.

His biggest challenge is yet to come, however. The overhaul of the country’s mining code was a major headache for his two predecessors. In February 2010 the government introduced a bill to amend the existing mining code of 2001, allowing extensions to exploration contracts and the consolidation of multiple mining licenses into a single contract, and providing a clear definition of areas in which mining is

prohibited. The legislation was shot down in May 2011 when the Constitutional Court ruled that the bill needed the prior consultation of indigenous and AfroColombian groups, a process which had not been undertaken. The government allowed the changes in the bill to be implemented on a temporary basis until the consulta previa could be completed in 2013. If the bill still does not pass, the country will revert back to the 2001 code. Such changes to the rules of the game are rarely welcomed by investors and Renjifo will be tasked with untangling this tricky state of affairs.

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q&a

LICENSE María Constanza García President Agencia Nacional de Minería

TO DRILL

Based on the National Hydrocarbons Agency, the newly created National Minerals Agency (ANM) is chartered with managing and promoting the country’s mining sector. With executive experience in other agencies including Infrastructure and Transport, María Constanza García, the ANM’s new president, has an ambitious agenda to advance Colombian mining by improving the country’s infrastructure and institutions.

What major initiatives are you leading since you arrived at the ANM in September 2012?

A number of new initiatives are already taking place within the ANM, but perhaps our biggest challenge right now is to position the mining sector so that it can become a leader in fostering development. To achieve this we aim to implement the best social and environmental practices and provide excellent conditions for business. My specific responsibility is to take forward the process of managing Colombia’s mining titles under an ambitious strategy that will ultimately give us the true mining census. We can then define policies, take specific actions, and work to improve those areas where we see requirements to do so. To achieve this, we will conduct a full review of all mining titles (more than 9,000). This will involve a comprehensive revision of technical, environmental, financial, and legal aspects of every title.

Another significant challenge is promoting the mining sector to make Colombia a very important focus for industry investors. Next year we will issue the first round of mining licences, focusing on licenses for strategic mining locations likely to attract companies and investors.

How does the ANM’s purview fit with those of other ministries?

How will you improve communication with these ministries?

The ANM, a key part of the Ministry of Mines and Energy (MME), was established to help strengthen mining sector institutions in Colombia and to control the awarding and supervision of all mining rights. The ANM is attached to the MME, but it is a technical entity that is closer to the economic activity that it regulates—we grant rights of exploration and exploitation, hold concession contracts, promote the industry, collect royalties, and transfer them to government. We also work closely with other ministries, especially with the Ministry of Environment and Sustainable Development, and aim to ensure the progress of mining within environmentally responsible criteria.

What infrastructure does Colombia need for the mining industry?

My knowledge of infrastructure was gained in the National Planning Department and as the Vice-Minister of Transportation.

I think the country could take advantage of the current railway system with appropriate investment in its modernization. The

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Government has a significant National Plan to enhance roads, railways, airports, and ports, and to adapt the navigability of the Magdalena river. We are confident that these improvements are going to boost the mining sector.

How much of the backlog of concessions has the ANM managed to clear? Have you made progress in improving the cadastre system?

In February 2011, we had 14,452 outstanding requests for mining titles—today we have cleared almost 60% of those requests. The Agency has been working to assess each of those requests and we aim to have 100% of responses sent by the end of 2012. To improve the service, we are going to launch a new web-based tool in 2013 that will receive all the new mining title requests. This will be completed through a partnership with Internexa, one of the most important public-private companies in the country.

Besides the formalization classes for illegal miners, what other steps will the ANM take to formalize artisanal miners?

Along with the National Government, we have been working on this matter with the support of the Ministry of Defence and the Public Prosecutor´s Office. Following on from this, President Juan Manuel Santos has announced a bill to combat illegal mining, specially directed towards criminal groups. In addition, the Agency, through the Vice-presidency of Promotion and Development, will lead a formalization strategy aimed at small- and medium-scale miners in order to formalize their exploration and exploitation processes.

What concrete results do you hope to see in the mining sector during your term?

We hope to move Colombia from being a potential mining country to being a successful mining country. To do so, we are working to create a favorable investment climate, taking every step in consultation with both foreign and domestic miners to ensure they can work safely. The ANM can grant all guarantees needed to work here, but miners must be aware that we are protecting our environment and our people. We expect them to act as they would in their home countries, and we will offer them everything they need to operate freely.

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article

A Turn of Fraser Between 2008 and 2010 Colombia was the darling of the gold exploration sector.

Improvements in security after several years of aggressive military action against the country’s guerilla groups had opened up large areas of highly prospective gold belts for exploration. The pro-investment policies of then-president Álvaro Uribe attracted oil companies into Colombia, paving the way for junior miners to take promising stakes in the country. During this period, Colombia’s indicators on the Fraser Institute’s Annual Survey of Mining Companies improved steadily, overtaking Brazil and Peru in its attractiveness for new investment. But in the 2011/12 Survey, Colombia’s score dropped significantly—from 0.64 to 0.53 on a scale of 0 to 1 on its Policy Potential Index and from 51.2 to 38.0 out of 100 on the Mineral Potential Index. While the geological potential of the country is sound, continuing bureaucratic delays, a lack of continuity in key ministries, and a poor understanding of the mining industry among policymakers have complicated the business environment for Colombia’s miners.

obstructionism is the moratorium on new exploration licenses introduced in February 2011, initially for six months and then continually extended, most recently to mid-2013. Despite a generous hiatus of over two years for the licensing authorities to work through their backlog, many explorers remain skeptical that this deadline will be met.

Meanwhile, 19,000 exploration app­li­­­­ cations stagnate in a queue for approval in government offices around the country, due to a lack of capacity at the former licensing agency Ingeominas.

One CEO told Mining Leaders that his company was still awaiting decisions on applications filed as long ago as 2007. “In most countries both mining firms and governments are obliged to meet their requirements by a certain date and there are procedures for when either party

fails to meet this deadline,” he said. “In Colombia, if the government agency fails to meet the date, the application just sits there.” The delays are not just frustrating— they are potentially fatal to junior miners who require a constant newsflow of deals and projects to maintain investor interest.

In a year of depressed stock prices, the prevailing investor sentiment that institutional bottlenecks are unlikely to be resolved any time soon acts as a doublewhammy to juniors.

Clearing the backlog of applications is therefore one of the key tasks confronting the National Minerals Agency (ANM), launched in May 2012. María Constanza García, head of the ANM, overhauled the existing system by centralizing the mining decision-making center for all departments except Antioquia to Bogotá.

At full capacity, the ANM will employ

Results of Mining Leaders Investor Survey 2012:

To what extent Do the following factors limit your company in Colombia?

In a country with a reputation for security risks, it is telling that in Mining Leaders’ Investor Survey 2013, for exploration companies bureaucratic procedure far outstripped security issues as the biggest factor limiting the development of their companies in Colombia. The most pressing example of bureaucratic

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(0=not at all, 5=severely limiting; n=15; includes exploration companies only)

article

The ANM’s mandate also involves centralizing the decision-making process and improving communication between the three ministries that determine the future of mining projects: the Ministry of Mines and Energy, the Ministry of Environment and Sustainable Devel­ opment, and the Ministry of the Interior, which handles issues relating to prior consultation with communities. The often-antagonistic relationship between this ministerial triumvirate has frequently caused delays in the licensing process.

Protracted discussions over the definition and demarcation of the country’s páramos­ —Andean highland ecosystems where mining is forbidden by law—have led to a high-profile dispute between Eco Oro, formerly Greystar Resources, and regional environmental groups.

Acquiring permits for water usage and

disposal and for exploration activities in forested areas has also been a constant source of struggle. Several mining firms report having undertaken a by-the-book prior consultation process with local communities only to see the signing of the agreement halted due to last-minute interventions from outside groups.

The ANM could well become the state conduit for advancing the development of the industry at the national level.

However, in Colombia’s departments, environmental regulations are policed by the Autonomous Regional Corporations, limiting the ANM’s authority. Projects therefore risk being caught up in local political power struggles; and with national royalty reform set to pass a greater proportion of revenues from the regions to the center, local politicos have fewer incentives to back projects.

To tackle the multitude of challenges facing the industry, strong leadership seems necessary. However, turnover in the highest political positions has recently reached an alarming rate. Appointed Minister of Mines and Energy in September 2011 and pledging to run a predictable ministry, Mauricio Cárdenas lasted less than a year in the post before he was shifted to become Minister of Finance in August 2012. His replacement, Federico Renjifo, was the incumbent Minister of the Interior and had previously served on the board of Ecopetrol, the state-owned oil firm. With his expertise coming mainly

from the petroleum side of his mandate, Renjifo will need time to fully define his position on the many complex issues confronting the mining industry and his appointment has increased calls for the Ministry of Mines and Energy to be split so the two industries can receive the unique policy approach each requires.

The ANM has also experienced changes at the top during its very short existence.

August 2012 saw María Constanza García take over as Director of the agency after her predecessor, Beatriz Uribe, resigned for personal reasons after serving only three months.

A lack of coordination at the top of the mining industry can lead to confusion on the ground. “Very mixed signals are coming from the ministries right now,” the CEO of a gold explorer told Mining Leaders. “Communities around mining projects are confused, especially about the difference between exploration and production companies. As a result unrealistic demands are often made of explorers.” Miners look forward to the day that the ANM untangles itself from the current bureaucratic and political snags to become the much-needed link between the mining sector and the government that it was intended to be. “Although the execution has been somewhat lackluster up to this point, the idea to have a strong central mining agency is an excellent one,” the same CEO concludes. “The situation is not lost—it can be put on course again.”

Source: Fraser Institute

around 400 staff, 60% of whom will work outside the capital. The agency plans to introduce an online cadastre of mining titles, but so far technological issues have prevented its release. The vast majority of firms waiting to hear on the progress of their existing applications are likely to be frustrated, however. According to César Díaz, President of the Colombian Chamber of Mines, only around a 1,000 applications, barely 5% of the total, are likely to be rubber-stamped.

It remains unclear whether firms will receive a rebate for surface canon payments they have already made on the areas under application.

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q&a

THE BANK’S

Daniele La Porta Mining Specialist World Bank

BEHIND IT

Daniele La Porta, a mining specialist at the World Bank since 2010, has worked as an exploration geologist and environmental mining consultant. She now aids in the policy dialogue between the Bank and the Colombian Ministry of Mines and Energy to promote a sustainable and streamlined mining policy. La Porta has already seen many reforms initiated in Colombia, but believes that more still needs to be accomplished.

In June the World Bank undertook a mission to Colombia.

What was the scope of the Bank’s consultancy role in the reform of the Colombian mining sector?

Colombia presents great prospectivity for mineral resources in the medium to long term. However, deep institutional reforms are still required. The government of Colombia has been undertaking some of these reforms in order to achieve the goals set out in the National Mining Policy, which aims to double the sector’s contribution to GDP by 2019. The policy has three main pillars: to promote investment, to strengthen the institutions involved in the management of mineral resources, and to promote the competitiveness and sustainability of artisanal miners. In this context the World Bank’s Sustainable Energy, Gas, Oil and Mining Unit has been providing support through grants and policy dialogue with the Ministry of Mines and Energy. The Bank has assisted the National Minerals Agency (ANM) and the Colombian Geological Survey (SGC) in restructuring the mining cadastre, with creating a geodata review and acquisition plan, and with building capacity of the new institutions. We are also providing technical assisstance for preparing regulations to address the current gap in the legal framework.

What institutional reforms did the World Bank propose for Colombia? What benefits will such reforms bring to the sector?

The Bank started supporting Colombia’s mining sector at a time when many of the reforms were already under way.

We are working to refine these initiatives and support their implementation at several levels. Some involve changes to institutions and the mining cadastre. Although the Colombian authorities have been making significant efforts and progress in these areas, further changes are required to enable the country to adhere to international good practice in order to enhance the sector’s competitiveness and transparency. We are also advising on environmental and social monitoring and enforcement.

The main issues here concern overlapping environmental responsibilities, potential conflicts between biodiversity areas and the extractive industries, and understanding the impact

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of these industries’ activities on the livelihoods and rights of indigenous groups. There also needs to be a clear distinction between policies, regulations, and programs for artisanal versus industrial mining.

What is the objective of introducing Strategic Mineral Reserve Areas? What has been the experience of other countries that have introduced similar reforms?

The World Bank did not directly recommend the tendering of the Strategic Areas. Tendering is a worldwide tendency and a licensing process that many countries are opting for, usually when a greater knowledge of a mineral potential of an area exists. The main objective is the competitive allocation of the mineral resources in these areas. It sets higher requirements and standards to limit license applications to more technically and financially qualified investors. In Colombia’s case, the proposal to tender these areas was also driven by the mining cadastre’s malfunction during recent years. The Bank recently approved a grant of $500,000 to help both the ANM and the SGC develop an in-country, transparent, non-discretionary methodology that sets high technical, environmental, and social standards for the tendering and development of these Strategic Areas.

In what other ways can Colombia improve the institutional capacity, transparency, and monitoring of its mining sector?

One point I have not yet mentioned is that we’re helping the government assess the possibility of Colombia becoming an Extractive Industries Transparency Initiative (EITI) candidate country. The Bank commissioned an EITI Scoping Study that aims to assist Colombian stakeholders in making an informed decision about the benefits and costs of implementing the Initiative. We also aim to stimulate the cooperation between the Ministry of Mines and Energy with other ministries, specifically the Ministries of Environment and Interior. This cooperation should involve harmonizing their computer systems and database to facilitate online data exchange.

leader insight Daniel Linsker Vice President, Global Client Services for Latin America Control Risks

Daniel Linsker is Vice President for Control Risks’ Global Client Services in South America, where he is responsible for the development, management, and delivery of projects for Control Risks’ clients, helping them understand and manage political, social, security, and integrity risks. Linsker has also worked as a Strategic Director and Policy Coordinator of a presidential campaign in Colombia, and has taught Latin American politics at the London School of Economics.

the risk remains Nonetheless, the main security challenge for mining companies will continue to come from the complexities of the local environment around mine sites, and the interplay between different actors­ —both formal and informal, legal and illegal. Possibly The peace talks are in fact likely to lead to a small deterioration in security conditions over the next 12 to 18 months, as both the FARC and the government seek to the two biggest challenges on that front will strengthen their negotiation positions by dealing each other large military blows. come from illegal and artisanal miners, and The government has actually already begun refocusing some of the military forces from communities and local companies on strategic FARC targets, drawing them away from protecting areas of economic being infiltrated or set up by organized concern and thus away from directly helping and supporting mining companies in crime or illegal armed groups, which pose some of the most complex areas of the country. And while the FARC remains much some serious security, legal, and reputational keener on attacking energy infrastructure risks. Our recent experience helping clients and targeting the oil and gas industry, in Colombia suggests that illegal mining Some companies that have the vulnerability and exposure of concerns have become very sophisticated in sought to incorporate or buy some of the small- and mediumtheir opposition to formal mining activities, directly from artisanal miners sized mining operations will certainly using a combination of legal means, tacit prove an attractive target for extortion, coercion of communities, and even stirring are seeing their efforts sabotaged kidnapping, and the theft of explosives. local unrest to prevent projects from being by groups that threaten—and developed properly. All the while efforts kill—miners that collaborate Success in the peace negotiations will also to incorporate or creatively seek to engage with the company with artisanal miners are being undermined probably not lead to a significant improvement by violence. Some companies that have in the security situation in some of the sought to incorporate or buy directly from artisanal miners are seeing their efforts most prolific mining areas. We expect—as sabotaged by groups that threaten—and kill—miners that collaborate with the company, happened previously with the demobilization or alternatively charging miners vacunas after they have been paid. of the paramilitaries—that those guerilla fighters directly involved in criminal activities These risks and threats can certainly be managed and mitigated, but to do so effectively such as illegal mining and extortion will requires that companies thoroughly understand the local environment in which they are continue to engage in these under a different seeking to operate, and develop appropriate risk-mitigation strategies. This understanding guise, and will therefore continue to represent has to go beyond traditional stakeholder maps and general security assessments, and a potential security threat. We believe this must certainly take into account the limited ability of the state to help and support mining threat will be augmented as the government companies, both in terms of the central government’s local political and legal power and the more aggressively begins to move away, as is capabilities of the state security forces to provide security and enforce legally acquired rights. already happening, from signing convenios To be successful, companies will need to be creative in their solutions, coordinate effectively (formal agreements between companies and between security and community-relations functions and add depth to the understanding of the Ministry of Defense), which will shift what is—and will continue to be—a very complex and changeable situation. more of the security burden to companies.

For all the optimism generated by the establishment of formal peace negotiations between the government and the FARC, and regardless of the eventual outcome of the process, it is clear that security will continue to represent a significant risk and management challenge for mining operations in Colombia.

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company focus

Colombian-Canadian Chamber of Commerce Promotion of bilateral trade HQ: Bogotá 158 members

Colombian-Canadian chamber of commerce Canadian investment in Colombia reached $1.37 billion in 2011—a figure that looks set to increase further in 2012. Olga Fernández, Director of the ColombianCanadian Chamber of Commerce, cites Colombia’s growing network of trade agreements, mineral and petroleum potential, judicial stability, talented workforce, and investor security as factors behind the mounting Canadian interest in the country. The Chamber, founded in 1997, now counts 158 members across a variety of industries, including construction, oil and gas, and mining.

The Chamber promotes the development of bilateral economic and social relationships through commercial missions, international fairs and conferences, advocacy of responsible business practices and strengthening ties between industry and government, and producing reports. Sixty percent of the Chamber’s members come from the hydrocarbons and mining sectors and related industries and include companies such as Continental Gold, Galway Resources, Gran Colombia Gold, Sunward Resources, Antioquia Gold, Eco Oro, CB Gold, Pacific Coal, Barrick Gold, Quia Resources, among others. Among services companies, Kluane Drilling and Dessau are quite active in the Chamber.

The CCCC requires that potential affiliates meet certain financial and social requirements. “Being Canadian is not a prerequisite to membership,” Fernández

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Sixty percent of our members work in the extractive industries. Canada and Colombia have a long trading relationship—the Chamber exists to facilitate and develop this alliance.

Olga Fernández Director Colombian-Canadian Chamber of Commerce

explains. “We have members from a huge variety of countries. We look for affiliates who are interested in doing business with Canadian companies operating here.”

The Canada-Colombia Free Trade Agreement, which came into force in August 2011, consolidated the relationship between the two countries and liberalized bilateral trade regulations.

Fernández emphasizes that Canadian companies have much to offer the country, particularly their extensive

expertise in areas of public-private partnerships, sustainability practices, and production know-how. The Chamber promotes the adoption of Canadian working practices, in particular in the mining sector, where Colombia can look towards its partner country for guidance on developing sectoral regulations.

Over the next five years, the chamber plans to expand and develop its role. Its agenda will largely focus on lobbying for best practices in CSR in the extractive industries, implementing the FTA, and encouraging more Colombian exports to Canada and the expansion of Canadian infrastructure and construction firms in Colombia. Fernández sees growth potential for Canadian companies in a variety of other industries including agriculture, manufacturing, aeronautics, machinery, chemicals, and plastics; and for Colombian companies in agrifood, flowers, the animation industry, and in general, products with value-added.

q&a

a changing

Chamber

César Díaz President Colombian Chamber of Mines

In the course of one year, the Colombian mining sector has seen significant changes that have impacted the Colombian Chamber of Mines. The Chamber has opened new offices throughout the country in order to strengthen its regional presence. Chamber President César Díaz believes that his organization’s efforts to influence Colombia’s institutions and attitudes towards mining will help boost growth in the industry.

How has the Chamber grown over the past year? How many new members do you have?

We’ve grown not only in terms of membership, but also in our geographical coverage, spreading into regions outside Bogotá.

We now have a presence in the departments of Santander, Antioquia, and Tolima. Our presence in these regions matters because the debate over mining also elicits extensive regional participation. Thus we need to try to locate ourselves as close as possible to our members in the field. The regional presence also provides us with proximity that helps us mediate the dialogue between the formal mining sector and the local governments and local mining associations.

The Chamber has a program called Juventud Minera. What does it aim to accomplish?

Juventud Minera aims to demonstrate and promote the social, economic, and environmental benefits of mining to the younger generation of Colombians. From our perspective, younger Colombians lack knowledge of the mining industry, and may obtain incorrect information. We want to provide transparent and accurate information on the industry so that young people can make the right choices that will offer the greatest benefits to their communities. We are looking for partners in conjunction with the related government program Colombia Joven, and we hope our efforts will create a group of young Colombians that take care of the country’s natural resources.

What caused the fall in investor confidence in Colombia in 2012?

Colombia has not lost the confidence of foreign investors.

What has happened, both here and in other countries, is that difficulties have arisen in the punctual licensing of projects. The lack of a solid institutional environment has also contributed to this situation. Nevertheless, the country offers a legal and democratic solidity that guarantees the security of investments.

It can’t be denied that uncertainty does exist surrounding the mining code reform and the changes in the royalties regime. The case of Cerro Matoso has also caused concern, because it showed

the malleability of contracts in the country. These factors can affect foreign investor sentiment. Nonetheless, the country’s new mining initiatives, including the creation of a national mining agency, the ANM, may lure more investment in the future.

How will the Ministry of Mines proposed auction system for concessions reshape mining in Colombia?

We believe that local and foreign investors require more information in order to understand the new auction system.

The current first-to-file model did not necessarily fail; in fact, it succeeded and brought many international companies to Colombia. However, the old system did grant large parcels of land when there was no intention of developing them, essentially failing to produce any social or economic benefit. Nonetheless, the details of the new auction system remain unclear. Today there is no clarity about the timelines. Furthermore, the social and environmental restrictions within the auctions system have not yet been defined. In the old model companies had to assume the risk of environmental and social restrictions on each property. The auction system has worked well for the oil and gas industry; however, its effectiveness in the mining sector remains unproven.

How can the royalties system be organized to avoid corruption?

Royalties, like any other public good, need to be responsibly overseen. Problems have arisen because of the lack of control in the spending of royalties. Regional governments receive a lump sum to carry out projects, but there is no set method to evaluate the project’s success. The state needs to better account for royalties in order to eliminate such opportunities for corruption.

It is estimated that in Colombia a large percentage of mining operations pay no royalties; thus the state must also ensure that audits take place in the field. To safeguard the complete fiscal accountability of the royalties, physical site visits are necessary.

Royalties should become another column of mine inspections alongside environmental and social inspections.

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q&a

Perils of

José Antonio Ocampo Professor Columbia University

the Boom

José Antonio Ocampo is one of Colombia’s most respected public intellectuals. He has previously headed the Colombian Ministries of Finance and Agriculture and has held numerous positions in the United Nations and other international organizations. He now teaches at Columbia University in New York and was one of the three nominees for the presidency of the World Bank in 2012.

Several commentators have speculated that the 2010s could be a Latin American decade, with strong growth across the region. Do you subscribe to this view?

It’s not something that I see. Certain countries are going very well— Peru, for example, is doing great—but others are not performing so strongly. Colombia will grow approximately 4.5% in 2012, a hardly exceptional growth rate considering in previous years it had grown at closer to 6%. Average growth in Latin America has hovered around 3.5% over the last few decades. Despite the split between the left- and right-wing governments in South America, there have also been some common trends, most importantly including the raw materials boom that many countries are experiencing.

You were head of Fedesarrollo, the leading think tank in Colombia, during the 1980s. How have the challenges facing the country evolved since then?

During the 1980s the big issue was containing the Latin American debt crisis and reforming the Colombian government. Today it’s a very different environment—the biggest challenge is dealing with the economic effects of the mining and hydrocarbons boom. In my view, we are experiencing the Dutch disease, with mining, construction, and the financial services growing but the manufacturing sector contracting. This is very worrying for a diversified economy. Between 2003 and 2007 Colombian growth was fairly balanced as all sectors of the economy were contributing their part, but over the last four years the economy has become very reliant on the sectors noted above.

There is also the issue of taxing national resources. Colombia manages its coffee booms by saving a significant part of revenues to use at a later date; we’re also good at taxing oil and capturing most of the oil revenue for the state. But the same cannot be said of the mining sector. We have royalties, of course; but we don’t capture enough mining revenue and we’re losing valuable revenues.

How can Colombia combat Dutch disease?

The major problem is the overvalued exchange rate. Every time we have had a competitive exchange rate we have exported

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manufactured goods and agricultural goods. The tax reform being debated by Congress is, in my view, a good idea; it will lower the tax burden on labor-intensive industries and attempt to shift taxation away from revenues and onto profits, though how much benefit that will bring in the long term is still in question surrounded by skepticism.

Some of Colombia’s ministers have claimed that its economy is bulletproof against external shocks. How exposed is Colombia to the European crisis and the slowdowns in China and the United States?

We are certainly in a stronger position compared to the late 1990s.

During the 1980s we were very good at managing countercyclical policy—but that was in a closed economy. Like many emerging global economies, when the economy opened in the early 1990s we had difficulty adjusting in order to reduce the cyclicality of our macroeconomic policies. But since then we have improved enormously at implementing these countercyclical measures. The main driver of the present strong Colombian economy is high commodity prices because macroeconomic policies have always been good historically, neither too free-market orientated nor too interventionist, but somewhere in between.

Since Santos has become President, he has developed several free trade agreements and partnerships with countries across the world. What advantages and disadvantages do such agreements bring?

I think there is a myth that by maximizing the FTAs, it will generate growth. History shows this not to be true. Look at Mexico, for example— since the 1990s it has been one of the worst performing Latin American countries along with Paraguay. FTAs alone do not guarantee success. They can offer opportunities for certain sectors like exports but again you need to have a competitive exchange rate and an industrial policy, which Colombia currently doesn’t have. I don’t see the benefit of signing FTAs with Turkey and Korea—in fact we could even lose money. We should really focus more on creating a competitive exchange rate and developing a sound industrial policy.

José Antonio Ocampo

Colombia has applied to become a member of the OECD and You’re known as unorthodox in some of your economic it has a temporary seat on the UN Security Council. Do these policies. What do you see as the role of FDI in Colombia today? things have genuine value for the country?

I have always been in favor of FDI. However, Latin America should concentrate on I think there are specific benefits that should boosting regional diplomacy rather than on have been eliminated. For example, there Our recent foreign policy these international bodies. I do not see the used to be a tax on the remittance of profits, has been very poor and our which I think should have remained. I do not advantage of being a member of OECD. For reaction to the decision of Latin American countries it’s just to be able to see the removal of this tax as crucial to foreign the International Court categorize themselves differently. In joining the investors. In practice many US firms have to of justice with Nicaragua UN Security Council, I think Colombia lost pay tax on worldwide profits. So in effect what we are doing is subsidizing the US government: significant autonomy. For example, Colombia is evidence of this. the less tax paid in Colombia, the more paid to has historically always been in favor of a the US government.

Palestinian state—but as part of UN Security Council, Colombia abstained from the vote on the issue. That is part of the cost of being a Security Council What key economic indicators will you be paying particular member not willing to confront the United States. Our recent attention to in 2013? foreign policy has been very poor and our reaction to the decision Exchange rates and commodity prices are the two to watch. The of the International Court of justice with Nicaragua is evidence of other indicators, such as interest rates and inflation, are doing this. The idea of relying on the ICJ to manage international disputes fine; our public finances and public and external debt are all in in Latin America was a Colombian idea, signed into being through good condition. I expect Colombia will grow moderately at the Bogotá Pact. Colombia has now thrown that away. around 4–5% in 2013.

closing the gulf

Juan Manuel Santos is not one to let poor health stand in the way of his attempts to diversify Colombia’s international diplomatic and trade ties. Shortly after announcing he was receiving treatment for prostate cancer, the president was on a plane to Lima for the third Summit of South AmericanArab Countries (ASPA). Set up in 2005 by former Brazilian president Lula da Silva, the bi-regional forum has the potential to link cash-rich Arab investors with capitalintensive raw materials and infrastructure projects in one of the world’s fastest growing regions. Since the first meeting in Brasilia in 2005, annual trade between to the Gulf Cooperation Council (GCC) and South America has jumped from $11 billion to over $30 billion.

The huge revenues from hydrocarbons projects in the GCC have led to the creation of several major sovereign wealth funds in the region and the growth of a powerful investor class looking to invest in high-return projects in emerging markets. By 2009 emerging markets accounted for 45% of GCC trade, up from just 15% in the early 1980s. Traditionally Arab investors have focused on those emerging regions closer to home—Asia and Africa—and

ANALYSIS most trade and investment with Latin America has been focused on Brazilian agriculture projects—unsurprisingly, given that the GCC imports 80% of its food requirements.

However, with recent experience building major infrastructure and energy projects of its own, the GCC is increasingly looking to deploy its expertise in South America. In 2011 Qatar signed deals with Argentina and the Dominican Republic to supply liquefied natural gas (LNG) to each country and to support the construction of a regasification terminal in Argentina. Officials from the Abu Dhabi Investment Authority, a sovereign wealth fund with over $600 billion under management, have stated that they intend to increase their exposure to South American stocks. In March 2012 Mubadala, another Abu Dhabi state– owned investment fund, announced it was taking a $2 billion stake in EBX, the Brazilian energy and minerals conglomerate headed by Eike Batista. And it is Batista that is helping lead Colombia nearer the Gulf. Having purchased Ventana Gold in 2011 for $1.5 billion in early 2011, Batista’s Colombian gold company AUX announced in June 2012 that it was preparing to sell 49% of shares to Qatar Holding, the Qatari sovereign wealth fund, for $2 billion. As well as signifying a tidy profit for the Brazilian billionaire, the deal could also see Colombia fall into the crosshairs of more return-hungry Arab investors.

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event profile

IX Colombia Minera Fair Medellín September 2013 Floor space: 18,000m2

IX Colombia Minera International interest in the Colombian mining sector can be gauged by the rapid growth of the country’s premier mining show, Colombia Minera. Entering its ninth year in 2012, the event, held in the Medellín Plaza Mayor Convention Center, has gone from strength to strength, attracting 18,000 visitors in 2012. It ranks as the third largest mining event in Latin America, behind only Chile’s Expomin and PeruMin in Peru—a remarkable feat given that the mining industry in the country is still less developed than in either of these two countries.

“We are working hard to consolidate and grow the event in a region that has a number of major mining conferences,” says Eduardo Chaparro, President of Asomineros, “when you consider the size of the mining market in Colombia, we produced a gigantic event.”

Organized by Asomineros, the mining wing of ANDI, Colombia’s most established business association, the event focuses across the spectrum of the mining industry, from gold explorers and coal miners to service firms and financial institutions. The 2012 event had a total exhibition area of 14,000 square meters and, according to Chaparro, $530 million of deals were signed in the business area over the three days, not to count

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The main objective of the fair is to show the country that a successful and sustainable formal mining industry is possible in Colombia.

Eduardo Chaparro Director Asomineros

the individual contracts negotiated at each of the exhibition booths.

“The main objective of the fair is to show the country that a successful and sustainable formal mining industry is possible in Colombia,” says Chaparro. “We aim to bring together the general public with the opinion makers in the sector, be they industry professionals, politicians, journalists, or representatives from groups that oppose mining in

$530

million

the country. We need to show the modern mining methods that are being developed in the country and the professional firms behind them and generate a high level of technical and academic discussion.” In 2012 the focus of the event was on the ethics of mining in Colombia and how the industry can best resolve conflicts with local communities and environmental groups.

Following the fall in coal prices in 2012 and a potential drop in gold prices in 2013, the 2013 Feria Minera will focus on the economics of Colombian mining projects as its principle theme. Two guest countries, Peru and Australia, will be invited to play a special role in the event with an aim to attracting more delegates, firms, and investors from each country. The event is expected to grow, moving to a new pavilion with 18,000 square meters of floor space.

Estimated value of deals made at Colombia Minera 2012

Destinations 2012-13

June 19 – 21, 20 China W 12 orld Su Beijing, mmit Wing, China

London • Hong Kong • Beijing • Australia

Decembe r 2 – 5, 20 12 The Busine ss Design London Centre,

2013 – 22, ntion h 18 Marc ng Conve tre, n o e K C Hong xhibition ng & E ong Ko H

Brought to you by the events team at

ralia 12 Aust , 20

Bringing together some of the most influential decision-makers within mining companies and the investment community, the hugely successful Mines and Money shows provide a platform where the best of mining and exploration can be showcased to investors from around the world.

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Recognised as the best international forum for networking in London, Hong Kong, Beijing, and Sydney, the events are fixtures in the diaries of industry leaders.

Whether you are a mining or exploration company seeking investors, or an investor seeking the next hot mining growth opportunity, Mines and Money has something for you.

Brought to you by the events team at

To book your sponsorship or exhibition booth for 2012/2013, please contact Pablo Martin • By phone on: +44 (0)7957 164107 / +44 (0)20 7216 6063 • By e-mail at: pablo.martin@aspermontuk.com

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01/06/2012 11:13

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lead article

bounty of the caribbean

F

ifty-eight million years ago, after the extinction of the dinosaurs, the northern coast of Colombia was an immense swampy jungle. The hot and rainy clime fostered the growth of extreme vegetation and monstrous creatures including the 40-foot Titanoboa snake. The gigantic leaves fell and were trapped in the mud, then decomposed and simmered for millions of years to become the massive coal beds that are found in the north of Colombia. Today Cerrejón is the world’s largest open-pit coalmine, and workers unearth fossils among the rich thermal coal daily.

PHOTO: CCX

The vast thermal coal deposits on the Atlantic coast matched with the metallurgical coal deposits in the country’s interior make Colombia the largest exporter of coal in South America, and fourth in the world. By June of 2012, production was up about 14% to 46.72Mt over the same period in the preceding year. Yet not all is rosy in the Colombian coal sector; Vice Minister of Mines and Energy Henry Medina admitted in mid-October that Colombia would not reach its goal of 97Mt of coal production, and revised the forecast lower to 93Mt, an increase over the 85.8Mt produced in 2011. The culprits for the lower production include labor disputes, the collapse in the international coal price, and violence directed at the larger coal mines.

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lead article

+++++ Carboandes’s Rondón coal project has raised popular hopes ++++++++ that it may become "Boyacá’s own Cerrejón"

Workers’ demands for higher wages and better working conditions sparked a series of strikes in the coal sector during the year.

In July, workers at Fenoco—Colombia’s largest coal railway, which transports 50Mt annually—hit the picket line. Though the dispute ended after 25 days, another strike at Prodeco’s La Jagua mine ended in late October after 60 days. The strikes forced many producers to declare force majeure, and the Fenoco strike alone prevented 50% of the country’s exports from leaving during the three-week period and cost the Colombian government $1.2 million in royalties every day. At the same time, a series of attacks against the country’s mining and petroleum infrastructure delayed and reduced production further.

Cerrejón was the most affected by violence, and was the target of six separate instances of violence. Bombs were detonated at the mine’s infrastructure, primarily the railroad and heavy machinery, preventing the shipment of coal. Despite the ceasefire announced at the begninning of peace talks between the government and the FARC, the strong repudiation of international mining and oil firms by Iván Márquez suggests that they will continue to be prime targets should the peace process break down.

The sector has nevertheless become an indespensible contibutor to state coffers , contributing in excess of $400 million in royalties every year.

Colombia has both a strategic location and high-quality thermal and metal­ lurgical

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coal reserves, making it a very competitive exporter. Domestic consumption in 2011 was low at 6.6Mt, reflecting the prevalence of hydroelectric power generation.

Because of this, Colombia can focus on its export markets. With sulfur content below 1% and a calorific value over 10,000 Btu, Colombian coal is sought in Western markets with tight emissions regulations.

In 2011 exports rose 11.6% to 79.2Mt; half of this is exported to Europe, and 20% to the United States. Asia remains a less popular export destination; in 2010 China and the rest of Asia accounted for only 13% of exports, a figure explained by the

$438M annual Royalties contribution of colombian coal mines high transportation costs resulting from limited infrastructure to access the Pacific.

The expansion of the Buenaventura port on the Pacific coast and the expansion of the Panama Canal will lead to more exports heading to Asia, where coal sells at a premium over European and American markets. Nevertheless, in September 2012 Chinese imports of Colombian coal fell to 165,000 metric tons from a high of 860,843 tons in July 2012, largely as a result of the cheaper coal available from Indonesia and Australia, China’s two largest suppliers.

There is a stark contrast in the devel­ opment of the Colombian coal market between the Atlantic coast and the interior. The mines in central departments like Antioquia and Boyacá produce metallurgical coal and are small artisanal operations, while those on the Atlantic coast are large-scale thermal mines serving the North American and European markets. Despite the fact that metallurgical operations produce far lower volumes than thermal operations, the mines in the interior of the country lack modern technologies. The divergence in volume is extreme; the Atlantic coast, consisting of the Cesar, La Guajira, and Córdoba departments, produced 77.4Mt in 2011, compared to 8.4Mt from the rest of the country. Though the scale of thermal versus metallurgical coal operations is partly responsible for the immense difference in volume, the high efficiency of modern mines run by multinationals explains most of the difference.

BHP Billiton, Xstrata, and Anglo American share equally in the operation of Cerrejón, the world’s largest openpit coal mine. The integrated operation also includes a railroad and a port; 2011 production totaled 28Mt. Drummond, the American-Japanese operation, is the second-largest producer of coal in Colombia; production at its two thermal coal mines in Cesar came to just over 23Mt in 2011. The country’s thirdlargest producer, Prodeco, a subsidiary of Glencore, also operates mines in Cesar, with production at 7.4Mt in 2011. Though coal is the most mature of Colombia’s mineral sectors, it has much more room to grow. Alfonso Saade, executive director of Fenalcarbon, the national federation of coal producers, said that the departments of La Guajira and Cesar will be producing 200Mt per year by 2030.

lead article

thousands of tons

contribution by department to national coal production 2007–11

Source: SIMCO, INGEOMINAS 2007 - 2010 y Servicio Geológico Colombiano 2011

Infrastructure forms the cornerstone of the coal miners’ expansion plans. Drummond has $1.6 billion in investments planned for the next two years to build two ports and 120 kilometers of new railroad after the government requested they close their port in Santa Marta by 2013 due to its designation as a tourist area. However, the firm decided in 2012 to put on hold its P500 expansion project, which called for the diversion of the river Ranchera. Nearby, Prodeco has begun the construction of its $600 million Puerto Nuevo in Ciénaga at Magdalena, which will be constructed in three phases resulting in a final capacity of 60Mt. Cerrejón also has similar plans to increase its capacity; its former CEO Leon Teicher stated that it would spend 60% of a $1.3 billion expansion budget on building a second dock and another loader, as well as more rail and new machinery in order to “break the bottleneck.”

The goal is to increase production at Cerrejón to 40Mt by 2015. Nonetheless, the expansions will only pay off if the market sustains demand for Colombian coal.

El Hatillo mine, the Cerro Largo deposit, and the Río Córdoba port in the north of the country for $407 million.

Juniors such as New Age Exploration are looking at coal properties while larger companies like Carboandes are making significant investments in expanding existing mines. Measured reserves total 6.5Bt, but many believe that this number will grow as exploration is carried out in the coal-rich regions. A 2004 Ingeominas study pegged Colombia’s potential reserves at 16.5Bt. Some of the best-quality coal is found in the interior of Colombia, which has been priced out of the market because of the fall in prices and the cost of transportation to the Atlantic coast. Trucking the coal is now the only option for producers in the interior. To overcome the bottleneck, a series of projects are being introduced, including a railroad to transport coal from Boyacá to the Magdalena river where a “river highway” will move the coal to Barranquilla. Public-private partnerships will allow the Magdalena to slowly regain its navigability over the next decade, and strengthen the economy overall. In 2014 the country’s goal is to increase production to 120Mt per year; achieving this is beyond the scope of miners alone, who have already demonstrated the will and desire to increase production. Reaching this goal will depend on the strength of coal markets and of the government’s commitment to create the infrastructure needed to foster expansion in a coal sector brimming with potential for growth.

The spectacular increase in the use of shale gas for electricity production in the US, has led to a precipitous decline in coal imports in Colombia’s tradtional market. As a result coal prices nearly halved in 2012. Asian markets continue to inspire long term confidence, however, and despite the extra cost involved from shipping coal to the region from the western hemisphere compared to Indonesia or Australia, foreign investors are placing long-term bets on the Colombian coal sector. The large transaction of 2011 was Itochu of Japan’s purchase of 20% of Drummond’s Colombian operations. In 2012 Goldman Sachs’ business unit Colombian Natural Resources purchased Vale’s Mining Leaders

31

feature interview

partners with nature

After launching an international career with the Brazilian giant Vale, MIT-trained economist Leonardo Moretzsohn found himself lured back to Brazil by the monster corporation EBX in 2007. Today the peripatetic Moretzsohn has shifted base once again to the coal market of Colombia as CEO of CCX, EBX’s coal mining subsidiary based in the burgeoning coal region of La Guajira in the north of the country.

Large-scale mining projects are famously capital intensive. A typical development project from one of the majors involves a capex of $400,000 per year for every direct employee in the company. For EBX, the Brazilian conglomerate owned

by Eike Batista, a typical project could reach $2.5 million per year per worker.

But for CCX, EBX’s Colombian coal subsidiary, this figure currently stands at $4 million. In 2008 the company began exploring for coal in Colombia, looking for a project with potential to produce up to 5Mt of coal per year for MPX’s thermal power plants in Brazil. Four years and $300 million in investment later, the firm is developing one of the country’s most

32

important integrated coal projects in La Guajira, with an initial capex of $4 billion and anticipated production of 35Mt per year.

For CCX CEO Leonardo Moretzsohn, the opportunity to lead such a project was unmissable. During his 24 years with Vale, he was involved in some of the biggest projects in the Brazilian firm’s portfolio, including the Moatize coal project in Mozambique and the $18 billion acquisition of Canadian nickel producer Inco, the largest-ever buyout by a South American firm. In 2007, he transferred to EBX, serving for a time as the company’s CFO before the

opportunity to head CCX came his way.

“Having worked in mining for 30 years, the offer to develop a greenfield project in a country like Colombia was one of life’s unique opportunities,” says Moretzsohn.

CCX is just one item in EBX’s growing Colombia portfolio. In April 2011 AUX, the group’s gold mining firm, paid $1.35 billion for Ventana Gold, the Canadian owner of a major gold project in Santander. OGX, Brazil’s largest private hydrocarbons exploration company, also picked up five oil blocks in the country. “Today there are two countries in South America, besides Brazil, that Eike is willing to invest in—Chile and

leonardo Moretzsohn

$6bn

combined 5-year Colombian investment of the three EBX companies

Colombia,” says Moretzsohn. “Both countries have strong democracies and institutions and an excellent endowment of natural resources.” The combined Colombian investments of the three EBX companies are expected to surpass $6 billion in the next five years.

CCX will account for the lion’s share of these funds. The company plans to develop a major underground mine, San Juan, producing 30Mt per year; and two smaller open-pit mines with a combined production of 5Mt per year. The current certified resource is 5.6Bt of high-quality pulverized coal, enough for a mine life of 30 years. This resource has been achieved from just 10,000 hectares of the 67,000-hectare land package. “We like to say that Eike has a partnership with mother nature,” says Moretzsohn. “CCX has all the hallmarks of an EBX project— it’s a capital-intensive integrated project with the potential to transform the region and to generate great wealth, not just for the company and its shareholders but also for the surrounding communities.”

Gaining the social and environmental license to operate has been a key goal of the project from the early stages. CCX has already developed a strategic partnership with SENA, the National Apprenticeship Service, to train locals in how to operate the machinery needed for the project. “I don’t think bringing new underground mining techniques to Colombia will be a significant challenge. The country has a skilled labor force and there is a long tradition of mining on the coast.” The firm is also working in partnership with the NGO Conservation International to develop a 15-year environmental protection plan and to provide employment to Guajiros. Already the land around key water reserves has been bought up by the company and declared a reserve. There are plans to earn carbon credits from forest protection in the region

CCX is working in partnership with Conservation International to develop a 15-year plan to protect the environment and provide employment to Guajiros

and to establish an observatory as well as species identification programs that will employ locals. The fact that the majority of coal comes from underground mining rather than open-pit means that the environmental impact will be smaller. “We believe it is possible to develop a mining project in a sustainable way, providing jobs and wealth to the community,” says Moretzsohn. “It’s part of our DNA.” The company has nevertheless hit a few snags. After an IPO in May 2012, CCX’s stock tumbled, along with those of many resource firms. To Moretzsohn, this blip is unrelated to the fundamentals of the project. “We are facing now, in Europe, the second wave of the 2008 financial crisis. Many major companies have lost value due to increased risk aversion. We have to deal with short-term uncertainty, but we have the finances to develop our project to the next stage. Our longterm investors remain partners in the project and see the bigger perspective.”

Although most Colombian coal currently ends up in Europe and North America, Moretzsohn thinks CCX will also be competitive in Asian markets. First, the high-quality coal means there is no need for a washing or beneficiation plant, meaning the FOB of the product is low.

The expansion of the Panama Canal to accommodate Baby Cape vessels with a capacity of 130,000 tons will also make freight costs competitive with Australian and South African coal heading to Asia.

Finally, the fact that the mine produces pulverized coal, which can be used to substitute a portion of met coal in the steelmaking process, makes it a commodity much in demand in the east. “The market is bullish on the fundamentals of the coal opportunities in India and China. The former currently imports 100Mt per year and this is expected to triple by 2020. We also see a huge upside in selling pulverized coal to the steel mills of Asia.” If CCX can capture the Asian market, it will mark the firm as the rising power in the global coal industry.

Mining Leaders

33

company focus

Carbocoque (1982) HQ: Bogotá Coal & coke

carbocoque

Despite the current slump in global coal and coke demand, Carbocoque’s 40 years of experience, extensive infrastructure, and loyal customer base make it well positioned to repeat past successes.

The company has become Colombia’s leading supplier of metallurgical coke, exporting to countries including Brazil, Peru, the United States, Germany, the United Kingdom, Canada, South Africa, India, Mexico, and Japan, among others.

As Juan Manuel Sánchez, the company’s general manager, explains: “Eighty percent of our production goes toward fulfilling long-term contracts in Europe.

We are also diversifying our market base with potential customers in Asia and India. We at Carbocoque focus on building long-term relationships.”

In 2011, the company produced 380,000 tons of metallurgical coke. It produces its met coke in non-recovery oven systems across five industrial centers in Colombia’s central department of Cundinamarca, home to the country’s capital, Bogotá. The first of these centers, in the town of Lenguazaque, is comprised of five batteries with 197 ovens, which translates to production of 18,000 tons per month. The second lies just eight kilometers away in Guachetá and holds three batteries and 83 ovens that produce 4,000 tons per month. The final three facilities process 10,000 tons per month across 170 ovens. The operation in the industrial centers is fully automatic.

34

In January 2012, we upgraded our washing plant to give it an installed capacity of 600tkm per year. It’s one of the most technologically advanced plants in the country.

Juan Manuel Sánchez Director Carbocoque

The town of Guachetá, home to Carbocoque’s second industrial facility, also boasts the company’s

newest mine. Sánchez explains that, following the construction of tunnels, the company will open two more mines in early 2015. In total Carbocoque operates 19 mines and extracts low-, mid-, and high-volatile coal. The company completes 25,000 lab analyses per month at every stage, from extraction to final delivery at the Barranquilla port, to ensure that typically the company’s met coke has a moisture level of 6%, ash of 11.5%, volatile matter of 1.5%, sulfur of less than 0.7%, and micum 40 at a minimum of 82%.

As well as diversifying its markets and increasing its coal production from 25,000 to 60,000 tons per month, Carbocoque is focused on honing its current status as a green, safe company. With over 1,500 employees, Sánchez maintains the importance of consistency in safety.

q&a

Inter-American

dialogue

Andrés Ruiz President Inter-American Coal

Inter-American Coal provides coke, metallurgical coal, and thermal coal to clients in six continents.

Traditionally a trading company, Inter-American is building its Fenix coal mine in Norte de Santander.

Besides the new mine, Inter-American Coal is upgrading its extensive port facilities in the country to facilitate exports of high-quality coal to its clients around the world.

Inter-American Coal’s Fenix coal mine will be mechanized by next year. Why are you mechanizing it and how do you plan to accomplish it?

The most important value in mining is safety, the second is the rational exploitation of the resource, and the third is economic compensation to development. All of this must occur within a socially responsible framework. Mechanizing the mine will accomplish all these goals. This kind of technology requires fewer people than traditional mining, but we will increase the hours of operation to boost output and to ensure sufficient employment for the local miners. We will start with 50,000 tons per year of thermal coal and hope to eventually achieve 500,000 tons per year. We are primarily a trading company; we now export coal through Venezuela and coke through Cartagena and Buenaventura, but we plan to start exporting coal and coke down the Magdalena by building a port on the river. Having our own coal production next year will nicely complement our existing businesses.

Is the Magdalena port plan based on the assumption that the government is going to dredge the Magdalena?

We are investing $30 million to be able to export coal from that port by the first quarter of 2013. The port will be multipurpose—we have an agreement with another company that will bring grains into it. The government has promised many improvements on the Magdalena river, and for the most part, the authorities in charge of it have been very cooperative in the development of the port, which used to be owned by Coal Corp.

What difference will the expansion of the Panama Canal make to the coal industry in Colombia?

Large miners like Drummond or Cerrejón are taking coal to Europe because they can use Capesize ships that can load 150,000 tons. The Panama Canal is limited to Panamax ships of about 70,000 tons. The Panama Canal expansion is not going to allow Capesizes, but only mid-sizes with a capacity of

about 100,000 tons—meaning it will make Atlantic coal more attractive to the Asian market.

How would a railroad running from the Atlantic to the Pacific change the situation?

The obvious way of doing it would be to take the coal from Cundinamarca and Boyacá to the Pacific by rail. To be honest with you, ever since I was a young professional more than 30 years ago, we have been talking about building one. There are limitations to developing the mining industry. If the miners decide to come together and build a railroad, then it could happen. The government could not do it because they don’t have the resources. Thus the Panama Canal will be an advantage for the large miners, because they’ll be in a position to export coal to Asia. We do ship coke to Japan from Cartagena, but on a small basis of 30,000 tons per shipment, because the port has a small draft like Buenaventura.

Coal prices are expected to perform well in the short run.

But what is your long-term forecast?

What is happening is that gas prices in the United States have plummeted, which is seriously affecting domestic US coal consumption. Some mines will shut down. The United States has a large coal inventory that they can re-export: now they are competing with us for Central America for the simple reason that our infrastructure is poor and not competitive.

On the other hand, it is also true that coal coming from Australia and Asia cannot compete with Colombian coal either because of their freight costs to our biggest clients: Brazil, Peru, and Chile. Our company has an important competitive advantage—the port in Maracaibo. We are also can also transport coal from Maracaibo to Puerto Ordaz in Venezuela where the Venezuelan steel industry is located; no one else is able to do this. Climate patterns suggest that very hot summers mean very cold winters, so all signs point to a cold winter and a rise in the price of coal, which will benefit Colombian coal producers.

Mining Leaders

35

lead issue

roads to growth

comParátive tax rates (2010)

Guillermo Zumarán General Manager Austin Engineering

Though Colombia’s steep hillsides and dense rainforests make for picture-perfect postcards, they hide a challenging terrain that inhibits infrastructural development. A handful of railroads exist specifically for transporting coal but their trajectory is limited to small regions in the north, leaving coal producers in Colombia’s interior with the sole option of trucking to the ports—an uneconomical route following the collapse of coal prices. Yet brighter horizons beckon; according to the National Infrastructure Agency (ANI), in the period up to 2018 Colombia’s infrastructure budget is set to total over $50 billion, a sum which should create the links needed to make the coal sector more competitive.

In November 2011, the Colombian congress authorized the creation of the ANI. A year later, in January 2012, President Santos signed a public private partnership law into effect, following an example set by other developing countries that have used PPP’s to stimulate infrastructure growth. Projects using the PPP model are now firmly on Colombia’s agenda. Unsurprisingly, one of the first such projects planned is the Cararé Railroad, a which will transport coking coal from the interior regions of Boyacá and Cundinamarca to the Atlantic coast. Another project earmarked is the dredging of the Magdalena river to create a “water highway” to transport not only coal but all goods to the port of Barranquilla.

The combination of private-sector expertise and public funds should encourage efficiency in the construction of large-scale infrastructure. However, despite the existence of the drive, the funds, and the design, corruption and community relations threaten the completion of these projects. The benefits of the Free Trade Agreements with the United States and the European Union can only be realized with a Colombia that has a functioning infrastructure, and in order for this to happen a collaborative effort needs to come about from governmental bodies and the private sector as well as from local communities.

36

I’ll build a complete truck body only to have to break it down for transport.

The largest truck that can drive on Colombian roads is the 250–ton class truck. To move the same amount of coal we use two trucks, but they need better support; we need to develop better roads that won’t hinder the mining industry’s growth.

Bernardo Vargas Founding Partner Nogal Asesorías Financieras

Infrastructure development takes time, and mistakes made at the outset are difficult and costly to correct. In my view, this government is making a clear effort to correct mistakes from the past and support the future development of infrastructure by institutional strengthening, new financial tools, and other means earmarked for that specific purpose.

Felipe de la Vega Director Trenaco

Government agencies have been affected by continuous political change.

The Transport Minister comes on board for a four-year term, but in reality is in charge for 24 months or less and is then replaced, affecting a much needed continuity for substantial infrastructure reforms. It has taken us four years to obtain the required permits to start operating our railroad.

port vessel capacity

Capesize Vessels (>80.000 DWT)

Panamax Vessels (50.000 - 80.000 DWT)

Handy/Handymax Vessels (10.000 - 50.000 DWT)

railways Atlantic Railway Concession Central Railway System Cararé Railroad Pacific Rail Network Concession

Planned infrastructure investment (US$ Bn)

Infrastructure quality by country* airport

Railways

road

Source: ANI

Source: WEF 2007

port

* WEF Infrastructure Quality Gap Index

infrastructure quality (rank 1–139)

mex

ecu

col

bra

per

arg

General

32

73

91

95

104

105

108

Roads

22

55

61

108

118

98

96

Railroads

82

68

90

99

91

92

89

Ports

37

75

91

109

130

106

94

Air

35

65

83

94

122

70

119

Mining Leaders

Source: WEF 2011

CHi

37

project roundup

mina la margarita

1 Juan Rafael Vélez CEO

Mina la Margarita RES: 40Mt 2013: Explore options to increase production

Our property totals 300 hectares and we have a yearly production of 100,000 tons of thermal coal. Our bituminous thermal coal has characteristics such as 11,200btu per pound, less than 1% sulfur, and 40% volatility. Our industry is essential to the economic development of Colombia. Given the high added value of domestic coal, we plan on exporting house coal to Europe for use in domestic heating in the future.

Cañaverales

2

CCX RES: 672Mt 2013: Further construction

Leonardo Moretzsohn CEO

We have advanced the Cañaverales project quickly since developing a resource of 144 million tons in March of 2010.

During the next year, the project was granted an environmental license for an open pit. The mine will produce 2.5Mt of thermal coal per year for a lifetime of 14 years.

La Miel

3 Gary Fietz Managing Director & CEO

38

New Age Exploration (ASX: NAE) Greenfield 2013: Drilling

The results from the first phase of drilling at the La Miel project demonstrate potential for a large thermal coal deposit. We have an exploration target between 50–200Mt. The results of the first borehole show 15 shallow dipping seams with a cumulative thickness between 11.9 meters at depths of 530–770 meters within the Los Cuervos formation. After raising $7.5 million, we will continue drilling at La Miel over the course of 2013.

santa marta

2 3

bucaramanga medellin

1 manizales

4

5

bogotá

cali

rondón

terranova New Age Exploration (ASX: NAE) RES: M&I: 1.6Mt, Inf: 2Mt coking coal 2013: Preparations for production by 2014

Terranova is producing 25,000 tons per year as a pick-and-shovel mine. However, we’re mechanizing to produce 0.5Mt per year of clean coking coal by 2014. We’ll then truck the coal to Buenaventura. So far we’ve completed more than half of the feasibility study and the scoping study. We plan to dig behind the existing operations on the front part of the concession in order to isolate the larger area.

4 Gary Fietz Managing Director & CEO

5

Carboandes RES: 200Mt thermal coal 2013: Plans to reach production by Q2 2013

Juan Carlos Quintero Chairman Despite our recent efforts to diversify

into new minerals, coal remains the focus of the company. We’ve developed a resource of 200Mt of thermal coal at our Rondón project near Socha. When construction is finished there, we will reach 500,000 tons of production per year. We have environmental licenses for both the Socha and Rondón projects.

Mining Leaders

39

leader insight Ronald G. Stovash President & CEO Colombia Energy Resources

An early-entry advantage and an experienced management team have allowed Colombia Energy Resources to target 1Mt of met coal production by 2015.

With over 45 years of experience in the coal industry, company President and CEO Ronald G. Stovash has worked with over 60 mines in the United States and Australia while playing a central role in CONSOL Energy, a leading diversified US energy producer. Aiming to bring technology and health and safety to his mines, and better living conditions to his stakeholders, Stovash is concerned by the lack of legislative powers available to combat illegal obstruction.

a stalled locomotive Colombian metallurgical coal is in its infancy. With impending infrastructure improvements, now is the time to introduce the standards of health and safety, automation, and productivity that have become commonplace in the United States. In 2011, Colombia produced 86Mt of coal, but the majority of that came from the thermal coal deposits of the country’s northern Caribbean coast. Unless a company aims to become a big player and produce over 20Mt, thermal coal is a difficult market in which to compete. There is sufficient supply of thermal coal throughout the globe. Supply of metallurgical coal, on the other hand, is limited, harder to find, and demand is increasing. Colombia’s competitive advantage, in my view, is that it has a plentiful supply of high-quality met coal.

practices here are 50 to 100 years behind those in the United States. Second, local communities seem pervasively suspicious of formal mining conducted by multinational companies. As we introduce enhanced health and safety standards, mechanized production, and higher wages for workers, illegal and small-scale miners perceive this progress as a threat to their business models.

In the department of Boyacá we have one producing mine situated near a town where 75% of the population lives in poverty.

With the discovery of the Marcellus Shale gas play in the United States, demand for thermal coal is down. Previously, thermal coal accounted for 53% of electricity generation, but that proportion has dropped to the 30% range; coal is being squeezed out of We have experienced limited but very If the development of mining the power generation market. Met coal, vocal opposition to one of our projects. projects that aim to modernize however, is unique and is fundamental Despite being actively involved with the coal sector in Colombia is to the global steel industry. In the United legislative bodies and receiving widespread obstructed because of enforcing States, the major met coal deposits are community support, a small group is and policing the law, it will be a already being exploited and the smaller blocking roads with steel cables preventing very negative signal for the mining ones are often uneconomical. Mongolia and the police, the army, and even government industry here.

India will likely become significant future officials from entering the area. Colombia still lacks clear criminal prosecution suppliers, but their major mines are maybe procedures for people who violate the 20 years away from meaningful production. law and corruption still plays a role in blocking justice. At the moment, the In contrast, Colombia Energy Resources’ government is slow to punish perpetrators and when there is no accountability, this subsidiary Colombia Clean Power entered behavior is perpetuated. In the first five months of 2012 there were 80 blockades of Colombia as recently as 2010 and is already oil projects. I believe that the national government wants to create a positive mining producing and selling coal. We are looking environment, but wanting it and executing it are two very different things. If the at over 200Mt of resources, although not yet development of mining projects that aim to modernize the coal sector in Colombia is proven, with average production costs in the obstructed because of enforcing and policing the law, it will be a very negative signal for range of $45–55 per ton. The met coal play the mining industry here. here has a bigger margin of opportunity than in Canada, the US, and Australia.

However, the competitive cost structures of labor and production, improvements in transportation infrastructure, and met coal demand add up to make Colombia attractive Despite the advances the country has made to mining companies. Now it needs investments, health and safety standards, and in the last 10 years, Colombia remains technology—which we hope to bring. The time is now. We plan to produce 1Mt by 2015. a struggle for two reasons. First, a lack With more investment that figure could grow to 2Mt or more. of automation means that some mining

40

company focus

Carboandes (1987) Rondón Coal Project RES: 200Mt If. La Custodia-La Esperanza Gold Project RES: 8Moz Au If. Environmental licenses secured

carboandes

Carboandes has been producing thermal and metallurgical coal since it was founded more than two decades ago. But in the last five years, the company has diversified its activities to include projects ranging from advanced-stage polymetallic projects to a network of ports and railroads. The story begins in 1987 when it began producing coal at its La Jagua de Ibirico mine in Cesar. Within three years, Carboandes had built a port in Santa Marta and begun selling top-quality thermal coal on the international markets.

“We enjoyed a great deal of success but we also had difficulties,” says Juan Carlos Quintero, chairman of Carboandes. “In 1999 we began to file for Chapter 11 bankruptcy, but after negotiating with our creditors, we instituted changes and I was appointed CEO.” Coal had fallen to about $30 per ton, and though Carboandes was producing 1.2Mt per year, the production was not enough to weather the weak coal market. Quintero arranged a joint venture with Carbones

San Diego SiMacota Rondón La Esperanza La Custodia

It’s the coal producers like Carboandes that are leading the construction of infrastructure and the modernization in the safety of mines.

Juan Carlos Quintero Chairman Carboandes

del Caribe and managed to stay solvent by selling a percentage of its mine to Glencore. In 2007 Glencore purchased the rest of the mine for $90 million.

Given the cyclical nature of coal prices, Carboandes decided to reinvest the proceeds of the sale and diversify by acquiring polymetallic assets. Its two polymetallic projects, La Custodia and La Esperanza, are located in “a good neighborhood” in the Mid-Cauca Belt, where infrastructure and security are

not issues. Having drilled over 23,000 meters and spent about $15 million of its own funds, Carboandes has developed an inferred resource of over 8Moz of gold. The company is currently searching for a partner with the knowhow and capital to advance the project through prefeasibility and into construction. Its third polymetallic project, San Diego, is in Cesar and is copper-focused.

After the 2007 sale of its La Jagua mine, the company stayed true to its name and acquired more coal properties, which it has developed rapidly. Its Socha project in Boyacá will be producing 10,000 tons per month­­­—after an investment of $35 million­ —and production will reach 800,000 tons per year by 2014. Nearby is its Rondón thermal coal project, where to date an inferred resource of 200Mt has been developed. The mine is in construction but will produce 500,000 tons per year once completed by the second half of next year. Both Rondón and Socha have environmental licenses.

Currently, coal is the core of the company.

Complementing its vast concessions are investments in strategic transportation businesses including Fenoco and Carbosan. “We were alongside the country’s major coal producers as founders of Fenoco. It’s the coal producers like Carboandes that are leading the construction of infrastructure and the modernization in the safety of mines.”

Mining Leaders

41

GOLD

42

lead article

unfulfilled

promise 2012

was a frustrating year for Colombia’s gold explorers.

Stocks were almost universally hit by the flight from risk that began in March 2012 and saw the TSX-V lose about 50% of its value by mid-November 2012. The moratorium on new licenses was extended until mid-2013 at the earliest and there were signs that government support for the mining sector, one of the supposed “locomotives” of the Colombian economy, was losing momentum and coordination. In spite of these challenges, companies working in the sector continued to demonstrate the massive gold potential of Colombia. Several impressive resource estimates released during the course of the year have cemented the country’s reputation as one of the most prospective precious metals jurisdictions in the world. This was also the year that the majors started to make their Colombia plays, with a number of mid-sized global producers taking minority stakes in exploration firms. By November 2012 there were early signs of a rally in junior stocks.

According to figures from the Colombia Gold Letter, 26Moz of indicated and inferred gold resources were discovered in the first nine months of 2012, taking the total number of ounces discovered since 2000 to 84.7Moz. Almost a third of the 2012 total came from the upgrade of AngloGold Ashanti’s massive La Colosa project, which boosted its inferred ounces Mining Leaders

43

lead article

Waymar Resources’ Anzá project was one of many projects to produce strong drill results in 2012

from 16Moz to 24Moz in the first quarter of 2012, placing it in the top 10 global gold projects by resource size. With an average grade of around 1g/t, La Colosa is typical of the low grade-bulk tonnage deposits found in the Mid-Cauca Belt where it is situated. Running north to south for about 450 kilometers, the Miocene Era belt hosts a number of porphyry systems that lend themselves to open-pit mining operations. In the immediate vicinity of La Colosa, Seafield Resources and Batero Gold both have multimillion-ounce projects and further north lie two of the country’s most advanced and well-funded exploration projects, Continental Gold’s Buriticá and Sunward Resources’ Titiribí.

The Belt has also been the focus of the majors, with IAMGOLD making toehold investments in three Mid-Cauca–focused juniors: Tolima Gold, Bellhaven Copper & Gold, and Colombia Crest Gold.

However, while there is proven gold in the mountains, the nature of the deposits poses two clear challenges to Mid-Cauca explorers.

The first challenge is that of grade. In 2011 Batero Gold was one of the most eagerly followed juniors in the market with its huge Quinchía project located in proximity to La Colosa. The company’s 55,000-meter drill program was one of the year’s biggest and the firm had sufficient cash in the bank to hold off releasing its resource estimate until it had completed all three phases. However, when it was published in February 2012, the resource estimate failed to impress investors and

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Batero’s stock plummeted. Over 6Moz of gold had been recorded in the indicated and inferred categories but the grades (0.44g/t for indicated, 0.33g/t for inferred) cast major doubts about the project’s economic viability. Batero has since refocused its efforts on building a heapleach mine near the La Cumbre target, with Peru’s Consorcio Minero Horizonte taking a 35% stake in the firm for C$18 million.

High-grade bulk-tonnage projects are by nature more sensitive to gold prices. Ounces in the ground mean nothing if they cannot be extracted for a profit. Investors will be watching carefully for grades and cutoff values for future Mid-Cauca projects.

For those companies that pull off attractive resource estimates, a second challenge awaits. Although support for

mining projects appears strong at the central government level, miners have found that major obstacles exist at the local level in terms of gaining community support and acquiring environmental licenses. In August 2012 Continental Gold received its environmental permit to construct a one-kilometer access tunnel and a six-kilometer road at its 5Moz Buriticá project at the northern extent of the Mid-Cauca Belt. But Buriticá is atypical of projects in the belt in that it is a high-grade, underground project. So far, Colombia’s only major open-pit mines are the long-standing coal projects on the Caribbean coast, in the department of Cesar, and the Cerro Matoso ferronickel project in Córdoba. To develop a major open-pit gold project in the 21st century, Colombia will be stepping into uncharted waters. Exploration at La Colosa was suspended between February 2008 and August 2010 due to the project’s location in a forested area and the company is embroiled in local level discussions to gain the necessary water permits. With several years of exploration still ahead of it following the delays, the project is unlikely to go into production before 2019 and in October 2012 two senior AngloGold executives took over the running of the project. Given its huge scale and the potential revenues it could provide the treasury in terms of taxes and royalties, it seems likely that central government

Junior Companies’ Market Cap

lead article

La Colosa is not the only project the South African major is developing in Colombia. Entering the country in the 1990s, AngloGold built up a large land bank and the group’s CEO Mark Cutifani has called Colombia “the world’s most prospective new gold district.” While AngloGold sold off many of its satellite properties in the Mid-Cauca in the 2000s, it has kept a firm grip on Gramalote, a project in the Antioquia Batholith, a 7,000–square kilometer intrusive body of granodiorite and quartz diorite located at the northern stretch of the Belt. The Batholith is another of Colombia’s prolific gold mining regions, where traditional mining and modern exploration occur side by side. AngloGold Ashanti holds 51% of Gramalote, with JV partner B2Gold holding the remainder. Designed as an open-pit project, Gramalote can boast good infrastructure connections and strong local government support and as a result has advanced rapidly since drilling began in 2007. In April 2012, the two companies updated the project’s measured and indicated resource estimate to over 2.5Moz. If all goes to plan, Gramalote should produce between 300,000 and 400,000 ounces per year beginning in 2016. Not too far to the west of Gramalote is Antioquia Gold’s Cisneros Project, another advanced-stage project that could be in production by 2014.

Contribution by Department to National Gold Production 2007–11

Source: SIMCO

may step in to push La Colosa forward. It remains to be seen if smaller projects will be able to count on similar support.

Of the other early-stage explorers active in the Batholith, Red Eagle Mining has been producing strong results at its Santa Rosa project and plans to publish a preliminary economic assessment in early 2013. Toronto-based Tolima Gold also oversees three projects in Colombia, including its Remedios project occupying 12,399 hectares in the Batholith. Remedios lies adjacent to the Frontino Gold Mines, Colombia’s largest gold and silver producer that was acquired by Gran Colombia Gold’s predecessor Medoro Resources in 2010. The Frontino mines are still largely artisanal in nature, with exploitation taking place on a series of veins via underground tunnels.

Though the Antioquia Batholith and the Mid-Cauca Belt are home to the largest number of exploration projects, the smaller California region in northeastern Colombia has also been the target of some larger plays. California is the most advanced district, as seen by the consolidation in the third quarter of 2012. In March 2011, after 18 months of negotiations, Eike Batista’s gold company AUX acquired Ventana Gold for $1.43 billion. Batista’s target was Ventana’s La Bodega Project, with a resource of 3.5Moz Au, 19.2Moz Ag, and 85.6Mlbs Cu. Since the acquisition AUX has spent an estimated $100 million in exploration and has increased the resource estimate to around 12Moz. The California neighborhood has become crowded, with several concessions surrounding and cutting through AUX’s property. The mineralization begins in La Bodega and runs southwest into Galway Resources and Calvista Gold’s properties. In October 2012, Galway announced its maiden resource estimate at its California project, which totaled just above 1Moz in the indicated and inferred category, while

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Golden Rule In the run-up to the 2012 election, a Phoenix, Arizona–based gold and silver investment company ran television claymation ads of President Obama and Federal Reserve Chairman Ben Bernanke floating in a hot air balloon above Central Park and throwing dollars to the masses below. The advertisement was promptly removed, but it was correct in implying that Bernanke’s accommodative monetary policies have helped gold continue its decade-long march towards $2,000 per ounce. In November 2002 gold was trading at just above $300 per ounce; barring a few minor corrections in 2008 and 2011, bullion has continually run with momentum and likely will see further upside.

Gold, both paper and physical, remains a very popular investment. Inflow to ETFs like SPDS Gold Shares and iShares COMEX Gold Trust have seen over $3 billion in inflows in the three months to November alone. Despite the strong performance in the last decade, gold has its share of critics.

One of them is Nouriel Roubini, an NYU economist who predicted the 2008 housing bubble and famously retorted to doomsday investors: “You can’t eat gold.” But unlike the 2008 crisis when the emerging markets hauled the world out of recession, countries like Brazil and China are experiencing large slowdowns. Investors appear to see gold as a strong asset to wait out the problems plaguing the world economy.

ANALYSIS Gold opened in 2012 at $1,566 an ounce and quickly traded up to $1,773 by the end of February. The price then retreated and gold traded in a range with support around $1,570 and resistance around $1,630 before breaking out again and reaching its highest price for the year at $1,790 on October 4. Gold lost momentum as Romney made gains in the months leading up to Election Day, but following Obama’s victory gold bounced back. At the time of writing (late December) bullion had an year-to-date gain of about 10% at $1,668.

What heights might gold reach by the end of 2013? Analysts are mostly bullish on the yellow metal and point to a handful of catalysts including the debasement of the dollar from bouts of quantitative easing, fears of a conflict in the Middle East, and most notably the looming fiscal cliff, a $600 billion cocktail of spending cuts and tax increases in 2013. Investors are anticipating significant brinksmanship in the US Congress, which should push bullion up. Memories are still fresh from the summer of 2011, when debate over the US debt ceiling brought gold up to its nominal peak of $1,920 per ounce (though the real peak remains in the beginning of the 1980’s during the stagflation crisis, when gold hit $2,320 in 2011 dollars). Whether Congress will concoct a last minute deal or the US plunges over the cliff, gold should find support and remain at these levels.

Mining Leaders

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Calvista increased its resource to 1.2Moz in September. Batista had trained his sights on his neighbors for quite some time; in November he announced the acquisition of both Galway for C$288.3 million and Calvista for C$59.1 million, putting him in control of around 14Moz of gold in the California district.

When news of the deals broke, the stock price of another player in California, Eco Oro Minerals, shot up on rumors of it also being in the scope of AUX. Formerly known as Greystar Resources, Eco Oro has been in the crosshairs of the authorities and local communities, putting the project on hold. The central issue has been the delineation of a páramo, a high-altitude moorland ecosystem, which was incorrectly purported by local authorities and NGOs to provide drinking water to the city of Bucaramanga 65 kilometers away. In August the ANM declared that 54% of the project lay in a páramo, only to renege the decision one month later. The company is working on a prefeasibility study, which should be released in the first quarter of 2013. For now AUX has not made any announcements about the rest of the California district, but its very presence—and more importantly the presence of its major shareholder, the Qatari Investment Authority—will put pressure on the Colombian government to resolve the delays at Eco Oro’s Angostura Project and generally smooth the bureaucracy in the country.

Given that Colombia is still highly unexplored, investors are now looking into companies exploring the up-and-coming regions.

The San Lucas Gold Belt in the southern Bolívar department is one such region with significant potential. Artisanal mining occurs today across the 200-kilometer Jurassic intrusive trend where underdeveloped infrastructure and security challenges remain. These challenges have not deterred juniors such as Cabia Goldhills, Quia Resources, or Touchstone Gold, who have all acquired large properties in the region. San Lucas is a long-run investment, and majors such as Hudbay Minerals and Yamana Gold are discreetly conducting exploration and looking for another world-class deposit.

Like the San Lucas Gold Belt, the Chocó department, on the Pacific coast bordering Panama, faces the same infrastructure and security challenges but shows exploration potential. Chocó has significant active alluvial gold mining that has decimated the Río Dagua watershed. Exploration companies are more hesitant to enter Chocó, but a few, including Rugby Mining, Indemia Gold, and Condoto Platinum have assembled land packages.

Other promising regions now largely underappreciated by most investors include the Huila department, where Cliffmont Resources has its San Luis Project. To the east, on the border with Brazil, the Vaupés department hosts the Taraira Gold Belt, where Cosigo Resources is exploring the quartz-sandstone ridges that rise from the Amazon flatlands.

Though the Mid-Cauca Belt and Antioquia Batholith receive most of the attention from international investors, the satellite gold belts offer attractive prospects for gold deposits.

Colombia has shown that its geology can host world-class deposits like AngloGold Ashanti’s La Colosa. Perhaps the next one will be found in one of the satellite regions.

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q&a

Close to Colin Andrew CEO Sunward Resources

the sun

Canadian miner Sunward Resources confirmed in mid-2012 that it had uncovered one of the world’s largest undeveloped gold resources at its Titiribí project in the Antioquia department. Sunward’s CEO Colin Andrew, an engineer and geologist, says having a strong resource insulates mining companies from the investor misgivings that have hurt some juniors exploring in Colombia in 2012.

A Fraser Institute survey has shown higher investor caution in Colombia in 2012. What is driving these worries?

We should look at who the respondents are to the Fraser Institute survey: most are exploration companies rather than companies with development projects or mines. Such companies are impacted when exploration permits become difficult to obtain for one or many reasons—and we are all aware of the delays in getting the new ANM agency established and ready to process applications for exploration licenses. If you take this aspect out of the equation, not much has changed in Colombia.

You’ve called Titiribí “one of the most significant gold projects in the world.” Where do you see the resource estimate in two years?

Besides being a sizable gold deposit, Titiribí is also a sizable copper deposit. As of June 2012, we have an NI 43-101 compliant measured and indicated resource of 4.58Moz Au (within 275.4Mt grading 0.52g/t Au). Within this resource 167.2Mt contains 0.50g/t Au and 0.17% Cu (using a 0.3g/t Au cutoff). Since completing this resource estimate, we have completed another 20,160 meters of drilling in an additional 25 holes at Cerro Vetas, with all holes reporting decent mineralization. We now have a very substantial ore body, one of the largest in the world, and need to concentrate on how we can develop it economically and efficiently, hence the engineering studies.

A visit to Sunward’s museum in Titiribí seems to indicate that the community is happy about the company’s presence. How is the municipality supporting you in developing the project?

I have always believed that any mining company must be an integral part of the community, an important stakeholder in our project. Opening the museum and the information center is one way in which we try to have an open engagement and dialogue with people who live and work in the area. These initiatives are just one aspect of our engagement; we’ve also been working with the local government and church to improve the quality of life in the community long before we embark on a path toward developing a mine. Titiribí has been a mining

community for hundreds of years and we hope it will continue to be for many years to come.

Most bankers would only recommend that companies with advanced-stage projects like Titiribí list on the BVC. Do you consider this listing a viable source of capital?

We definitely see value in listing on the BVC and we have been investigating it over the past few months. It is also interesting to note that a number of mining funds are being developed by houses such as Bolsa y Renta. We would welcome local shareholders and it makes sense to have a local listing to facilitate trading in our stock by Colombian-based investors.

How would you pitch Titiribí to potential investors?

Titiribí is currently the 16th largest undeveloped gold deposit on the planet and one of the largest projects completely owned by a junior. In itself that is quite a remarkable statement—but converting resources in the ground into a viable minable asset is the next step and one hurdle that many juniors often have difficulty overcoming. Sunward is fortunate to have substantial cash resources (more than $38 million), a very strong and experienced Board, and supportive shareholders to take the project through the next steps. By looking at the options for staged development, we can seek to minimize capital demands on the project and enhance its value for all stakeholders.

What are your plans for next year?

During 2012 we carried out an extensive drilling campaign with 11 rigs on the Titiribí project and completed around 65,000 meters of core drilling. This program enabled us to complete the next stage of resource assessment. We have now scaled down drilling on the property and are conducting basic exploration and initial resource assessment drilling on additional prospects at Junta, Porvenir, Candela, Rosa, MariaJo, and Margarita. This exploration program totals around 28,000 meters of core drilling and will be completed before the end of 2012. The next stage of drilling will be driven by our engineering studies, which we plan to commence in 2013.

Mining Leaders

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feature interview

Going Underground

Ari Sussman is one of Toronto’s leading mining financiers, having raised over $500 million for junior companies. His focus on high-grade projects in investment-friendly South American countries has led to success both with Colossus Minerals in Brazil and with Continental Gold, owners of the 5Moz Buriticá project in Antioquia department.

W

hile many Colombian gold stocks felt the brunt of the flight from risk that hammered the TSX-V in 2012, the country’s leading junior miner consistently outperformed the market.

Continental Gold entered October 2012 with a market cap just short of $1 billion.

That month the company released its second resource estimate on its flagship Buriticá project, registering a resource of 1.6Moz at 13.6g/t Au and 4.6Moz at 38g/t Ag in the measured and indicated category and 3.76Moz Au and 14.2Moz Ag inferred. It marked a 70% increase in recorded ounces from the firm’s maiden resource and exceeded the stated target of 4Moz, sending the stock soaring to a year

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high of C$10.02. “We meet our targets,” says Ari Sussman, the firm’s CEO. “The mining industry has been plagued with companies missing their targets for the last five years. We didn’t just meet our target, we surpassed it. That gives investors confidence that there won’t be any surprises.”

Perhaps the biggest surprise is that Sussman, who has previously scored a notable success with Colossus Minerals, does not come from a mining background. An arts graduate from the University of Western Ontario, he started out managing a hedge fund focused on convertible bond arbitrage. He had a quarter of the funds to invest freely,

however; in the mid-1990s he started trading mining stocks and went to PDAC for the first time. “Back then the average age of the guys presenting must have been 65. The booths were just guys pointing to geophysics maps that no one understood.” With gold prices slumping to lows of $250 per ounce, he saw his opportunity. Between 2002 and 2003, he set up offices in Colombia, Chile, and Brazil, his days backpacking round the South American continent having convinced him that these were the countries developing the most investorfriendly business climates.

Having selected his target, Sussman decided on what would turn out to be

Ari Sussman

70%

increase in measured and inferred ounces recorded by second Resource Estimate at Buriticá

a wise strategy. “My naïveté led me to quality,” he explains. “We decided to go after high-grade, figuring that if we found something it wouldn’t need much capex to build. We just didn’t realize at the time just how rare highgrade would become.” He estimates that today there are only around 10 undeveloped deposits in the world with grades and resources similar to those found at Buriticá.

Building a mining venture in Colombia was not easy in the early 2000s, however. “The only gold mining company ahead of me in Colombia was AngloGold Ashanti,” says Sussman, “I called the Canadian consulate and asked them to put me in touch with some mining lawyers. They said there were none.” Sussman partnered with Bob Allen, CEO of Grupo de Bullet and the current Chairman of Continental Gold. Allen was one the country’s pioneering mining investors and was producing 4,000oz of gold a year at the time. Next, he drafted in one of his closet colleagues, geologist Vic Wall.

Wall had worked previously with Sussman at Colossus Minerals in Brazil and also played a major role in the geological interpretation of Barrick’s multi-million ounce Porgera gold mine in Papua New Guinea. At Buriticá, Wall saw many geological similarities to the Porgera deposit, including deep vertical veins and overprinting mineralization indicating two phases of gold deposition, which tends to lead to very high grades.

Wall’s reinterpretation allowed the company to develop a drill plan which would accurately reflect the deposit’s makeup. “Geology is an art, not a science—and Vic has the rare ability to see what is happening with rocks.

He reclassified Buriticá as a carbonate hosted vein system,” says Sussman.

With feasibility-type studies sched­ uled for 2014, the mine is now taking shape and the company has employed a Colombian contracting company that is highly trained in underground tunnelling. “We now believe we have the ability to build the mine,” says Sussman. “We can move this project into production, subject to future studies confirming its viability.” In 2013, the company will begin underground development and continue exploration to expand the resource at Buriticá. The exploration drilling will focus on La Estera and La Mano targets, where channel sampling of old workings showed up interesting results in 2012. Early-stage exploration work will also take place at Continental’s other Colombian projects. The Berlin project follows a similar model to Buriticá and had previous production of up to 413,000oz in the 1940s. Dominical is a greenfields exploration project with enriched grades of silver and gold at

surface. A third project, Dojura, is a joint venture with AngloGold Ashanti in Chocó and has potential to be a large porphyry deposit.

With a market cap that dwarfs all other gold juniors in Colombia, Continental Gold stands in a strong position, but Sussman believes a major change is about to take place in the sector. Unprepared juniors that entered the sector in the recent exploration boom are starved of capital and many could be on the way out. “The system gets flushed out and the next wave begins. I think we’re at the beginning of that now. We’ll see smarter technical people and smarter money coming in,” he says.

“Once a geological model is built up, investment will reach the prospective areas. We’re at that turning point.

Five years from now, we will see multiple big discoveries because the prospectivity here is as good as anywhere in the world.”

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Project focus

Red Eagle Mining (TSX-V: RD) Antioquia department RES: Expected late 2012 2013: Establish permits and feasibility

santa rosa

At a glance, Red Eagle Mining’s Santa Rosa project resembles many other gold properties scattered across Colombia. Its mining history dates back centuries; it is rife with sluicing zones, and rich in highgrade ore deposits. But what makes the 39,000-hectare Santa Rosa stand out is its potential to become the first modern gold mine in Colombia to reach production, a designation several mid-tier Colombian mining companies are vying for. “I think the floodgates will open once one of these mines gets permitted,” says Ian Slater, Red Eagle’s CEO. Red Eagle completed a total of 23,000 meters of exploration drilling in 2012, and will drill an additional 17,000 meters and complete its scoping study in early 2013. According to Slater, the metallurgy results came back very positive. By late 2013 he expects to have permits and a feasibility study, and has tentatively planned a 2Mt per year facility to produce 100,000oz per year. Santa Rosa lies in Antioquia 70 kilometers north of Medellín and is connected to the city by a highway that runs 15 kilometers from the project itself. It also sits 30 kilometers west of AngloGold Ashanti’s Gramalote and 40 kilometers east of Continental’s Buriticá projects, and has a dependable electrical grid nearby.

These days, it’s certainly a tough market for exploration; the focus has to be developing production.

Ian Slater CEO Red Eagle Mining

antioquia

santa rosa medellín

According to Slater, Santa Rosa shows what future successful projects will look like in both Colombia and the world: “Santa Rosa is going to be one of the first modern gold mines in Colombia.”

With project costs rising, investors are beginning to look at high-grade, smaller-resource deposits rather than massive low-grade mines. “Santa Rosa’s capital expenditure is roughly $40–75 million depending on the processing route taken and it does not have the environmental or social issues many other projects have, making permitting much easier,” he says. In October of 2012 the company announced $20 million in financing and the addition of two strategic investors, Liberty Metals & Mining Holdings LLC and Appian Natural Resources Fund LP. The funds raised will go toward exploration and feasibility. After 400 years of development, Santa Rosa is about to enter phase one of modern production.

red eagle one-year stock chart

Source: Red Eagle

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company focus

Ashmont Resources El Alacrán, Santa Cruz, Chocó RES: 96Mt ore at El Alacrán; confirmed mineralization at Santa Cruz, structures of 20m @ 1.8g/t Au

Ashmont

The year 2012 has flown by for Ashmont Resources in a blur of exploration and development on three base and precious metals projects dotted throughout Colombia. In April, Ashmont completed its first-phase drilling campaign for its flagship project, the El Alacrán coppergold play in the department of Córdoba.

The ensuing NI 43-101, carried out by the US company Tetra Tech, delivered on expectations: the estimate showed 96Mt of ore with a grade of 1.22g/t Au equivalent at 90% inferred and 10% indicated.

In July 2012 Ashmont began its secondphase, 10,000-meter drilling campaign at El Alacrán. The campaign aims both to enlarge the resource estimate and to uncover potential targets across the project. El Alacrán showed strong first metallurgical results, demonstrating the efficiency of the flotation process to recover silver, copper, and gold.

Ashmont intends to launch the prefeasibility study for El Alacrán SANTA CRUZ EL ALACRáN

CHOCó

The image of mining has worsened because of rabble-rousers from the sidelines. So we have increased our ability to communicate with the community.

Mario Escobar President & CEO Ashmont

early in 2013, with the feasibility stage projected for later that year.

Although El Alacrán is Ashmont’s flagship, the Santa Cruz gold mine in Bolívar has developed into the company’s most highly anticipated project. In March 2012 the geophysics for Santa Cruz were completed and five drilling targets across the property were identified. The first had known mineralization, but what was presumed to be a vein system turned out

to be a significant epithermal deposit. The geophysics also confirmed mineralization in the other four drilling targets that had earlier been considered mere possibilities.

Ashmont has already drilled one of the targets with positive results, bringing new excitement about the project’s future.

Ashmont has expanded the mine’s workforce accordingly: many of the new employees come from local communities.

In these relationships lies the crux of Ashmont’s operations in Colombia— technical development and social and environmental sustainability. The company’s president, Mario Escobar, believes the image of mining in Colombia has been tarnished through the spread of misinformation: “The situation has worsened because of rabblerousers from the sidelines. So we have increased our ability to communicate with the community.” Mr. Escobar says Ashmont will continue its dialogue with Colombian communities in order to learn how to work together effectively.

Mr. Escobar says that Ashmont has passed through the uncertain stage of the company’s early days. Investment in human resources and closer cooperation with the Ministry of Mines and Energy during Santos’s presidency has also helped build Escobar’s optimism for the future of sustainable mining in Colombia, as well as Ashmont’s potential to be a key company in the Colombian mining industry.

Mining Leaders

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measured & indicated

Continental Gold (TSX: CNL) Buriticá M&I: 1.64Moz Au @ 13.6g/t Inf: 3.76Moz Au @ 8.8g/t

inferred

Batero Gold (TSX-V: BAT) quinchía M&I: 3.5Moz Au @ 0.44g/t Inf: 2.6Moz Au @ 0.33g/t

Sunward Resources (TSX: SWD) Titiribí M&I: t 4.6Moz Au @ 0.3g/t Inf: 6.44Moz Au @ 0.3g/t

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Seafield resources (Tsx-v: Sff) miraflores

M&I: 1.93Moz Au @ 0.8g/t Inf: 0.1Moz Au @ 0.6g/t

gold resource estimates 2012 galway resources (TSX-V: GWY) California M&I: 424,000oz Au @ 5.5g/t Inf: 666,000oz Au @ 5.38g/t

Eco Oro Minerals (TSX: EOM) M贸ngorA deposit Calvista Gold (TSX: CVZ)

Inf: 282,867oz Au @ 1.5g/t

Callej贸n Blanco & Buenavista prospects M&I: 452,218oz Au @ 3.49g/t Inf: 449,023oz Au @ 3.71g/t

Gran Colombia (TSX: GCM) Segovia operations M&I: 233,000oz Au @ 3.0g/t Inf: 1.08Moz Au @ 3.0g/t

B2Gold (TSX: BTO) gramalote M&I: 2.54 Moz Au @ 0.25g/t Inf: 1.36Moz @ 0.44g/t

Bellhaven Copper & Gold (TSX-V: BHV) La mina Inf: 1.6Moz Au @ 0.3g/t

Gran Colombia Gold (TSX: GCM) Marmato M&I: 11.8Moz Au @ 0.3g/t Inf: 2.6Moz Au @ 0.3g/t

AngloGold Ashanti (TSX: AGA) La colosa Inf: 24Moz Au @ 0.9g/t

Mining Leaders

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company focus

Touchstone Gold (AIM: TGL) Segovia land package (22,917ha, 15,000m drilled)

Touchstone gold

“The news is twofold,” says David Wiley, Touchstone’s CEO. “Shortly following the closing of the Atlantis deal, we announced and closed the acquisition of the El Cinco property. It’s an important piece of our land package.” El Cinco, the 17–square kilometer area contiguous to the south of Touchstone’s Río Pescado property and to the north of the San Miguel property, was the missing piece to control the 15 kilometers of strike. The acquisition cost C$1 million, of which 75% was financed through the issue of new shares.

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The merger gives us scale and allows us to concentrate on rewarding our shareholders by building a larger resource.

David Wiley CEO Touchstone Gold

Touchstone’s third-stage drilling program found that grades improve toward the south, beginning at the Pepas zone moving toward the 1141 zone. Drill holes at Río Pescado have registered grades including 28.25m at 8.75g/t Au and 8.4m at 14.0g/t Au, and the firm’s geologists believe that the mineralization will be just as strong throughout El Cinco, located due south of 1141. Following the Atlantis deal and the acquisition of El Cinco Touchstone

now controls the corridor to continue exploring the long strike length.

Difficult financial markets have led to speculation of predatory takeover bids of struggling juniors. But the mutal benefits of the Touchstone-Atlantis deal were obvious: it created operational and financial synergies while unlocking a significant geological trend for Touchstone. “For us it made 100% sense given that it’s all contiguous property.

There should not be that many juniors exploring the same area, so the merger gives us scale and allows us to concentrate on rewarding our shareholders by building a larger resource,” Wiley explains.

Segovia remains the focus for 2013.

During the upcoming year, the plan is to be methodical and continue to conduct fundamental exploration to better understand the new concessions.

Touchstone had planned to release a resource estimate at the end of 2012,

Segovia property map

Source: Touchstone Gold

In early September 2012, Touchstone Gold announced a merger with Atlantis Gold, its neighbor in the Segovia Gold Belt.

Prior to the deal, Touchstone already had a large land package, but the deal creates a contiguous land package six times larger with a granted concession area of 22,917 hectares and additional applications for concessions totaling 10,169 hectares.

Touchstone’s Río Pescado project, where over 15,000 meters have been drilled, is the heart of its Segovia property, and it is encircled by the concessions recently acquired from Atlantis: San Miguel and Frontino Norte. Drilling at Río Pescado has shown high-grade mineralization, and following the acquisition, the prospective strike length has grown from 3 kilometers to 15 kilometers. The deal is important for the company’s activities in the Segovia region—but given its Colombia-focused strategy, it is one piece of the larger picture.

company focus but following the merger, the company’s management has decided to continue drilling in order to add to the estimate.

Having already drilled 15,000 meters in three drilling programs, the fourth stage will see between 20,000 and 25,000 meters largely aimed at El Cinco. The plan stands to begin with infill drilling in the 1141 zone, the highest-grade area of Río Pescado, before heading south and drilling the El Cinco concession and the Atlantis area below. Wiley remains confident that Touchstone can grow its resource through the contributions of new acquisitions.

As part of the fourth-stage exploration and drilling program, the company is also looking for new drill targets through sampling and geophysics on the Atlantis property. The two most prominent areas of the San Miguel property are the Cuturu and Angel Zapata zones. Multiple rock samples from the Cuturu zone, located in the northwest corner of San Miguel, have returned values up to 43g/t Au. The Angel

Zapata zone in the center of San Miguel hosts showings with values up to 2.156g/t Ag and up to 2.82g/t Au. The company anticipates it will begin drilling at San Miguel after considering the results of the additional sampling and geophysics.

"All mining districts have the same problems; Colombia just needs to figure out what the future holds. Once everyone becomes informed and begins to work together we will see good results.”

While Touchstone’s focus will remain on the Segovia district for the near future, it has also acquired a project in Sur de Bolívar, Colombia’s most up-and-coming gold district. “We saw great grades and great opportunity in spite of security and logistical issues,” explains Wiley.

“Nonetheless we decided to acquire

Santa Rosa at a reasonable price before the region was picked over. Santa Rosa will be tomorrow’s project; the grades are phenomenal, but the region needs to overcome some difficulties.”

Wiley has sent in geologists to identify and analyze targets across the entirety of the project. Though it could be a while before the drills are brought in, the position in Sur de Bolívar, according to Wiley, is “an early-stage version of the Segovia district.” By expanding its footprint to the north of Segovia, Touchstone is looking far down the line and showing itself to be bullish on Colombia. “We are working with the other mining companies to educate legislators on the benefits of mining for Colombia’s economy,” Wiley says. “All mining districts have the same problems; Colombia just needs to figure out what the future holds. Once everyone becomes informed and begins to work together we will see good results.”

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company focus

Tolima Gold (TSX.V: TOM) 3 Projects (90,000ha) Segovia Batholith, Tolima Belt & Mid-Cauca Belt

tolima gold

In only a year, Jaime López, President and CEO of Tolima Gold, has assembled a 90,000-hectare portfolio of gold properties around Colombia. López, a former investment banker, structured the sale of three properties to Canadian investor Andrew DeFrancesco, who then asked López to manage the properties’ exploration. López assembled a strong technical team, raised capital, and expanded the existing projects. During Tolima’s inaugural roadshow, López sat down with Steve Letwin of IAMGOLD to sell the potential of Tolima’s projects.

IAMGOLD has since purchased 13% of the company, entered into a joint venture with Tolima on its ANCAL project, and provided technical and CSR advice.

Of Tolima’s three properties, ANCAL is the main focus of exploration. Totaling 28,000 hectares, ANCAL is so named because it lies in both the Antioquia and Caldas departments. So far, geophysics and four drill holes have revealed a large porphyry system. Of the six identified anomalies in the area, five belong to Tolima. The sixth, located directly to the south, is Gran Colombia Gold’s Marmato deposit, with a measured and indicated resource of 10Moz Au and 64Moz Ag. In addition to the partnership with IAMGOLD, Tolima Gold also entered into a JV with Solvista Gold in these areas.

The most developed of Tolima’s properties is Remedios, a 12,300-hectare

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All the vein structures have been identified and we will continue to develop the mine through tunneling. The grades on the veins are very consistent.

Jaime López President & CEO Tolima Gold

site in the Segovia Batholith adjacent to Gran Colombia’s Frontino Mines, Colombia’s largest gold and silver project. The acquisition of Remedios came with two existing mines and the San Pablo processing plant. Work since the acquisition has mostly focused on exploring within the existing mines. Three distinct veins slice through Frontino and directly into the Remedios property. “We drilled to ensure the continuity of the veins,” says López. “All the structures have been identified and we will continue to remedios

ancal

nortol

develop the mine through tunneling. The grades on the veins are very consistent; they average around 10g/t but in some ore chutes they can be as high as 500g/t.”

Tolima has begun to process its own ore, but originally calibrated the San Pablo plant by processing Gran Colombia’s ore for three months. The firm aims to triple the plant’s capacity to 300 tons per day to keep pace with the expansion of the mine.

Nortol is Tolima’s earliest-stage project and, at 48,000 hectares, its largest.

In January 2012 Tolima added to its concessions at Nortol by acquiring the El Papayo mine. Tolima’s technical team identified a trend continuing southwards into the El Papayo site that hosts four other gold mines including Gran Porvenir. A 2,500-meter drilling program is planned for November 2012.

Management is confident that with its programs at Remedios and Nortol and with IAMGOLD’s work on ANCAL, Tolima is in position to deliver positive results over the course of 2013.

Majors and their minorities

box Capital raising by asset class proceeds raised (2007–H1 2012)

The market conditions offer new opportunities for the gold majors. Even when paying a premium on current prices, firms with cash can get more gold for their dollar than two years ago. In its October 2012 acquisition of Galway Resources and Calvista Resources, Brazilian firm AUX paid premiums of 47% and 62% on the 20-day trading averages of the respective firms. However, the price per ounce for Galway was around $250, compared to the $429 per ounce AUX paid for Ventana Gold in February 2011.

A number of explorers unwilling to sell up at current prices have accepted “toehold investments” from majors. By maintaining a stake of under 10% of issued and outstanding shares, investors can avoid classification as “insiders” under Canadian securities law and do not have to disclose their investments. In 2011 this process was already underway, with Kinross, Yamana Gold, Hudbay Minerals, and IAMGOLD all possessing foothold investments in favored juniors. Such stakes give the majors an inside track on exploration projects and direct access to management.

Source: PwC

Junior explorers have suffered a tumultuous time since mid2011. The flight from risk brought about by the uncertain global economic outlook has depressed stock prices and put many firms into survival mode. The market capitalization of the TSX-V’s top 100 juniors fell 43% during the second half of 2011 and the first half of 2012. Meanwhile, the number of IPOs and secondary raisings has shrunk as firms shy away from diluting their existing shareholder base.

TSX-V companies raised just $1.5 billion in the first half of 2012, compared to $4.1 billion during the same period the previous year. Producers, with their steady cash flow, have been less hit by the markets, but in Colombia the vast majority of gold projects are in the exploration stage.

In 2012 strategic investments in Colombian juniors deepened in scope. In March Teck made a $1 million private placement in Colombian Mines Corporation and secured the right to acquire 70% of the junior’s Yaramalito project through the expenditure of $10 million on exploration activities and a further $5.5 million on private placements. In July Agnico-Eagle entered into a JV with Miranda Gold, whereby the Canadian producer agreed to take on 70% of exploration costs, to be undertaken by Miranda and totaling no less than $1 million annually. AgnicoEagle will then have the opportunity to earn up to a 70% stake in the designated properties it wants to pursue to project stage.

Although the prospect of seeing their stakes drop in attractive properties may not completely appeal to juniors, such deals are becoming an increasingly common way of funding exploration activities and can give momentum to the project. “We began negotiations with Teck three years ago,” says Bob Carrington, CEO of Colombian Mines, “Teck chose to come into Yaramalito with us, and that’s a great stamp of approval.”

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project roundup

Segovia

Anzá

Gran Colombia Gold (TSX: GCM) RES: M&I: 292,000oz Au, Inf: 1.1Moz Au 2013: Project expansion

A $15 million exploration program is now underway at Segovia. This two-phase program will run through 2013. The first phase will consist of infill drilling that aims to upgrade resources in three main targets over 82 holes totaling 21,000 meters. Phase two will consist of exploration drilling aimed at extending known structures along strike and down-dip or investigating new ones. We have 30,000 meters planned so far.

1 María C. Araújo CEO

la mina

3

Patrick Highsmith Director & CEO

We currently have two producing assets which give us a steady cash flow to develop our flagship project Irra. Irra consists of over 1,000 acres of land in the Caldas department. We have some good historical indications of the value and potential of the property, including over 25 artisan workings on site which have supported the livelihood of traditional miners for many years. A bulk 20-ton terrace sample yielded an average grade of 6g/t.

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We have been drilling Anzá since April 2011 with huge success. The deposit keeps getting bigger—this has the potential to be a world-class discovery. We’ve discovered a deposit 2,100 meters long, between 100 and 200 meters wide, and with at least four highgrade gold zones, including one with 40.5m of 14.1g/t Au. We are testing the lateral and down-dip continuity of the high-grade zones plus doing some step-out drilling.

4 Miller O’Prey President & CEO

Solvista Gold (TSX-V: SVV, OTCQX: SVVZF) RES: 133.7m @ 1.54g7t Au Eq. 2013: 10,000-meter, phase 2 drill program

We’re spending 80% of our time and resources at Caramanta, which is a cluster of porphyries. We’ve announced a number of different drill targets thus far, as well as initial successful results from drilling on the first center. We have just commenced drilling on the second center in mid-2012, and we hope to have started to drill the third by early 2013. We will also continue to explore our Guadalupe project for high-grade gold and silver mineralization.

Quinchía Gold

irra Caldas Gold 2013: Surface geological mapping, sampling, basement rock drilling & reserve delineation

Pablo Marcet President & CEO

Waymar Resources (TSX-V: WYM) RES: Aim to declare a resource in 2013 2013: Further drilling

Caramanta

Bellhaven Copper & Gold (TSX.V: BHV, OTC: BHVCF) RES: 1.6 Moz Au, 419Mlb Cu (2.55 Moz Au Eq) 2013: Further drilling

In the last 10 months we’ve been drilling with two drill rigs on the property. We upgraded the resource by about 60% in July 2012. It’s a cluster of mineral deposits that we’ve discovered; the first one was 1Moz, the second deposit, 400 meters away, is 600,000oz. We haven’t drilled the whole thing out; our resource estimate comes only from the nearsurface portion of the deposit, suggesting a low-capex mine during the production phase.

2

5 Shane Ferster President & CEO

6 Brandon Rook President & CEO

Batero Gold (TSX-V: BAT) RES: M&I: 3.5Moz Au @ 0.44g/t, Inf: 2.6Moz Au @ 0.33g/t

For now we’re focusing on the El Tahoe vein; in mid-2012 we did our first two passes there. In our first five holes we hit mineralization— exciting news at such an early stage. We aim to find a resource at the Coyote project within one of the seven veins with a 6,000-meter drill program. Rather than scouting and exploring other systems we’ve decided to build around this single region, and see potential for a very low-cost operation to bring to production.

mid-cauca belt

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Cali

La Palmichala

El Cafetal Angel Gold (TSX-V: ANG.V) RES: No estimate 2013: Continue with exploration drilling-program

7

Geochemical and geophysical results indicate Blanca Stella Frías the El Cafetal project has huge potential. The Director, President & CEO project is progressing rapidly toward obtaining and revising environmental and drilling permits. Disseminated gold mineralization has been exposed in short underground working as was expected, but our testing tells us that the area has been historically underexplored and mineralization may be much more widespread than previously thought.

8 Kate Blancato CEO

Green Mine International RES: 2.95Mz 2013: Planned IPO and production increase to 275,000oz

La Palmichalla has been producing gold for the last 120 years. We hope to list the company in Toronto in 2013 to fund increased production.

We have excellent community relations thanks to the work we have done with Colombiana de Biocombustibles to provide our site with biodiesel from plants like jatropha, higuerilla, and sacha inche. We have already proved the economics of the project with our work at Cerro Matoso for the last seven years.

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Project focus

Seafield Resources (TSX.V: SFF) Antioquia department RES: 1.926Moz (M&I at 0.3g/t cutoff), 6,757ha, >30,000m drilling to date, 50% IRR 2013: Feasibility study

QUINCHía

The town of Quinchía, 45 minutes from Seafield Resource’s namesake project, is also known as Villa de los Cerros—the Village of the Hills. The town’s steep terrain runs eastwards to Seafield’s Quinchía gold project, now in the advanced exploration stage and with a resource of over 3Moz. The company’s management, led by President and CEO César López, has fast-tracked exploration at the project’s Miraflores deposit and is focused on reaching production by 2015.

The Quinchía project totals 6,757 hectares and to date the company has only explored 20%, with most exploration focused at Miraflores, a hydrothermal breccia, highgrade vein deposit. The deposit has seen 20,000 meters of drilling that produced impressive results including 449 meters at 1.29 g/t Au, with 23.95 meters at 9.18 g/t Au, and 161 meters at 3.23 g/t Au, 60 meters of which graded at 5.48 g/t Au. The resource at Miraflores adds up to 1.926Moz measured and inferred at a 0.3g cutoff rate, but the structure remains open at depth and will be further tested by a diamond drill program beginning in January 2013.

In April 2012, Seafield published its preliminary economic assessment for Miraflores; highlights include an IRR of 50%, an NPV of $249 million, and a payback period of just 1.8 years.

The management envisions an annual production of 71,000oz. The fast payback

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We’re confident in our project. If Miraflores can set an example as a socially responsible modern gold mine, it could contribute in setting a precedent in Colombia.

César López President & CEO Seafield Resources

results from a medium-sized operation focused on extracting the higher-grade materials from a combination of open-pit (averaging 1.38 g/t Au) and underground (averaging 2.27 g/t Au) operation in the first eight years, with processing of lower grade stockpile thereafter. “In Colombia larger-scale, multimillion-ounce oper­ ations may see more challenges in the permitting process,” explains López. “We’re very confident in our project. I believe if Miraflores can go into production and

set an example as a socially responsible modern gold mine, it could contribute in setting a precedent in Colombia.”

The firm’s other main deposit at Quinchía is Dosquebradas, about three kilometers northwest of Miraflores. The porphyry deposit hosts a resource just over 1Moz, but is split by the boundary with Batero Gold’s concession to the south. For the near term, the company will refrain from developing it further and focus on bringing Miraflores into production. If Dosquebradas is ever to see production there will need to be either consolidation or cooperation with Batero. Nevertheless, the company has many more targets across the property, with plans for more regional exploration.

Tesorito, Santa Sofia, and La Loma are further anomalies that Lopez believes are all located along geological trends in the Quinchia District. "This supports our hypothesis that there are gold mineralized zones to be found within our concession,” López concludes.

medellín

medellín bogotá

quinchía manizales

armenia

company focus

Miranda Gold (TSX-V:MAD) Gold project generator 14 properties in Nevada & Colombia JV partners: Red Eagle Mining, Agnico-Eagle Mines, Montezuma Mines, Ramelius Resources, Navaho Gold, NuLegacy Gold

miranda gold

Led by President and CEO Ken Cunningham, gold explorer Miranda Gold has built a large portfolio stretching from Alaska to Colombia.

“We had already been operating in Nevada for several years, but our board wanted to expand into a new gold jurisdiction with frontier potential to diversify our portfolio.

Colombia was the obvious choice because of its new mining laws, improvements in security, and recent world-class discoveries,” says Cunningham.

As a project generator, Miranda Gold acquires properties with strong geological potential and develops them to a drill-ready stage before forming a joint venture with a partner to fund exploration. With a technical team that has participated in 10 gold discoveries yielding over 30Moz, Miranda often operates the projects itself. The company always retains a

We have established a business model good enough for a major to want to partner with us. The AgnicoEagle deal confirms that we are a first-rate JV partner.

Kenneth Cunningham President & CEO Miranda Gold

medellín

cajamarca pavo real cali

bogotá

percentage, but usually the partner must fund a feasibility study to earn in a 70% interest in a property. In 2011, Miranda and Red Eagle entered into an agreement on two properties, Pavo Real and Cajamarca.

The highlight of 2012 for Miranda was the Letter of Intent signed with Agnico-Eagle to form an exploration alliance in Colombia. Agnico will provide 70% of a minimum $1 million exploration budget each year through 2015. “The Agnico-Eagle deal is huge for us—to bring a major into Colombia is a significant milestone,” explains Cunningham. “This financial support will allow us to be more aggressive on some of our deals and cover more ground. It also gives us a ’built-in partner’ for projects the alliance generates. For now, the main priority is to have more leeway and to be able to acquire the properties we want in Colombia.”

The year 2012 has been the company’s most active to date. Miranda is evaluating a handful of properties in Colombia, including some in underexplored regions like Chocó.

The story is similar in North America where Miranda is reviewing projects in Nevada and Alaska. Three projects remain to be drilled during the fourth quarter of 2012, with drilling to continue through 2013.

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company focus

Popales & El Rayo Projects Drilling H1 2013

llave oro

The standard approach for a junior entering a new jurisdiction is to find a project and build a team around it. For John Carlesso, founder of Torontobased private merchant bank Cervello Capital, the potential of Colombia necessitated a different strategy.

Carlesso and Llave Oro CEO Michael Smith were focused on Colombia in 2010 and established an experienced team first, incorporating the offices of Llave Oro in Medellín with the mandate of finding properties with similar geology to Continental Gold’s 3.76Moz Buriticá gold project.

The company’s flagship project, Popales, lies just seven kilometers away from Continental’s project, 150 kilometers northwest of Medellín on the Mid-Cauca Belt. The geological team, which includes Smith, the lead geologist on the Buriticá discovery, and Balmer Echeverry, who oversaw Barrick Gold’s entry into Colombia, believes that the project is an extension of Buriticá’s geology. Popales lies on the same geological trend and shows similar stacked high-grade vein systems interspersed with disseminated mineralization running up to 10–15g/t over a strike of two kilometers. “We see potential for both bulk tonnage and for higher-grade dissemination.

We are drill-ready,” says Carlesso. An initial drill program targeting 2–3Moz is slated for the first half of 2013.

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Despite the high level of activity in Colombia at the moment, we believe many of the country’s deposits are still waiting to be found. We intend to make the next big discovery.

John Carlesso Chairman Llave Oro

The company’s second project, El Rayo, is closer to Medellín than Popales and boasts a less challenging topography.

El Rayo covers 270 hectares and demonstrates silicification, propillitic, and sericite zones of alteration similar to the Gramalote deposit.

Llave is working with a local mining cooperative to ensure good social relations. The relationship also provides an excellent source of geological information. “It has become

popales

el rayo

a useful form of prospecting for us and it provides them with a livelihood,” Carlesso says. “It has been a great experience so far.”

Carlesso believes the biggest challenge in Colombia is project valuation.

The stable business environment has led to a large number of juniors entering the country and has driven asset acquisition costs higher than in neighboring countries. This was the initial driver for the unusual formation of the company. “People understand what the potential is here,” Carlesso explains. “Having local knowledge and experience is a critical competitive advantage.” As the company commences the initial drill programs to shore up resources at Popales and El Rayo, moves towards listing, and begins to look at additional acquisition targets, Llave Oro’s Colombian team is ready to leverage its strengths and advantages.

market focus

illegal mining

Colombia was a mining country long before the conquistadors. Today, despite the arrival of foreign mining companies with their modern methods, traditional mining continues in 44% of Colombia’s municipalities, with only an estimated 14% of 2010 production originating from formal sources. Although artisanal miners, who use non-automated methods to extract gold, should not be conflated with illegal ones, those linked with criminal groups, both are large polluters and often work in unsafe conditions. One study by the Universidad Nacional found that one illegal miner will dump 35 kilograms of mercury, 330 gallons of used oil, and 2,500 tons of sediment into rivers in one year. Illegal mining endangers 50% of Colombia’s forests and raises social risks because of dangerous mines sites and violence associated with the criminal networks that manage illegal mines.

The Santos administration has acknowledged the often-unhealthy impact of traditional mining; in October 2012 it pledged COP$30 billion to formalize 15,000 miners.

Patrick Highsmith CEO Bellhaven

Paul Dias CEO Minatura

Enrique Gómez-Pinzón Partner Holland Knight

The illegal mining that we see now is unsafe and more damaging to the environment than a large-scale legal mine. These miners would usually prefer to work at a modern mine where it’s safe and they can earn better wages and acquire real skills. They mine this way because they need to make a living, but to preserve a tradition of pollution and unsafe work practices is not what we want to do. The traditions of mining should be preserved and built upon, but this needs to be done with responsible modern mines.

Most of it is not panning—they’re dredging with excavators. This year we focused on creating a mechanism to go into the areas of our projects where there is illegal mining and legalize it. We believe the government is not able to handle this problem, so we want to make sure that the illegal miners are following all environmental and mining regulations. Our idea is to target the three traditional groups in Antioquia. We provide the technical support and environmental licenses and operational contracts. So far the response has been great and we believe that this shows their desire to formalize their operations.

Colombia has always had problems with squatters. It is a big issue because you might legally acquire the land and then still have to deal with this. The issue of collecting and organizing titles and creating a clear map is the main approach to deal with this problem.

You have to be wary of illegals because they may be related to drug traffickers, paramilitaries, or guerillas and often they are using child labor and destroying the environment. I recommend negotiation and integration—employment and housing. It is a huge social issue—it’s not just about money.

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66

q&a

A new

approach

João Carrelo CEO Eco Oro

Eco Oro is a TSX-listed company with a long history of exploring in Colombia. Its focus now rests on the gold-silver Angostura deposit in the department of Santander. Recent controversy over the local páramo (moorland) ecosystem, as defined by the Alexander Von Humboldt Institute’s Atlas of Páramos of 2007, led to a suspension of exploration at Angostura and prompted Eco Oro to reconsider its approach.

In September 2012 the National Minerals Agency (ANM) retracted its previous decision to deny further exploration at Angostura. What motivated this change?

The statement confirmed that passing the original decision was a mistake. Pursuant to the Company’s expected appeal on August 29, the final retraction from the ANM came somewhat late in the day. In between the original decision and September 14, Eco Oro weathered considerable volatility in the marketplace, dropping 65% in its share price in just one day—losing over $100 million dollars of valuation in the process. The drop in our share price directly led to the company’s removal from both the S&P/TSX Small Cap Index and the Market Vectors Junior Gold Miners Index, further prolonging market volatility for the company and leading to a huge loss in our overall value and investor confidence.

The cost to the company as a result of the ANM’s delays in decision-making has been much higher than merely the 65% drop in share price that has damaged the company.

The modified resolution prohibits continued exploration on the páramo. How, then, do you move on with developing the project?

The modified resolution in fact granted the extension to our exploration license, as sought, and did not take any steps to have any part of the concession returned. It also noted that no exploration activities are to be conducted in areas constituting páramo according to the 2007 Atlas of Páramos issued by the Alexander Von Humboldt Institute, until the required Colombian authorities determine the ultimate boundaries of that ecosystem. In Eco Oro’s view, the Angostura Project does not lie within the páramo and accordingly our activities remain compliant with this law. However, because of recent prejudicial rulings relating to Eco Oro’s principal mining title, the 3452 mining title, and the delay in defining the boundaries of the proposed Regional Natural Park Páramo de Santurban, the company is implementing certain cost reductions and has suspended further exploration activities. Nevertheless, our ongoing prefeasibility study is nearly complete and we expect to have results by late 2012 or early 2013. Eco Oro believes that once these matters are resolved, investor confidence will return. But time is of the essence. We have already

stated to the market that the prefeasibility study (PFS) will come out by the first quarter of 2013 but we are relying on the administrative authorities of Colombia for efficiency in reaching a conclusion on important outlying factors.

The design concept for the PFS at Angostura differs significantly from that of the preliminary economic assessment (PEA). What factors informed these changes?

The biggest impact of the PFS so far has been the introduction of the Móngora Tunnel under the principal deposit at Angostura. The Móngora Tunnel will utilize the effects of gravity to carry both the mined ore as well as waste downwards to the mine portal and from there across to a process plant and tailings dam. The company will also generate a small amount of energy due to the inclination of the conveyor belt systems and the off-flow air that will be exiting the mountain range through the mouth of the tunnel. With this new system our options for tailing standards are 800 to 1,000 meters lower, and all the ore, waste, and backfill transportation should all equal reduced operating costs as a result. Because of these changes to our PFS the overall infrastructure plan for Angostura has moved considerably downwards, obviously moving away from the controversial páramo area.

In the unfortunate event that Angostura cannot go into production, what is the company’s strategy?

The company believes Angostura can and will go into production.

From a strategic perspective, we are looking at how to remove risk from this project. Eco Oro is doing its best to describe the details of the project to the government in hopes of accelerating its decision of how to define the páramo and the park. The other area to clear up is the court ruling from July 19, which our legal team is working on now. In Colombia, mining is one of the five principle drivers of economic growth, as certified by Santos—and all the governmental ministers echo that. Angostura is a world-class deposit in a prospective region of the country. To say mining has to stop in that area would be a huge mistake and would hurt Colombia’s plans for prosperity in the mining sector.

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project roundup

Cisneros Antioquia Gold (TSX.V: AGD) RES: 10,000ha, 40,000m of drilling to date 2013: Further drilling, production of 25,000oz in 2014

Roughly 55 kilometers northeast of Medellín, a series of huevos­—high-grade, undulating veins—dip throughout our Cisneros property.

An exploration program led to 40,000 meters of drilling and the discovery of nine gold deposits. The two most advanced are Guayabito and Guaico, which form Cisneros’s 500-hectare core. Exploration has continued in 2012 with a three-phase drilling program to further develop the core by year’s end.

California

1 Richard Thibault President & CEO

San Luis Cliffmont Resources (TSX-V: CMO) RES: Announcing drill results 2013 2013: Further drilling

We are now drill-testing the continuity of these past-producing mines to explore the possibility of near-term gold production and also continuing to explore and evaluate many other areas for larger bodies of mineralization.

We recently released the first batch of drill holes in October from the first phase of our drill program; the results identified two new structures and confirmed that high-grade mineralization continues at depth at San Jorge.

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2

Galway Resources (TSX-V: GWY) RES: M&I: 424,385oz Au; If: 666,470oz Au 2013: Complete sale to AUX

Robert Hinchcliffe President & CEO

The main deposit, where we’ve found more than 1Moz of gold so far, has 1,000 meters of strike, and is still open to depth. We’re drilling parallel zones, Machuca and Santa Catalina, and fractions of our concession cut across AUX’s ore body; we think that there’s easily 50% more upside at California. We invested $10 million, and we’ve found about $2 billion of gold. In October 2012 AUX agreed to purchase all outstanding shares of Galway.

Angostura

3 Jeff Tindale President & CEO

4

Eco Oro (TSX:EOM) RES: M&I: 282,867oz Au & 456,938oz Ag @ 1.5 g/t Au cutoff 2013: Conclude environmental negotiations

João Carrelo CEO

We decided to introduce the Móngora Tunnel at Angostura to save the energy spent hoisting material and waste further up the mountain range. Instead, gravity will carry mined ore and waste down to the mine portal and from there across to a process plant and tailings dam. With this new system, options for tailing standards are 800 to 1,000 meters lower, and the savings from ore, waste, and backfill transportation should help reduce operating costs.

Other belts 5

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bogotá

Cali

3

Gramalote

san lucas Quia Resources (TSX-V: QIA.V) RES: Drill results: 2.85m @ 2.72g/t Au 2013: Sampling, mapping, geophysics

San Lucas is among the most underexplored and prospective gold regions in the country. In late 2012 through early 2013 we’ll be carrying out sampling, mapping, and geophysics to further define our Libertad and Durmiente targets in more detail, and we’ll also follow up on some other targets we have identified. Upon completion of the surface work we plan to commence the second phase of our drilling campaign.

5 Yannis Banks CEO

6 Clive Johnson CEO

B2 Gold, in JV with AngloGold Ashanti (TSX: BTO) RES: In: 2.5Moz Au @ 0.81 g/t 2013: Complete prefeasibility; commence final feasibility

The JV is now reviewing several scenarios as to the recommended size and investment of the project. We think this will become a large openpit gold mine. Some of our metallurgical work indicates we should be going with a flotation recovery circuit, which will give us very high recoveries of gold. That has allowed us to go back to the resource and decide what grade will be most economical for extraction; right now there are many alternatives available to us.

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Project focus

Cabia Goldhills (TSX.V: CGH) Bolívar department Exploration 2013: 3,000–5,000m drill program

Mejía

A long, narrow state, Bolívar, named after the famous South American liberator, stretches from the Caribbean coast into the north-central region of Colombia and is famed for its rich agricultural produce.

In the southern part of the state where agricultural flatlands meet low hillsides, artisanal mining has been a mainstay of traditional life for centuries. Guerillas once patrolled the northern foothills of the Cordillera Central, leaving the San Lucas Gold Belt unexplored until recently. Now that the security threat has subsided, Cabia Goldhills is one of a handful of juniors now actively carving out large parcels of land in the unexplored region.

“We like to explore new territory to see what results we can produce. We enjoy a challenge,” explains Michel Delisle, the CEO of Cabia Goldhills. Since acquiring the 6,900-hectare property in the San Lucas Gold Belt in early 2011, the company has fast-tracked exploration through soil sampling and geophysics campaigns.

The results produced very interesting anomalies, and the team believes that there is a large two-by-one kilometer epithermal system, two bulk tonnage targets, and a series of high grade veins sprawling across the property.

Due south of where the company’s geologists believe the epithermal system lies, the four artisanal Mejía Mines are run by a few hundred locals. At the beginning of September, Cabia finalized

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an agreement to acquire the mines for $10 per ounce of future proven reserves and a 15% royalty to the mine owners.

Sampling to date has yielded extremely high grades of gold. Cabia’s geologists found a massive sulfide deposit in the La Gloria Mine where grab samples have

"Majors are seeing how well we are doing in this area. It has become safe – but only recently.

I think in the future we will see more and more companies moving into Bolivar." been as high as 171.5g/t and 155.5g/t.

In the three other mines, El Fogaje, Los Romanes, and El Turco, grades as high as 138g/t are found. The agreement grants a two-year window for Cabia to conduct exploration. The company’s management has taken a very active approach with the community and plans

to hire many local miners to continue working the veins. Cabia has tried to build a strong relationship with the community through events including a marathon and football tournaments.

Besides the Mejía Mines, four other targets have been identified in reconnaissance.

Delisle sees two potential bulk tonnage targets in the northern part of the property and two vein targets to the south. In October, Cabia hauled in the drills rigs and began a 3,000–5,000 meter campaign to map the veins. A second phase, focusing on a specific target, will follow once the geology is better understood. Cabia’s team clearly faces a heavy workload over the next two years. Aside from its current property, Cabia’s management is very optimistic on the San Lucas Gold Belt and intends to keep making acquisitions in the area to build up a healthy and prospective land package, before more companies discover the potential of the region.

Mejía Mines Grab Samples of Selected Run-Of-Mine Production

MINE

GRADE (g/t Au)

El Fogaje

30.4 138

La Gloria

80.1 155.5 171.5

Perra

77.6

Prior Analytics The law of consulta previa (“prior consultation”) has been in effect since 1991, when a constitutional amendment was implemented to protect the country’s native indigenous populations and their traditions. About 28% of Colombia’s territory belongs to either the indigenous or Afro-descendant communities­ —groups that have been sidelined during Colombia’s modernization.

According to the constitutional amendment, prior consultation is a constitutional right: companies must consult the stakeholders and communities in areas where projects are to be developed. The law stipulates that failure to gain community approval will prevent the project from proceeding.

In principle, the consulta previa mandate affects a range of industries in both the public and private sectors, from mining to construction to petroleum. Though the letter of the law prohibits operating without prior consultation, the reality is much different. According to Latinamerica Press, 2,142 environmental permits have been granted since 1993 but only 141 prior consultations carried out. Nevertheless, Colombia has become much stricter in enforcing the law as of recent times. In 2008, the Constitutional Court nullified the Forest Law, which aimed to regulate general forestry issues, because lawmakers did not consult the native communities when drafting the legislation. The Ministry of Environment is now developing more detailed legislation that includes mentions of prior consultation. A more recent case of consulta previa impeding

box Indigenous mining areas

La Guajira (5) Antioquia (1) Chocó (1) Cauca (7) Guainía (1) the development of a project is the construction of the Ruta del Sol, a 600-kilometer roadway designed to connect Bogotá to Santa Marta.

The situation remains unresolved.

Consulta previa remains a thorny issue not only in Colombia but around the world. Be it the oil industry or mining, in Peru or the Yukon, the relationship between local communities and foreign resource companies will always be delicate. Nonetheless, many companies have shown that it is possible to take into account the interest of stakeholders and move ahead with projects in a mutually cohesive and prosperous way.

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Project focus

Cordoba Minerals (TSX-V: CDB) 25,970ha, Córdoba department Gold & copper exploration 2013: 5000m drill program

córdoba

Flying over the cattle country of the Córdoba region, Simon Ridgway, the CEO of Cordoba Minerals, and Paul Dias, CEO of Minatura International, inspected an area of artisanal gold mining near Puerto Libertador, some 200 kilometers north of Medellín.

What caught Ridgway’s eye was a small hill, directly above an alluvial operation, which he believed could be the potential hard-rock source feeding the alluvial zone. Ridgway decided to option the property and his company started exploring the 26,000ha land package in April 2012.

This area, a relatively new one for hard-rock copper-gold exploration, is generating interest as a possible extension to the Mid-Cauca Porphyry Belt. “We’re sort of pioneering this region, which was previously known more for coal than copper or gold,” says Peter Thiersch, President of Cordoba Minerals. “It’s too early to tell whether we’re in the same intrusives as the MidCauca or on the same structural trend or something parallel, but we do seem to be further north than was previously thought to be prospective.” Continental Gold is exploring an adjacent concession to the east, and Ashmont Resources a project to the west. “It’s a race to see who gets the best results, before we talk about opportunities to consolidate, which would probably be the most attractive scenario,” he says.

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We’re exploring on an apparent northern extension of the Mid-Cauca Belt. There will be much more to talk about once we start drilling.

Peter Thiersch President Cordoba Minerals

The Córdoba property contains at least five areas of interest, but its main target is Montiel, an abandoned artisanal gold operation that exposes an area of strong quartz-magnetite stockwork veining over an area of roughly 200 square meters. A program of 5,000 meters of diamond drilling is now in the permitting process, with a second contingent phase of drilling aimed at the other anomalies across the property. Sampling has returned significant gold and copper values in soils and rocks, suggesting that Montiel may

córdoba

host a copper-gold porphyry system. “It seems something big is going on here,” says Thiersch, “as we have multiple ’windows’ of porphyry, skarn, and alluvial-style mineralization popping up across the property.” Cordoba has already dug a series of trenches across the Montiel target, with results as high as 0.90% Cu and 21m at 1.76g/t Au. Cordoba currently owns an 11% interest in the property and under the terms of the option can earn an additional 40% by spending $15 million on exploration over the next two and a half years. About half of the project’s concessions have been granted so far, but Cordoba is waiting for approval of key concessions before starting the full drilling program. For now, the company is 100% focused on the Córdoba project, but is always reviewing potential acquisitions as well. “It seems like everyone’s uncle has a gold project to look at in Colombia,” jokes Thiersch. “The country is so prospective that there are many great opportunities here and we’re happy to be a part of it.”

box tectonic setting of the COrdoba Project

The Mid-Cauca Belt has been the focal point of gold exploration in the recent Colombian gold rush. Large deposits like Titiribí and La Colosa have cemented the Belt’s reputation as the host of world-class deposits, and have attracted explorers to the entirety of its 450-kilometer length. Despite the interest in the MidCauca Belt, exploration largely ebbs in the north.

Only a handful of juniors, such as Cordoba Minerals, Continental Gold, and Ashmont Resources, have established a presence in the department of Córdoba.

There is an extensive mining tradition in gold, coal, and nickel. Alluvial gold mining has occurred throughout the region for centuries, while coal has been mined further to the north. Perhaps the best known mine in the department is Cerro Matoso, the world’s second-largest ferronickel mine, operated by BHP Billiton. Given the fact that artisanal gold mining has taken place for years, many believe that the area to the north of the Mid-Cauca Belt will reveal significant gold deposits once modern exploration is carried out in the future.

The Mid-Cauca Belt is mostly set above the Western Tectonic Realm (WTR), which swings to the west and follows the Panama isthmus. The northern extension of the Cauca lies within the San Jacinto terrane, one of the oceanic terranes that form the Western Cordillera. To

GU - FA

MSP

CAT

CAM

CóRDOBA

CHO

PAT

CCSP

GA Source: Cediel et al., 2003

Geology of the Córdoba Department

TECTONIC REALMS GSR: Gulana Shield Realm = (GS); (GA) Garzón Massif CCSP: Central Continental Sub-Plate Realm = (CA-VA, EC, CR, sl, lb) MSP: Maracaibo Sub-Plato Realm = (ME, SP, SM, Co, CAM) WTR: Western Tectonic Realm = (PAT, CAT, CHO) GU-FU: Guajira - Falcon Composite Terrane

the east the Cauca-Almaguer Fault separates the northern Cauca from the Central Cordillera. Though the Mid-Cauca is largely Miocene, the northern extension is Cretaceous with many diorite, quartz monzonite, or quartz diorite porphyries. Geologists have not yet determined the age of the porphyry intrusions, leading many to believe that they are similar to the Upper Miocene monzonite porphyry stocks located further to the south. Results have been encouraging from projects including Cordoba Minerals’ eponymous property; as exploration is advanced in the northern extension of the Cauca geologists will better understand the region’s deposits.

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leader insight Jaime Ignacio Gutiérrez Bernal General Manager CIIGSA

As the manager of CIIGSA, Colombia’s leading gold smelter, Jaime Gutiérrez has built a business based on refining legitimate gold sources. Most mining companies in Colombia know that artisans have been mining some of the country’s best geology for generations. But Gutiérrez contests that the environmental and social impacts of this type of informal mining create an urgent need for its formalization. Gutiérrez was closely involved with the effort to formalize the artisanal miners at Gran Colombia Gold’s Frontino Mines.

Mineral Arts

Antioquia has been at the center of gold exploration since the 16th century, so it is only natural that my family has been in the precious metals business for over 100 years. In his 1937 Gold Deposits of the World report, renowned geologist W. H. Emmons estimated that 49Moz of gold was produced in Colombia between 1492 and 1934 via traditional methods like panning and sluicing. Today most mining continues in this manner; Antioquia alone has about 1,600 informal gold mines.

These methods, though a traditional livelihood for many Colombians, hurt the environment and, in some cases, can fund illicit activities. Foreign companies exploring in Colombia already know that the best gold properties usually have had generations of local miners and so they must know how to formalize these activities in order to reach a mutually beneficial agreement.

In 2011 Colombia exported 54 tons of gold, but the exact figure for production is unclear because of the lack of formality in traditional methods. Of this figure 10 tons came from recycled scrap gold and 10 more tons came from “legal” mines, leaving 34 tons with unknown origins.

Artisanal miners are usually wrongly associated with illegal mining—it is very important for informal artisanal miners to continue to produce gold. It’s how they’ve lived for generations.

CIIGSA is the only smelting and refining company in Colombia that can guarantee that every gram of its gold comes from legitimate sources. Most of the companies that are producing gold in Colombia are selling it to me, and we make sure that we acquire all gold from legal sources. In the past I have worked with large companies like Gran Colombia Gold to formalize artisanal mining which improves the situation for both the artisanal miners and the mining company.

To formalize artisanal mining we work directly with foreign investors to build small processing plants for the local miners.

Today CIIGSA is part of Gran Colombia Gold, and like most miners, when they first arrived at their Frontino site they found a community of artisanal miners already working three mines. At first it was hard to organize them and sign a contract but today we have 1,400 people working under contract. The only problem we have now is that the plant is running at overcapacity.

We want the artisanal miners to continue working the land with better equipment and under better working conditions.

My plan ensures this by providing small processing plants and clearly defined labor and environmental agreements. The miners continue to extract material—but now it’s processed in efficient and nonpolluting plants. We pay a percentage to the miners for the material extracted, which is higher and more reliable than their informal markets. Formalization also ensures proper royalty payments. There has been a lot of corruption in the royalties system. For example no one could guarantee the origin of the gold, and it was common for gold produced in one city to be declared in another by corrupt mayors who would then pocket the royalty and pay informal producers a smaller percentage.

Artisanal miners are usually wrongly associated with illegal mining—it is very important for informal artisanal miners to continue to produce gold. It’s how they’ve lived for generations.

The construction of small plants has three concrete results that benefit everyone involved. The first is the reduction of mercury and open-circuit cyanide, which prevents contamination. Second, the miners understand the opportunity cost of processing ore and focus only on extracting ore, leaving the mining companies to process it in a more efficient manner. Finally, artisanal miners will understand the economics and will focus only on the high-grade sections of the vein, reducing the impact on the land. It’s a financial solution to a financial problem; by building the plants for the local miners we can probably formalize 90% of artisanal operations.

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base metals & Uranium

76

lead article

Copper is being born.

Before, nobody Would have known the difference from the mother lode.

Now, It is man, Part of man, A heavy petal of his glory

W

—Extracted from "Ode to Copper," Elemental Odes, by Pablo Neruda

hen Chilean Nobel prizewinner Pablo Neruda penned his “Ode to Copper” in the early 1950s his country was embarking on a major expansion of its mining industry.

Although the poet was no fan of the entrance of US firms into the Andean nation, the ensuing years have demonstrated the powerful effect of the mining industry on the Chilean economy. Today the country produces around a third of the world’s copper. Chile has the highest GDP per capita of any Latin American nation and it became the first country in the region to join the Organisation for Economic Co-operation and Development (OECD) in 2010. It is estimated that in the last eight years, state-run firm Codelco, often working in partnership with foreign mining companies, has contributed $56 billion to government coffers. If Colombia were to share even a fraction of Chile’s prospectivity for the red metal it would have a transformative effect on the country’s mining industry. But does it?

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lead article

$20m additional royalties paid by bhp in august 2012

Atico’s El Roble copper mine lies in the jagged volcanic landscape of Chocó department

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At present the country’s only operating copper mine is El Roble in Chocó.

Operator Minera El Roble is exploiting a volcanogenic massive sulfide (VMS) deposit at the mine, which has been active since the 1980s. The mine was originally operated through a JV between two Japanese companies; however, they left in 1998 due to issues with security.

The mine has produced nearly 1.5Mt of mineralized material averaging 2.5% Cu and 2.5g/t Au. Production is limited by a 360–ton per day plant, which produced 4,042 tons of copper concentrate in 2011.

Atico Mining, the ambitious junior which

signed an option agreement to explore beneath El Roble, has plans to increase the size of this plant to about 3,000 tons per day within two years. Atico’s drill results to date suggest that El Roble is in fact sitting on a much larger VMS deposit than previously expected. One drill hole released in November had an 18.5 meters intercept with grades of 10.3% Cu, 2.1 g/t Au, and 6.59 g/t Ag. In the medium term, Atico’s CEO Fernando E. Ganoza plans to expand El Roble into a mid-sized operation, and sees potential for Colombia to become a larger copper producer, especially if key infrastructure is put in place. “At this early stage, it’s possible that some projects will only be viable if we have a smelter here,” he explains. “In terms of our strategy—

industrial minerals production 60,000 50,000 40,000

non-metallic minerals 2007–11 copper Ferronickel (concentrate) container

700,000 iron ore

600,000 500,000 400,000

30,000 300,000 20,000 10,000

200,000 100,000

Source: SIMCO

tons of iron ore

Codelco is not the only major with Chilean experience establishing a presence in Colombia, however. Since 2007 Anglo American, which produces 620,000 tons per year of copper from its five Chilean mines, has been exploring for the red metal in seven departments across Colombia. The work is in its early stages and so far only one of its licenses, in Tolima, has been drilled, but the presence of the British major is a sign of the long-term potential of the base metals sector in Colombia. Most copper plays to date have been focused in the same belt, the Mid-Cauca, that has unearthed the country’s major gold discoveries. B2Gold’s Mocoa project, a coppermoly deposit in the southern department of

Putumayo, has a historical resource of 306Mt at 0.37% Cu. CuOro Resources’ Santa Elena project in Antioquia has a historical resource of 27Mt at 1.88% Cu.

TONS

Few people are better placed to answer this question than Diego Hernández. Prior to his resignation in May 2012, the then-president of Codelco announced that the firm would invest upwards of a billion dollars in Colombia over the coming decade. Speaking to the Colombian weekly Dinero, he said that there was reason to believe that Colombia should host copper deposits similar to those found further south. In addition to Chile’s massive reserves, Peru already has major copper mines in production and mineralization has also been found further north, in Panama.

Although Codelco has not purchased a mining title in Colombia to date, exploration is expected to begin in 2013 and the firm is widely expected to be a key bidder for the strategic areas scheduled to be tendered out by the National Minerals Agency.

box

Iron Will

Iron Ore Production in Colombia (Q1–Q3 2012)

For those investors watching from the sidelines, the development of a new project in one of the country’s traditional iron ore regions will be of particular importance. Andean Pacific Iron (API), part of the same holding group as Pacific Rubiales­—Latin America’s largest independent oil firm—and Pacific Coal, have invested over $10 million in the rejuvenation of a pig-iron mill in Zipaquirá, 50 kilometers from the capital. Beginning production in July 2012 with an initial output of 120,000 tons of pig iron per year, the firm has plans to expand annual capacity to 400,000 tons in the second phase of development with an eye to producing over a million tons per year by 2017. API is also applying for 3,500 hectares of iron ore mining titles in Boyacá and Cundinamarca departments.

Source: UPME

Some of the world’s largest iron ore deposits, such as Vale’s Carajas mine in Brazil, are located in the Amazon region. Although Colombia’s iron ore production has dropped markedly over the last decade in tandem with the decline of the country’s heritage iron and steel producer, Acerías Paz del Río, the sector has seen a number of new investments in 2011 and 2012 that could be the forerunners of a renewed focus on this crucial commodity. In January 2012 the National Minerals Agency identified a large swathe of the east of the country to be offered up in future auctions as strategic areas.

Among eleven minerals targeted in this area, a significant area will be earmarked for iron ore exploration.

The project has also attracted international attention. In September 2011, Korean firm Posco, the world’s fourth-largest steel producer, entered into an agreement with API to extract iron ore and coal from the region around Zipaquirá. Posco also tied up a deal with local autoparts producer Fanalca to establish a factory to produce large diameter steel pipes. The move was the latest in the Korean firm’s deepening presence in Latin America and it already has exploration projects in Chile, Bolivia, and Brazil. The development of large energy and infrastructure projects in the Andean region is a major draw for Posco, and officials have estimated that demand for steel pipes in Colombia, Ecuador, Peru, and Bolivia could hit 200,000 tons by 2015, compared to 30,000 tons in 2010.

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lead article

Drilling in the jungle often presents miners with extreme logistical challenges

which involves looking for high-grade, high-margin assets—the lack of a smelter is not a constraint.” Currently the copper concentrates produced at El Roble are exported for smelting in Asia.

In one area, Colombia’s base metals potential is already firmly established. BHP Billiton’s Cerro Matoso ferronickel mine at Montelíbano, in the Córdoba department, has been in operation since 1982 and is the second-largest producer of ferronickel in the world. The operation, encompassing a lateritic nickel smelter and a mine, produces the highest-grade nickel in the world, which is used exclusively in stainless steel production. In 2011, Colombia’s total ferronickel production fell by 23.5%. This significant drop in production is explained by the stoppage of a single smelter for a scheduled cleaning; production typically averages about 50,000 tons per year, about 4% of world output.

Cerro Matoso has an estimated mine life of 40 years, but politics could cut its exploitation short. Cerro Matoso was operating on three separate mining contracts, two of which expired on September 30, 2012. The disaccord between the state, the public, and BHP Billiton stems from accusations of nonpayment of royalties and environmental contamination, despite BHP Billiton paying an additional $20 million in royalties to open negotiations in August. The government agreed to

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allow the mine to continue operating until 2029 under one contract from 1996. However, the mine still faces stiff opposition, with many congressmen claiming the contract is illegal and demanding additional compensation of 62 billion pesos ($34 million). For now the mine can continue in operation until 2029. Investors should be prepared for a debate over whether the mine can live out its full life until 2042.

97%

uranium recovery rate at u3o8 corp’s berlin project Exploration has also shown potential in uranium and rare earths. Canadian junior U3O8 Corp.’s Berlin project, located in the Caldas province in central Colombia, has a historical resource of 38Mlb of uranium, based on exploration that took place in the 1980s. U3O8 has developed an NI 43-101–compliant indicated resource of 1.5Mlb and an inferred resource of 19.9Mlb. “Our initial resource of 21Mlb of uranium came from drilling on only a three-kilometer section of the Berlin trend,” says Richard Spencer, U3O8’s President and CEO.

“We have done exploration drilling in another three-kilometer sector of the trend and can see potential for an additional 25–30Mlb of uranium.” Just as exciting is the presence of phosphate, vanadium, and rare earths at Berlin.

Metallurgical testing has shown that the recovery rates are extremely high; results include 97% uranium, 97% phosphate, 79% vanadium, and 96% yttrium. The diversity of metals will give the company access to several markets and help it weather slumps in the business cycle.

With the prices of key base metals such as copper, iron ore, and ferronickel tightly bound to global growth rates, most forecasts for 2013 expect current prices to remain stable, without a rebound to early 2011 levels. But this will have little impact on the firms currently exploring the country for a diverse range of minerals. Most projects are several years away from production and the medium- to long-term demand from China appears strong as the world’s fastest-growing economy looks to boost local consumption. Colombia’s potential for base metals, uranium, and strategic minerals remains a speculation, albeit one supported by numerous geologists.

With a combination of juniors and majors set to accelerate their exploration work in the coming years, an understanding of the true wealth and diversity of Colombia’s mineral endowment could be just around the corner.

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Project focus

Atico Mining (TSX-V: ATY) Chocó department Copper 2013: Phase 2 drilling

El Roble

Colombia has the potential to draw a significant portion of its mining revenue from base metals, with copper playing an important role—or at least according to Fernando Ganoza, the CEO of Atico Mining. It is this belief that underpins Atico’s exploration on the El Roble property, Colombia’s only volcanogenic massive sulfide (VMS) deposit in production, which for the past 22 years has produced high-grade copper-gold concentrates.

VMS deposits, created by undersea volcanic activity, represent a significant source of the world’s copper, zinc, and lead. They tend to occur clustered in districts that can have considerable tonnage. Ganoza believes that the known VMS deposits in Colombia are just a small indication of the larger possibilities.

“As a VMS deposit that we expect to take to a midsize operation, El Roble is as good as it gets in terms of fitting our strategy,” says Ganoza. Atico has an option agreement with mine operator Minera El Roble, opening a two-year window for exploration. El Roble has mined 1.5Mt with an average 2.5% Cu and 2.5g/t Au from its location on one VMS deposit.

However, the real upside, from Atico’s perspective, lies in the exploration of nearby greenfield sites where promising geochemical and geophysical anomalies have been identified. By January 2014, Ganoza hopes to have identified resources

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El Roble is a VMS deposit that we expect to take to a midsize operation. It’s as good as it gets in terms of fitting our strategy.

Fernando E. Ganoza CEO Atico Mining

to sustain a larger operation than the current 400 tons per day at El Roble, with a goal of increasing production up to 3,000 tons per day.

So far Atico has had a good start. In July, the company announced the first results of a 16-hole underground drilling program from the 2000 level, aimed at testing mineralization at depth. Highlights included 41 meters of 6.49% Cu, 17.57 g/t

Au, and 13.26 g/t Ag. The mine is located on one such VMS deposit; however, Ganoza believes that there is potential in the 8,300-hectare property for other VMS deposits to occur, as suggested by the prospective geochemical and geophysical anomalies identified along a favorable contact for mineralization that runs for 10 kilometers across the property.

The second phase of drilling, begun in September 2012, will test the strongest anomalies identified in the greater land package. It is there that Ganoza expects to find additional high-grade VMS deposits. “There is a coincidence between the geology, geochemical, and geophysical anomalies that makes it very interesting," says Ganoza. Since beginning exploration at El Roble, the company has identified favorable targets for additional mineralization. With drilling slated to begin on schedule, Atico looks to be at the vanguard of Colombian copper.

Historical Cu-Au production at EL Roble

Source: Atico

q&a

the pioneer’s

perspective

Robert G. Carrington CEO Colombian Mines Corp.

Robert G. Carrington was one of the earliest foreign explorers on Colombia’s mining scene, arriving in 1992 when the country was still a rugged frontier market. Security was such a challenge Carrington needed to be airlifted to exploration sites. Now CEO of Colombian Mines Corp., Carrington says his days are far less daring. But with a frustratingly lethargic licensing authority, there remains a hint of the frontier-like challenges from the early years.

What progress was made on your Yarumalito project in 2012?

About 200 meters above one of our main veins, on the mountainside, we’ve done numerous soil chemistry tests where we found a major soil anomaly. That particular anomaly is extremely strong and is roughly one kilometer in length.

We sent some crews in there that discovered sulfide, and we see high potential for uncovering a volcanic massive sulfide deposit. In mid-2012 we took on an expanded geochemistry survey, and now we aim to start drilling in January 2013, focusing on three main areas. All 15,000 meters of previous drilling were located in the same area, and each of these main targets has similar potential.

When do you expect to secure the permits for the project?

Under Colombian law we should have them honored before August 1, 2012. But this is the trouble with Colombian agencies: they simply don’t feel obliged to obey Colombian law while everyone else is expected to. I’ve been working in this country since 1992 and I’ve been one of its greatest champions, but the current administrative situation with the regulatory framework is coming very close to killing what could be a promising future. Many, many companies are having the same problem.

Is this something that scares other companies away from entering Colombia?

It’s starting to seriously concern both companies coming into Colombia, and shareholders of those who are already here. The problem is, whether I like Colombia or not, if my shareholders decide they don’t want to be here, they can move—and I’ve got to be where they want me to be.

What needs to be done to change this?

Most countries in their permitting and regulatory process require applicants to get certain things done within a certain number of days. Then the government needs to respond within another set timeframe. And then, in most countries, if the

government fails to do that in a timely fashion, something automatically defaults. Colombia has step one and two but it doesn’t have step three. Colombian Mines has applications that it filed in early 2007, and still hasn’t had approved. Yet they say Colombia is open for business.

Will having all six permits consolidated into one speed up the exploration process?

Once we get the permit under the new mining law, you get an extended period for exploration—it kind of resets the clock.

So through various methods within Colombia’s mining law, we can get up to 11 years for exploration, which at a large porphyry is necessary. The other issue is that by law, Colombian permits have to be proven economical within each license, making it very hard to justify large porphyry systems like this one; the economics simply aren’t there when you’re looking at such a small slice of the project. Consolidation will allow the economy of scale that you need to make these projects viable.

You did metallurgical testing at Yarumalito that brought back a 91.6% recovery rate. What could this mean for bringing the mine into production?

We were bringing up samples the size of my thumb that were 91% gold; most of the other porphyries being developed here in Colombia will have to grind material down to 100 or 200 mesh. It is expensive to do this, and obviously the finer you have to grind, the higher the cost. Many of the other porphyry systems here are drilling 200 to 300 meters before encountering mineralization.

What does your JV with Tech say about Yarumalito’s potential?

I think Yarumalito is going to be one of Colombia’s big porphyry gold systems. Tech would not have come into Yarumalito if they didn’t think it was worth it; a company of Tech’s stature has the ability to joint venture with almost anybody, and I know several other juniors were courting them quite earnestly. I think that’s a great big stamp of approval of what we are doing there.

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lead issue

the auction

block

comParátive tax rates (2010)

Robert G. Carrington CEO Colombian Mines Corp.

In early 2012, the Ministry of Mines and Energy laid out a plan to streamline the frustrating backlog of concession applications in Colombia’s Cordillera region. A total of 2.9M hectares of so-called strategic reserves would be sectioned off in order to expedite applications that had long been hanging in the balance— reserves that would be relinquished by the government and auctioned off to the highest bidder. Months later, another 17.6M hectares in the southeast—regions rich with gold, iron, coltan, and uranium­­—were also marked off by the mining department and newly formed National Minerals Agency (ANM).

The announcements put foreign mining firms on edge. The government pledged to leave legitimate mining titles to their respective owners, leaving unprocessed applications to the Ministry of Mines and Energy. Many juniors would be stripped of their claims. Gold juniors in particular vocally dismissed the plan as unfeasible, saying exploration should be left up to internationals with the resources to discover potential alterations. In addition, the auctioning process would likely elevate land prices, leaving cash-strapped juniors with little capital to move exploration forward. “Really for juniors, they can’t take on these kind of vast areas simply because the cost of holding the land is so high," Colin Andrew, CEO of Sunward Resources, told Canada’s Globe and Mail newspaper in August.

Government coffers could potentially see a healthy increase as a result of the plan, though many in the industry are skeptical of the government’s ability to conduct its own drilling campaigns.

The ANM has a reported $250 million readily available for exploration, but very little of the existing historical data on these claims is dependable; exploration costs are expected to be immense. In response to this, mining firms contend that surface canon payments should be returned if the government regains ownership, which hasn’t happened to date.

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The creation of these national reserve lands that they’re going to “evaluate” and then auction off to the highest bidder could lead to problems.

The government says it will issue the land to the highest or most qualified bidder, but in Colombia that could well be someone’s brother or uncle. I see room for problems with the system. At a time when they’re trying to tell the world they’re open for business, they are backpedalling. I don’t see it as a step forward but a giant step back.

María Constanza García President ANM

The backlog with new concessions is a big challenge for us. But we’re looking to make the information on these claims more straightforward; we need a centralized system to distribute mining titles. Because of our current fiscal system we have to outsource the necessary geological work to capable mining firms with plenty of capital. But we are putting the house in order: everything is going to be clear. We’re going to check the legal, technical, and financial situation for every title we have.

David Arce Rojas President Arce Rojas Consultores

One of the best steps the government has made, in my opinion, was to stop awarding titles to buyers without consideration. It requires very high technical expertise to properly develop these plots; this auctioning of strategic assets is an attempt to restrict land sales to those who really intend to invest.

Right now anyone can buy these plots. We have discovered many regular people with only a small amount of money who can own a large portion of land in Colombia.

lead ISSUE strategic reserve areas

chocó VICHADA

GUAINíA

guaviare

Gold Ore Source: Servicio Geológico Colombiano

Coltan Ore VAUPéS

Iron Ore Platinum Ore Mining Titles: 48 (81,000 ha) Existing Applications: 961 (4.7 million ha)

amazonas

STRATEGIC RESERVEs STATisticS

TYPE 1

TYPE 2

TYPE 3

5.1M ha 7.4M ha 8.5M ha These 33 areas have acceptable geo­l ogical, geochemical, and geophysical knowledge and are potentially prospective for strategic minerals including gold, siver and copper

These 119 areas have less geological, geochemical, and geophysical knowledge and potential to host mineralization for strategic minerals including gold, platinum, copper, phosphate, uranium and metallurgical coal

These 61 areas have low geological geochemical and geophysical knowledge and are thought to hold potential for gold, copper, platinum, coltan, iron, potassium, magnesium and phosphates exploration

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q&a

uranium Richard Spencer President & CEO U3O8 Corp.

nation

Canadian explorer U3O8 Corp. has defined a 21Mlb uranium deposit at its flagship Berlin project—but Berlin also boasts phosphate, vanadium, and rare earths, which will likely boost Berlin’s competitiveness in uranium production. With a promising preliminary economic assessment out in December 2012, Richard Spencer, U3O8’s CEO, plans to drive growth with Berlin as Colombia’s first significant producer of uranium.

Berlin is a multi-commodity deposit. What are the benefits of this over a single-commodity project?

The multi-commodity profile of Berlin gives us exposure to various markets from uranium for nuclear energy, vanadium for steel and industrial batteries, to phosphate for agriculture, and rare earths for the electronics and renewable energy industries. Exposure to these diverse markets provides a natural hedge because a downturn in the agriculture sector, for example, is unlikely to coincide with weakness in the steel or nuclear industries—hence the extensive metallurgical testing we have done to demonstrate that we can extract the different commodities. A preliminary economic assessment is also underway with Bateman Engineering, a firm with extensive international experience designing plants for uranium, phosphate, nickel, vanadium, and rare earths. The fact that an experienced, independent third party like Bateman is involved in this work should provide credibility for the value potential determined for the Berlin project.

Two years on from the Japanese disaster, what is your outlook for the uranium market?

We are positive on the uranium market for several reasons. First, Japan is showing signs that nuclear will continue to be part of its energy mix, has turned two reactors back on, and has restarted construction on a new reactor. Second, growing nuclear projects coming from China, India, South Korea, Russia, and some Middle Eastern countries will be the major drivers for more uranium supply. The UAE, one of the world’s leading oil producers, is moving quickly in building its reactors and recently signed $3 billion in deals to ensure 15 years of uranium fuel supply for its reactors. Utilities don’t normally sign these contracts so early, so we see this as an indication that there’s concern about a shortage of uranium fuel. The fourth important point is that the USRussian program in which Russian nuclear warheads are downgraded into nuclear fuel comes to an end in 2013. This accounts for 14% of the world’s current demand and highlights the looming supply gap forecast to emerge in the near term. All of these reasons, combined with delays in major uranium projects that would have added to mine supply, contribute to a positive outlook for uranium and the growing need for new uranium production from deposits like Berlin.

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Colombia boasts a long tradition of gold mining, but locals are less familiar with uranium. What has the reaction from the community been, and how do you ensure safety?

Community response has been very positive. Our team is engaged with local residents, and is based in one of the houses in the Berlin village, so there’s complete transparency of our operation. We have worked jointly with the community to improve nutrition; help set up adult education and senior fitness programs; helped clean up the community’s potable water supply; and introduced alternative food crops tested in a vegetable garden that is open to the community.

We have worked to enhance awareness as to how uranium-bearing rock should be managed so as to maintain radiation exposure to well within recommended limits. For example, one of the main sources of radiation is dust generated during crushing of the mined rock— to control this, we’re planning to locate the crusher underground to avoid dust reaching the open environment. We minimize our environmental footprint through the use of man-portable drill rigs so that we don’t have to construct access roads to drill sites, and we also use an overhead cable system to transport people, machinery, and supplies into the exploration areas. Our projects are intended to be collaborative and to empower the community.

What are the company’s plans for 2013?

Given its size potential and high-value mix of commodities, Berlin is our key driver and the company maker for U3O8 Corp.

Our initial resource of 21Mlb of uranium came from drilling on only a three-kilometer section of the Berlin trend. We have done exploration drilling in another three-kilometer sector of the trend and can see potential for an additional 25–30Mlb of uranium.

Further exploration drilling across the whole 10.5-kilometer trend is planned in 2013. We also plan to complete infill drilling with the aim of increasing that current resource towards our ultimate goal of 60–80Mlb of uranium. We expect the resources in phosphate, vanadium, rare earths, and other metals to increase in tandem with the uranium resource. We will also continue to optimize the metallurgical process to build on positive results as we progress towards prefeasibility studies on Berlin.

the blue gold rush

As international firms clamor for a spot on Colombia’s Mid-Cauca Gold Belt, anticipation is also building over the country’s coltan reserves. So far explorers have only managed to confirm that significant coltan deposits exist—but plans to exploit this key commodity have raised controversy, given that many deposits lie in national parks inhabited by protected indigenous communities. Some of these isolated sites also suffer from threats from local guerrilla groups, despite the vast improvement in security over the past 10 years and the peace talks now underway between the Santos government and the FARC.

Coltan, or columbite-tantalite, contains a valuable corrosion-resistant element called tantalum. The Tantalum-Niobium International Study Centre (TIC) qualifies Australia and Brazil as the world’s largest suppliers of coltan, with other known deposits in Ethiopia, Mozambique, Nigeria, and Russia, among other regions. Coltan is used to create tantalum capacitors, a key component in myriad electronic devices. As modern technology spreads across the globe, global reserves of coltan will become ever more crucial to satisfy consumer needs. A 2010 European Commission report classed tantalum as one of 14 “critical” raw materials in the world today, allocating this obscure metal a spot beside graphite, cobalt, and platinum group metals. In 2012, high-quality coltan is reported to sell for roughly $50 a pound, but the price has spiked to as high as $300 a pound in recent years.

The exact size of the global market is unknown as there is no public commodity price index for the mineral and most purchase contracts are confidential, but estimates peg the value of the annual coltan sales at about $150 million per year. Furthermore, diplomatic negotiations

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with Korea and China have indicated an eagerness on the part of Asian nations to get hold of coltan exports.

In Colombia the recent discovery of coltan reserves in the national park regions of Vaupés and Guainía prompted former Minister of Mines and Energy Mauricio Cárdenas to worry publicly that much coltan mining was controlled by “shady interests,” particularly the activity along the eastern edge of Colombia. “We are seeing the emergence of illegal groups engaged in mining activities, especially in rare-earth [minerals] in the eastern part of Colombia,” he said. That spurred the government to restrict foreign mining firms from bidding on coltan claims, leaving the land to the state. In 2009, with the intent of reducing violence at the border and preempting guerrilla control of a strategic resource, Venezuelan president Hugo Chávez seized all Venezuelan coltan deposits at the Orinoco border and assigned 15,000 military personnel to protect the reserves, an action known as Operation Blue Gold.

The controversy continued in 2010 when the US Congress included a minor provision in its 2,200-page financial reform bill, the Dodd-Frank Act, classifying coltan as one of four “conflict minerals" and requiring companies who used such minerals to file reports on the minerals’ origins.

The legislation set off a firestorm between human rights groups and the many US public companies hit by the provisions, estimated to number over 6,000. Most recently, an inquest carried out in March 2012 by the International Consortium of Investigative Journalists showed video footage of local indigenous residents illegally mining the mineral under the auspices of guerrilla groups. As of yet, Colombian coltan extraction has not been officially declared, despite its purported potential.

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mining technology & services

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lead article

MODERN

Times C

ocos, or small-scale artisanal ball mills, are a common sight at Colombian gold mines, their enormous cylinders ordered into rows like pistons in an oversized motor. Workers fill the mills with ore and mercury and spin them before separating the gold with cyanide. This method of processing ore is a prime example of the widespread traditional mining culture that persists in Colombia today. The prevalence of traditional mining and the years Colombia spent closed off to modern exploration restrained the development of a modern mining technology and services (MTS) sector. Only a few years ago, gold explorers had to make great efforts to secure efficient service and equipment providers if they were located in the interior of the country, far from the large coal mines on the Atlantic.

PHOTO: Cliffmont Resources

Today the landscape is radically shifting: MTS companies have made large strides in Colombia, despite a gloomy financial backdrop. Though far from perfect, companies looking to explore in Colombia now have an adequate MTS sector available to support their project requirements.

The sector covers drillers, construction companies, mineral samplers, and surveyors, while at the same time it includes suppliers of machinery, chemicals, and geotextiles. Many international names, such as Liebherr or Mining Leaders

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lead article

Providing and maintaining equipment appropriate to Colombia’s tricky terrain is a key task of the country’s MTS providers

Boart Longyear, have established permanent operations in the Colombian market. The availability of products and services has improved significantly—to the point that bottlenecks now result from bureaucracy or lack of infrastructure rather than a lack of suppliers. Delays at customs are a common worry for MTS companies that need to import supplies from abroad, but the Colombian government’s ambitious free trade agreements (FTAs) with the United States and the European Union should mitigate these difficulties. Once implemented completely, these FTAs will significantly reduce holdups and costs for mining companies. As witnessed in the Mining Leaders Investor Survey 2012, the principal limiting factors are now bureaucracy and security, while human resources and local service providers are the least troublesome.

The big story for Colombia’s drillers in 2012 was Boart Longyear’s arrival on the market: the Salt Lake City–based drilling services and products supplier opened a distribution center in Medellín in January. Boart Longyear was previously present in the Colombian market through distributors, but in the last year, much like many other MTS companies, the company’s board saw the opportune moment to establish a permanent presence. For now Boart Longyear will begin by supplying drilling products to the market—a move that eases the supply chain for drillers, but more importantly confirms Colombia as a top-tier destination for the world’s largest MTS companies.

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In the minerals inspection sphere, Actlabs, a Canadian company with a presence on four continents, opened a new testing facility in Medellín during the summer of 2012, after deciding that its Lima laboratory could no longer keep up with the shipments of samples from Colombia.

At the same time Swiss verification company SGS also opened a brand-new mineral testing center in Medellín in August. The $4 million facility now serves explorers working in Colombia, Central America, and some of the Caribbean.

May 15,

2012

Implementation Date of

US-Colombia FTA

There are still challenges to conducting exploration in Colombia. The lack of infrastructure, difficult terrain, and security issues can thwart explorers entirely in some parts of the country.

That said, MTS companies are adapting their businesses to gain the necessary capabilities to work in Colombia. Drilling companies employ lightweight portable rigs, which must be hauled in manually.

“The best word to describe drilling in

Colombia is tricky,” explains José Alzate, the general manager of Logan Drilling.

“It’s usually deep drilling with large diameters, but the access is very difficult.

So you need a powerful rig in order to access these hard-to-reach areas.”

Despite the challenges of the terrain compounded with the tough financial markets that reduced Colombia’s total meters drilled in 2012, drilling companies are still increasing their capacities and bringing in more rigs. AK Drilling International increased its drill count from four to nine over the course of the year. Steve Petrovich, the firm’s CEO, is optimistic about the future of exploration in Colombia and plans to have 15 rigs in the country in the future. John Versfelt, CEO of Cabo Drilling, also predicts increasing demand. His company plans to double its number of drill rigs in Colombia over the next year.

Demand is rising not only for drillers but for machinery, too. Leading international heavy machinery suppliers also established independent presences in Colombia during 2011 and 2012 to serve the needs of the large open-pit coal mines.

In the past the most common method to procure machinery such as trucks and excavators was to go to a used machinery auction in the United States. But demand has now outstripped supply, and auctions no longer serve as viable sources. Though

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lead article most machinery is still made in US or European factories, some companies are beginning to manufacture locally. Austin Engineering, the ASX-listed builder of OEM truck bodies, entered the Colombian market in 2011 to build a 4,800–square meter factory in Barranquilla. “We saw enough potential in the market to justify not entering with a joint venture. The difference is that Austin usually buys businesses when moving into a new market,” explains Guillermo Zumarán, the manager of Austin Engineering’s Colombia operation. “Colombia and Indonesia are the exceptions to the strategy. With our new facility in Barranquilla, we started everything from scratch.”

On the other side of Barranquilla, on the banks of the Magdalena River, Liebherr, the German manufacturer of excavators and trucks, opened a component and spare parts warehouse along with a remanufacturing workshop. The company went further and opened a separate sales office in Bogotá in January 2012. One of Liebherr’s rivals, Komatsu, also saw the need to strengthen its position in the local market. Komatsu decided to consolidate its business in Colombia by restructuring its presence under a single mining dealer, Tecpalsa. The company plans to deliver three new large hydraulic shovels over the next year. Coal operations are currently the target for machinery manufacturers, yet with a number of gold mines set to move toward production, there are more reasons than ever to enter the burgeoning Colombian market now.

Global Nonferrous exploration budgets by region, 2011

8%

5%

13%

25%

15% 18%

16% Latin america

canada

europe/asia

africa

australia

united states

pacific islands

Source: Corporate Exploration Strategies

Inadequate infrastructure impedes growth and will continue to hold Colombia back in the future. Firms like Liebherr and Komatsu manufacture high-level equipment, but Colombia is largely unprepared for this class of machinery. Though mines like Cerrejón employ large, 320-ton trucks, most of Colombia’s roads are not ready for trucks of this size—and definitely not the 400ton trucks used at the large mines in countries like Chile.

According to Zumarán, the largest truck that can drive on Colombia’s roads is Caterpillar’s 793 model (250-ton) truck; but even then, he notes, after a new truck body is built at the Barranquilla factory, it must be split into three pieces so it can be transported on narrow gravel roads to the mines.

The years that Colombia was closed to business because of security problems impaired growth not just in the mining sector, but in the entire economy in general.

With security restored to most parts of the country, exploration companies and multinationals have arrived en masse to take part in the growth of the extractive industries. The arrival of so many MTS companies removes many of the bottlenecks that once hindered exploration, yet there are larger issues that plague the whole country such as the lack of infrastructure and security that still make business next to impossible in certain parts of the country. Nonetheless, the decision by many of the large international MTS companies to set up bases in Colombia reflects its improvements and portends a bright future for the extractive industries and for the economy overall.

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company focus

Liebherr-Colombia SAS Mining excavators, trucks, parts, customer support Colombia offices: Barranquilla, Bogotá Clients: Masering, Excavaciones y Proyectos de Colombia, Cerrejón, Rex Ingeniería

It is a sign of the growing stature of the Colombian mining industry that the world’s leading providers of heavy machinery are expanding their presence in the country.

Liebherr, a family-owned German company founded in 1949, is one of the most established names in the provision of hydraulic excavators and mining trucks. Today the firm has more than 35,000 employees worldwide, and raked in over $8 billion in revenue in 2011.

Until May 2011 the company sold its products in Colombia via a dealer. That changed when the firm established its own sales and service company in Barranquilla in July 2011; it then opened a sales office in Bogotá just six months later in order to strengthen its position as a strategic supplier for mining machines in the country.

“Mining is a capital-intensive industry,” says Oliver Hoelzer, General Manager of LiebherrColombia SAS. “Dealers usually don’t have the capacity or finances to fully support the mining industry, so once the industry reaches a certain size, it’s important to work directly with clients.” In Barranquilla the firm has established a warehouse for components and replacement parts along with a remanufacturing workshop,

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to meet the servicing needs of its growing portfolio of Colombian clients.

As part of Liebherr’s vertical integration, many of the major components are developed and manufactured in-house and designed specifically for mining applications.

Oliver Hoelzer General manager Liebherr-Colombia

certified under the standards of its factories, capable of remanufacturing major components such as gearboxes, splitter boxes, and hydraulic cylinders. This investment leaves the company well placed

As a result of the sales efforts done in the past, there are 40 units of Liebherr mining excavators operating in Colombia, with operating weights from 120 tons to 300 tons. Over half of this fleet of excavators correspond to the R984 model, a 120-ton machine with a bucket capacity of seven cubic meters, one of the smaller units in the company’s current product range of eight excavators. At the other end of the spectrum, Liebherr’s largest excavator, the ultra-class R9800, weighs in at over 800 tons.

R9800—Operating Weight Backhoe Attachment

800,000kg / 1,763,700lb

Shovel Attachment

810,000kg / 1,785,740lb

Engine Output

2,984kW / 4,000hp

Bucket Capacity

42,00m3 / 54.9yd3

Shovel Capacity

42,00m3 / 54.9yd3

r984c—Operating Weight Backhoe Attachment

120,100–123.400kg / 264,780–272,050lb

Shovel Attachment

125,100–126.300kg / 275,800–278,440lb

Engine Output

504kW / 675hp

Bucket Capacity

2.90–8.00m3 / 3.80–10.50yd3

Shovel Capacity

5.70–9.00m3 / 7.50–11.80yd3

Source: Liebherr Group

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Liebherr

clearing Customs In the World Bank’s 2013 Ease of Doing Business Report, Colombia ranked 91 out of 185 countries for its ease of trading across borders. The report detailed that on average six different forms of documentation are necessary for the import of goods and that 13 days should be put aside for dealing with import procedures. This compares favorably with the average waiting time of 19 days across Latin America and the Caribbean but is slower than the OECD average of 10 days. A shipping container costs on average $2,830 to import—a figure that has risen steadily since 2007—and there are additional charges of $300 for clearing customs and technical control.

In 2009 the government approved the elimination of import duties and value-added tax payments for equipment and spare parts destined for the country’s hydrocarbons

Despite the fact that the only Liebherr excavators in Colombia are small and mid-size class, the country does have major mines, such as Cerrejón, that boast the infrastructure to deploy ultra-class models. Hoelzer is convinced that now, with its own sales and service facilities in Colombia, the company will be able to introduce ultra-class excavators once the major mining companies begin to renew their HEX fleets. Furthermore, Hoelzer believes that in the medium term projects located in the interior of the country­ —those currently not under development due to the high capital costs associated with failing infrastructure—could soon become a lucrative market for Liebherr’s incoming products.

Cost to import

us$ per container

Importing drill rigs, excavators, and trucks and their component parts is a frequent challenge for mining firms operating in emerging markets. In a capital-intensive industry, a delay in the arrival of equipment or spare parts can result in major additional costs if exploration or production is put on hold as a result. At present, Colombia’s customs system can act as a significant bottleneck for importing firms, but the government is moving ahead with plans to streamline the process.

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Source: World Bank

and mining projects; Colombia is also party to a number of regional and international free trade deals, reducing costs for imports. The government is aware of the need to cut red tape and bureaucracy regarding the customs process. In 2011 it unveiled the Single Window for Foreign Trade (VUCE), an online system whereby importers can sign, pay, and review the status of their import process with any of the 18 ministries and agencies involved in import activities. VUCE aims to cut costs and delays for importers and improve coordination between the various government agencies. Importers need to have a national tax identification number (NIT) and must register any import valued at over $5000 with the National Tax Administration Authority (DIAN).

Most of the firm’s units are currently working on open-pit coal mines in Cesar and La Guajira, but the

$8

billion liebherr’s worldwide revenues for 2011 development of gold projects around Antioquia, such as AngloGold Ashanti’s Gramalote mine, will also require provisions of heavy machinery. Although there are

currently no Liebherr mining trucks in the country, with the 400-ton models unsuited for most of the mines in Colombia due to their narrow roads, the firm unveiled a new 240-ton model at the MINExpo 2012 event in Las Vegas, United States.

“There is interesting market potential in Colombia for this size of truck,” says Hoelzer. For clients already using the firm’s products in Colombia, the Liebherr name has stood as a guarantee of top-end technology, high performance, and reliability. The introduction of a strong customer support team, staffed by employees who benefit from regular training at Liebherr mining division’s production units in France and the United States, looks set to boost the country’s Colombian operations.

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company focus

ISAENG (2012) Underground mine ventilation design HQ: Medellín

Compared to other mining countries like Peru or Chile, Colombia’s underground mines lag in technical sophistication, a gap that largely reflects the mining sector’s development and sparse government regulation. ISAENG’s team of experts in mine ventilation has analyzed more than 10 coal and polymetallic mines throughout the Americas from the United States to Peru. Now their attention is focused on bringing the ventilation in Colombian mines up to international standards of safety and efficiency.

Central to designing good ventilation systems is Ventsim, the world’s leading mine ventilation software. ISAENG is the sole Ventsim distributor in Colombia and offers both software consulting and training. Ventsim models different ventilation arrangements to ensure that toxic gases are removed and that workers breathe good air. “We can test many different alternatives before making the decision to invest some money,” explains Rueda, the company’s founder. “By analyzing the ventilation of the mine, we can take preventative action to ensure the quality of air, to improve safety, and to improve energy efficiency.” ISAENG also offers design beyond ventilation, such as NEi Nastran engineering software for structural and thermal analyses, and American Mine Research products for real-time air quality monitoring and underground communications in the mines. Modern mines have thorough

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Colombia’s underground mines are rather behind in technical sophistication. By analyzing a mine’s ventilation, we can take action to ensure air quality, improve safety, and increase energy efficiency.

Nestor Rueda Founder ISAENG

systems that monitor gas levels in real time, which allows immediate preventive action. Although upon first glance these systems have been seen as an unneccessary expense, they can prevent the devastating accidents that have hurt the mining sector in the past.

Mine accidents grab headlines around the world; the United States saw the Upper Big Branch accident in 2010, while Colombia has also experienced

its share of disasters. The culprit in such instances is poor ventilation, which leads to an accumulation of coal dust and methane. Each disaster could have been prevented by well-designed ventilation systems. Nevertheless, many Colombian mine operators refrain from adopting new technologies. “Miners typically test fans by placing them in different parts of the mines to determine if there is enough air before moving them again.” Lax mining regulation incubates these artisanal practices; however, the arrival of foreign mining companies will likely prove a catalyst in moving Colombia toward international best practices. Though the recent wave of exploration has yet to result in modern mines, many of the prefeasibility studies highlight underground mines as the best method to extract ore from veins. To this end ISAENG hopes to stay at the global forefront of providing custom ventilation systems that could help save their clients trouble and money.

life-Cycle cost of optimizing airways in a vertical shaft

Source: ISAENG

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ISAENG

Project focus

Boart Longyear Sales & distribution of drilling products Colombia office: Medellín 11 employees

Over the course of its 120-year history, Boart Longyear has developed a reputation as the world’s leading provider of mineral exploration drilling services. When the Colombian gold exploration boom began in earnest in the mid-2000s, the firm’s top-end equipment became a fixture in the market and today there are around 50 Boart Longyear rigs operating in Colombia. Until January 2012, however, the company’s drills and products were sold in the country via a network of distributors. Boart Longyear executives had long seen the potential of the market but had held back from entering due to security concerns.

This all changed in May of 2011 when Boart Longyear’s Peruvian team presented to the Executive Committee a proposal for a new office and distribution center to meet the strong demand for exploration in Colombia. “During the Uribe administration, the security situation improved dramatically,” says Pablo Labarca, Boart Longyear’s Country Manager. “We saw a massive demand for gold exploration that we needed to capitalize on. We could have opened just an office and placed orders from Canada or Peru but there was enough demand to justify opening the distribution center too.”

Labarca, a Chilean, manages 11 local employees that coordinate sales,

We believe 100% in Colombia, and we are confident that we will surpass any challenges we may come across.

Pablo Labarca Country Manager Boart Longyear

distribution, and customer service from the new facility.

Inside the distribution center, located in the south of Medellín, orderly rows of tubing, rods, casings, and drill bits are stacked along the length of the warehouse. It is “the best bodega in all of Colombia,” according to Labarca. This extensive range of drilling products is manufactured in Boart Longyear factories in Canada,

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boart longyear Germany, and the United States and is destined for use by Colombia’s leading drilling firms such as AK Drilling International and Major Drilling. On the global level, however, drilling products account for around a third of Boart Longyear’s revenues.

Meanwhile, nearly two-thirds of the company’s revenue is generated from exploration services across six continents. With over 40 foreign junior companies now exploring for gold in Colombia, a move into drilling services would seem the logical step for Boart Longyear’s Colombia division, although Labarca says that the firm has not yet made plans to do so.

“We believe 100% in Colombia, and we are confident that we will surpass any challenges. Colombia is only 10% explored­—the need to drill is immense and Boart Longyear will be here for the long term,” says Labarca.

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Project focus

Komatsu Large mining equipment dealer 5,000m2 mechanical shop 600 employees nationwide Clients: Drummond, Cerrejón, Prodeco, Vale, Pacific Coal, OPM

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Komatsu

Celebrating 90 years of existence in 2011, Komatsu is the world’s second-largest manufacturer of construction and large-scale mining equipment. It manufactures large hydraulic shovels in a German plant with a 100-year tradition in designing excavators. Its equipment has maintained a dominant presence in the Colombian coal industry since the eighties, when it began providing 200-ton hydraulic shovels to Cerrejón and later to Drummond.

Komatsu also has a long history of manufacturing support equipment and mining trucks that are today used in several mining operations in Colombia.

As Colombia’s mining industry began to boom, it became clear that Komatsu had to consolidate its presence in the country. In 2011 Komatsu’s headquarters in Japan approved the plan to restructure Komatsu’s presence in Colombia under one mining dealer, Tecpalsa. According to Andreas Gölzer, Managing Director of Tecpalsa: “Our mining customers want the face-to-face relationship.

They want to deal with one Komatsu mining entity that is directly linked with the equipment manufacturer.”

In December 2011, Tecpalsa become the only distributor for Komatsu’s mining equipment in Colombia. It now reports directly to Komatsu’s

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Our mining customers want a face-to-face relationship. They want to deal with one Komatsu mining entity which is directly linked with the equipment manufacturer.

Andreas Gölzer Managing Director Komatsu Colombia– Tecpalsa

regional headquarters in Chile, a country that plays an important role in Latin American mining due to its long experience in the mining industry. Komatsu’s focus on growing its Colombia presence complements the large investments international mining companies are now making in coal projects as well as new greenfield metals mining projects.

BARRANQUILLA

To consolidate Komatsu’s presence in Colombia, Tecpalsa has recently invested $3 million to build a new electrical mechanical workshop in the Caribbean coastal city of Barranquilla. The shop will offer local repairs of shovel, truck, and support equipment components under Komatsu’s international standards and repair procedures. The shop covers a total of 5,000 square meters and employs 40 workers who come from Barranquilla and are trained in repairing components by experienced senior engineers from one of Komatsu’s mother plants. Choosing Barranquilla was a strategic move: as well as being close to the major coal projects in La Guajira and Cesar, it is an industrial city that boasts not only an experienced labor force but also an international harbor and airport, facilitating the firm’s imports from the different Komatsu factories around the world.

CERREJÓN & CYPA

GALWAY CESAR LA FRANCIA I & II · OPEN PITS

GALWAY GUAJIRA

EL DESCANSO EL BOQUERON · OPEN PIT

Barranquilla beckons

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LA HABANA

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AI

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KINGSTON N SA

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M TA

SAN

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PUERTO COLÓN

CARTAGENA t

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BARRANQUILLA

PUERTO CABELLO

Traditionally Bogotá and Medellín have served as hubs of both business and politics in Colombia. Yet as the Colombian mining industry continues to expand, considerations regarding infrastructure and transportation have led many companies to take a second look at Barranquilla. This port city lies just south of Panama and a few hours’ drive from Venezuela. Central Colombia suffers from poorly developed roadways, no integrated train service, and a mountainous

terrain that causes headaches for mining firms attempting to transport heavy-duty equipment and their mineral products. Barranquilla is being eyed favorably by a number of mining and mining-related companies as a strategic infrastructure hub for the mining industry.

It lies next to the delta of the Magdalena, 7.5 kilometers from the river’s mouth at the Caribbean Sea, and serves as a gateway for river and maritime transportation into and out of Colombia. Its Ernesto Cortissoz International Airport links Barranquilla to major global destinations, and the Ruta Caribe and the Ruta Del Sol connect the city’s major thoroughfares to Cartagena, Santa Marta, Medellín, Bogotá, and Bucaramanga. The entry of the port of Barranquilla is directly linked to five international submarine cables as well as shipping connections to the Caribbean, Northern Europe, Central America, the Far East, and the eastern seaboard of the United States.

Guillermo Zumarán, General Manager of Austin Engineering, says Barranquilla has all the qualities necessary to become the mining hub of Colombia’s future. After Austin Engineering began receiving product requests from places as far-flung as Morocco, Mali, and Australia, it seemed like the natural decision to build a base in Barranquilla. As Zumarán states: “If we had to move our products from central Colombia to the coast, it would cost a fortune; if we shipped from Chile or Australia costs would still be too high. Our new facility in Barranquilla is thus not just for Colombia, but for the international market.”

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company focus

AKD International (2002) Diamond & RC drilling, wireline logging services HQ: Lima Clients: B2Gold, Sunward Resources, Anglo American, AUX, Gran Colombia

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AK Drilling

international In 2002 Steve Petrovich, CEO of AKD International, proposed purchasing the Peruvian operations of AK Drilling, an American company that had fallen on tough times in South America. After Petrovich took over the company, it grew quickly and today it is active in most countries in South America and the Caribbean as a leading drilling provider in the mineral exploration sector. Colombia is one market where AKD International came and conquered quickly. The company has built up a strong reputation in Colombia, and has played an active role in exploration. Despite a slowdown over the course of the year, AKD International has ramped up hiring and today it employs 150 people from its base in Medellín.

AKD International’s capabilities span diamond, reverse circulation, geotechnical, and horizontal drilling. In collaboration with its sister company, Downhole Geo Solutions, AKD can offer a large range of wireline logging services. Given the challenging conditions and shortcomings of infrastructure, the company has adapted its equipment to access remote areas and the unique topographical conditions found within Colombia. It is not uncommon for a drill rig to be suspended from a helicopter high above the Andes en route to a remote drilling site.

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Despite the difficult financial environment, we’ve continued to attract new clients. We are very optimistic that Colombia will remain a stellar mining destination in South America.

Steve Petrovich CEO AKD International

As of July 2012, AKD had nine drill rigs operating in Colombia. But Petrovich sees this number growing, and in the future he hopes to have as many as 15 in the country. “Colombia is fast becoming a leading target within the international mining and exploration industries,” he says. AKD aims to complete any project in any conditions. For deephole drilling, the company can supply EDM 2000 rigs to drill depths beyond 2,000 meters. On projects where the need for

portable rigs arises, AKD has available the Hydracore 2000, which can be carried in. The Hydracore 4000, a very popular configuration within Colombia, has the smallest footprint of a deep hole–capable diamond drill in the industry, achieving depths of 1,500 meters or more.

AKD International boasts an large portfolio of clients over the Latin American region, including majors such as BHP Billiton, Barrick Gold, Newmont, AngloGold Ashanti, Vale, and Gold Fields as well as a wide variety of mid-tier and junior organizations. With strategically located regional offices, AKD International is well placed to provide drilling services to companies throughout South America. AKD International prioritizes health, safety, and environmental management as the cornerstone of any service it provides, and the company takes pride in raising the bar for standards within the Colombian drilling industry.

Source: Direct Industry

market focus

Technology & Automation Colombia’s mining sector is for the most part traditional, a fact evident in many of the country’s gold mines as well as many coal mines in the interior of the country. The contrast between the level of technology of modern mines like Cerrejón and the artisanal one in Boyacá is stark. But bit by bit, mining practices throughout the country are becoming more modern. The family mines, now run by younger generations, are adopting new technologies like electrical generators and safety systems. Herein lies a large opportunity for companies looking to improve miners’ productivity through technology beyond the scope of coal mining.

Both multinationals and local entrepreneurs see Colombia’s mining sector as a good market to develop and showcase their technologies. Manufacturers and service providers have opened local offices to be closer to their Colombian clients and reach new ones. The technologies and services range widely: they can raise the efficiency of processing, specialize tasks, or cut costs by diagnosing problems before they worsen. It is welcome news for Colombia’s miners.

Juan Felipe Arango, General Manager Cooper Crouse-Hinds

The market knows our lighting product, and it knows we are a US-based company. So the focus for us is to meet the regulations the government puts on mining firms. Some companies only think along the lines of profit, but we are more concerned with safety; we are very strict in the products we manufacture. We’re investing in brand recognition, innovation, and training, so that we can remain a leader in the IT industry—our LED lighting systems consume 70% less energy than basic bulbs. And as government regulation becomes tighter, mining companies will be required to meet these modern standards.

Daniel Quinn General Manager Colombia and Andean Region National Instruments

Mining in Colombia is conducted on rugged terrain and in difficult conditions, meaning machines have to be smarter and require preventative maintenance to reduce breakdowns. Through power analysis, vibration and noise monitoring, and environmental assessment, we can see potential problems remotely and stop them sooner. We invest 16% of our revenue into R&D every year. Our two most popular products for the mining industry are lab view, a graphical program software language that allows engineers to develop control and monitoring systems; and Compact Río and Compact Dac, which take precise measurements and can be deployed into the rugged terrain so often seen in Colombia.

Néstor Raúl Claros General Manager Tecna

Since 1979, Tecna has been the specialist technological manufacturer in Colombia. We develop substations, mobile substations, and circuit breakers, tailored to our clients in the petroleum and mining industries. We provided the equipment for Cerrejón’s expansion and we developed a new technological platform that efficiently linked the shovels, loaders, and substations. This allowed for integration, coordination, and communication across all technological equipment and created more security at the vast open-pit projects common in Colombia. We also manufacture explosion-proof equipment for use in the mines.

Intelligent drill rigs DESCRIPTION: Remote access to program new drill plans; ongoing monitoring of status of drill rigs and remote diagnostics IMPROVEMENTS: Improved/more precise tunnel drilling; more rapid response/navigation of drill; enables remote evaluation of drill profile

Extra low profile (XLP) mining equipment

Trapped miner location system/ paging system

DESCRIPTION: New rock bolt design to absorb energy and control rock mass deformation while providing containment of materials

DESCRIPTION: Track mounted XLP dozer, bolter, and drill rig capable of operating in a “narrow reef ” (<1.2 m height) and undulating mining environment

DESCRIPTION: Very Low Frequency (VLF) signal can penetrate through earth over large distances

IMPROVEMENTS: Reduced risk of rock bursts at increased mining depths and mining scales

IMPROVEMENTS: Reduced waste rock/ increased useful excavation; more accurate drilling and higher face advance

IMPROVEMENTS: Reliable means of transmitting alert, warning, and evacuation messages

Improved rock bolts

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Source: BAEconomics

Recent Technological Developments in the Mining Sector

company focus

Shell Colombia Lubricant & grease supplier HQ: Bogotá 120 employees

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Shell Colombia Eduardo Rodríguez Tamayo, Shell Colombia’s President, came home to Colombia after 17 years of living and working outside the country. "Colombia is a great country to return to,” says Rodríguez. “I once heard a government official compare Colombia to his teenage son: we haven’t yet grown into what we will become, but we are on the right track.” Colombia’s FDI grew from just over $2.5 billion in 2002 to an estimated $17 billion in 2012, largely driven by Colombia’s plentiful natural resources.

Rodríguez and his team find themselves perfectly positioned to take advantage of this investment in the lubricants field.

Shell’s international fame comes from its prominence in the oil and gas sector: it operates in over 80 countries, employs 90,000 people, and produces over 3.2 million barrels of oil equivalent daily.

But Shell’s lubricants business—focused on the mining, cement, and quarrying industries—also plays an important role in the multinational’s operations. Aside from its oil sands project in Alberta, Canada, Shell does not operate mines itself. Rather it has a strong participation as a lubricants supplier worldwide and intends to grow it in Colombia.

Lubricants represent just a fraction of the total cost of a mining firm’s operations but can have an enormous impact on its productivity, says Rodríguez: “For example, extending the oil drain intervals of mining equipment

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The Colombian market shows huge lubricants potential for the mining sector. We can be the right partner for miners.

Eduardo Rodríguez Tamayo President Shell Colombia

can significantly improve efficiency and productivity, generating much greater value to the mining operations."

Shell Colombia employs a permanent workforce of 120 employees who work from three locations: the head office in Bogotá; a grease plant in Mosquera, whose production is 20% for local consumption and 80% for export; and a depot in the free trade zone in

Barranquilla. Worldwide, Shell invests $1 billion annually in R&D, part of which goes toward developing lubricants to improve aspects such as green efficiency and synthetic technologies. In late 2011, Shell opened the world’s largest gasto-liquids plant in Qatar. The plant, named Pearl GTL, converts natural gas to synthetic base oil lubricant and will produce enough diesel to fill over 160,000 cars a day.

Rodríguez acknowledges the leveraging power of a global company like Shell but maintains that the company’s greatest strength lies in its client relationships, which are based on partnership rather than a more traditional clientsupplier setup. "Our company’s goal is to focus on the total cost of ownership for our customers, which means providing a value-added product that we will generate through solid value improvement projects."

market focus US–colombia trade (US$ BN)

Guillermo Zumarán General Manager Austin Engineering

In order to increase the efficiency of the mining services supply chain, much work needs to be done on infrastructure. In particular, Colombia needs more quality highways in the interior of the country. If you have a free trade agreement with the United States, and another with Europe soon to be implemented, how are you supposed to transport your products to ports? Nowadays it’s only possible by truck. In the future, they will start to develop transport on the Magdalena river, which will be amazing for Barranquilla.

Camilo Muñoz President HL Ingenieros

We don’t have too many issues in steel; we’ve worked very hard to establish partnerships with different fabrication shops. The availability of equipment depends on the sophistication of the project. We can provide some equipment, but more specialized items have always been hard to find in Colombia. The market for machinery has changed significantly. Three years ago anyone could visit a dealer in the United States, pay, and then bring it back to Colombia on the spot. Now there is at least a six-month waiting period before you can purchase machinery.

Jose David Alzate Country Manager Logan Drilling

We’ve found that the major bottleneck in our supply chain has been in importing the components for our drill rigs.

Given that we use tailor-made drills from Canada, the components can take longer to arrive. For many companies, the route through customs can be especially difficult and time consuming, but with more international drilling suppliers arriving, we hope the delays will shorten. The FTA with the United States is being gradually implemented but its real impact will all depend on if Colombia can build the infrastructure to transport the tremendous amount of goods needed in the center of the country.

u.s. IMPORTS FROM colombia u.s. EXPORTS TO colombia

Raw Materials The implementation of Colombia’s Trade Promotion Agreement (TPA) in May 2012 marked a new direction in the country’s import-export strategy with US suppliers.

Under the deal, which was largely modeled on Peru’s TPA with America, roughly 76% of industrial imports will now be duty-free in all bilateral trade. Like other FTAs, it will be implemented gradually over a decade in order to give time to prepare Colombia’s infrastructure for the surge in imports. As mining firms struggle to import products— particularly steel, concrete, and machinery— the agreement is a small step toward a complex solution and may be a double-edged sword for machinery. Demand for cranes and trucks already outstrips supply, and the agreement will boost demand further without a correlative supply increase. Drilling outfits are on a better page even before the TPA. They now enjoy steady product flow after major international companies such as Boart Longyear and Fordia entered the country. For now, trade tariffs and shipping delays are among the largest inhibitors facing Colombian firms in all sectors.

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lead issue

colombia’s got talent mts

comParátive tax rates (2010)

The effects of this shortage persist in Colombia, though it remains a less glaring issue than bureaucracy or security.

The results of the Mining Leaders Investor Survey 2012 show that though around a third of respondents had higher expenditures than expected or had to hire from abroad, few of the projects saw any delay due to a lack of human resources. According to the World Economic Forum, Colombia’s secondary education enrollment rate at 96.4% is higher than that of the United States and third in Latin America after Brazil and Costa Rica. However, enrollment in tertiary education, at 39.1%, however, is far lower. The government has responded by implementing mining education programs at universities and at SENA (the National Apprentice Service), allowing students to gain the specialized skills through firsthand experience at mining projects.

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Jobs in Mining & Quarrying in Colombia in 2012 human resources and mining sector growth ml investor survey 2012 results true

false

Source: Mining Leaders Investor Survey 2012

Skill shortages plague mining and similar skills-intensive industries around the world like construction and hydrocarbons. It can be difficult even in mature mining markets, such as Australia and Canada, to find qualified engineers, drill operators, and welders. As more markets open for minerals exploration, the small and mobile pool of skilled workers is spread thin to the highest bidder.

According to a report by Bloomberg, alumni of the South Dakota School of Mines were earning a median income of $56,700 within a year after graduating—compared to their peers from Harvard whose average salaries stood at $54,100. The phenomenon is global; Ernst & Young’s annual Mining Risk Report listed the skills shortage as the number-two business risk now facing mining and metals.

216,183

lead ISSUE Carlos Ojeda General Manager Astecnia

second-best higher education in latin america (10=fits the needs of the economy)

José Carlos Restrepo Sales Manager Colombia Core Tech

Source: World Competitiveness Yearbook 2011

Finding good electricians, mechanical technicians, or people who can work a boring mill can prove difficult. Unfortunately, many people graduate with engineering degrees and consider themselves over­ qualified for certain jobs when the opposite is true. The government needs a policy to invest in technical training for two reasons, first to generate added-value jobs for the lower income portion of the population and second, to provide workers to local companies that are going to support the development of mining.

skilled labor availability 2011 (10=high availability)

Many workers in drilling come from Peru, Chile, and Canada—it’s hard to find local specialists with the required experience. Mining companies find it difficult to hire geologists and mining engineers due to high demand, and nearly impossible to find experienced drillers. It’s expensive to bring them from Canada or Peru so it’s not uncommon that they make more money than the general manager of the company.

Erika Acosta Alzate General Manager SIGA

Colombia offers a very high level of engineering talent. If you look at specific sectors, like mining, there can be a deviation between countries like Chile, with its years of experience in copper and gold projects. Thus it can be necessary to bring in foreign engineers for very specific roles. However there are many specialists in Colombia for infrastructure, hydrocarbon, and coal engineering roles. For the most part, the level of skills in these sectors is excellent.

Fernando Jaramillo Managing Director Downing Teal Colombia

Over the next ten years, the human resources needed to meet objectives in the mining, oil and gas, and infrastructure sectors alone will require more talent than exists in Colombia today. The mining sector must rank talent management as a top strategic priority. The critical steps of recruitment, selection, development, and succession planning must be overarching objectives for the company and each of its managers. Everyone must understand that the future of the company depends upon who is hired today.

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q&a

Andrew Dynys VP of Process Engineering & Estimating Americas Taggart Global

tag team

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Taggart Global provides material handling and coal preparation services to mining projects worldwide. The US company has cultivated success by establishing a strong reputation in emerging markets, particularly China, which it entered in the early 2000s and where it has since built more than 70 plants. Andrew Dynys, Taggart’s Vice President of Process Engineering, explains how the company plans to repeat its success in Colombia.

What have been Taggart’s biggest projects in South America so far?

One of the largest projects that the company has completed to date was a material handling facility for Sol Coqueria Tubarão S.A. (Sun Coke) in Vitória in southeastern Brazil. The project involved the design, engineering, procurement, and construction of more than 50 overland conveyors. We took possession of the coal at the port, transported it over to the blending yard, set the blends into the coke ovens, removed the coke, quenched it, and then later sent it over to the steel mill to be processed. During the height of construction operations on this project we had over 2,000 workers.

Taggart invests heavily in R&D. Can you explain some of the initiatives the company is now working on?

A recent priority in the design of our projects has been to minimize the content of construction materials, usually through the combination and assimilation of various types of unit operations. In 2011, we developed a modular coal preparation plant design tailored to projects with smaller reserves. We designed a plant that can be rapidly installed for a project with a reserve of 5Mt or less. The same plant can then run for up to five years depending on the requirements of the project.

We believe that such engineering will be especially beneficial to the central Colombian coal reserves, where the deposits are smaller and the logistics of mining and processing the coal are more challenging.

The coal seams in central Colombia are widely separated and a majority of them are family-owned. How do you envision the development of this region?

We understand that the development of the region is going to be a slow process. Despite the somewhat chaotic nature of central Colombia’s coal region, Taggart is positioning itself to ensure longevity. As part of our marketing efforts, we’re also focusing on social responsibility to aid in the growth of the Colombian industry, whether through our technological assets or our international expertise. We initiated roundtable discussions in Boyacá to bring together small-scale miners and to encourage more dialogue within the sector. Local and departmental governments are eager to invest in modular plants over the next two years, with the eventual possibility of developing a

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general mining union. Current obstacles, such as the lack of washing plants, hinder the financial realization of the resource. Infrastructural development here is inevitable and is a matter of when and not if.

Mining is too important an industry to the Colombian economy to ignore this problem. One example of a project we are excited about is the dredging of the Magdalena River in conjunction with the construction of a railroad to transport coal to the northern port of Buenaventura.

Colombian miners are currently facing human resources challenges. How can multinationals entering the market ensure sufficient skilled labor supply?

We usually begin a project in a new region with internationally experienced employees. The aim thereafter is to build up a local workforce through training and development programs.

The reality is that any contractor can strategize a venture into a new market, but until you gain on-the-ground experience it can be very difficult to understand that market. Cultural differences and labor-force issues are important factors in our industry. One strategy that we will employ is to approach our first project in Colombia as an EPCM (engineering, procurement, and construction management) contractor so that we can mitigate construction risks and enable us to find competent local contractors that will take on the construction portion of the project.

How does the company plan to consolidate its Colombian operations over the next few years?

We’re currently working on two project tenders that are critical to our strategy here. We believe that the companies involved in these projects will be important players in the future of the Colombian mining sector. In the meantime, Taggart hopes to team with smallscale mining companies on certain smaller metallurgical projects.

There are around 25 mid-sized players in the Colombian market with strong growth potential and we will market our services to those companies. We have significant experience in the industry and can offer many advantages to the Colombian market.

company focus

Geopolimeros (2007) Geotextiles HQ: Bogotá Clients: AngloGold Ashanti, Cerrejón, Cerro Matoso, Prodeco

Geopolimeros has made impressive gains since it was founded in 2007. The company has grown to be one of the main suppliers of geotextiles in Colombia, and today about 30 employees provide a full range of installation, advisory, and repair services across Colombia and the Caribbean. To date, Geopolimeros has installed over a million square meters of geotextiles for clients in many sectors including waste management, petroleum, and construction. The mining industry, which brings in about 35% of its revenues, has long been a focus for Luz Mary Pérez, Geopolimeros’ founder, who worked in the industry before launching her company. The applications of geotextiles at mining sites include road construction, lining leach pads, and drainage to name just a few.

The company has supplied the largest mines in Colombia—including Cerro Matoso, Cerrejón, and Prodeco—with

Last year we were the second-largest importer of geotextiles in Colombia.

It’s good to be high on the list because our suppliers want to partner with us.

Luz Mary Pérez Founder Geopolimeros

its range of geotextiles and engineering services. Another important client has been AngloGold Ashanti, for whom Pérez says Geopolimeros provided “basically everything.” Like many companies in Colombia, AngloGold was having issues with social licensing and was prohibited from accessing the local water supply. It was forced to truck in large quantities of water through difficult access roads, so they called Geopolimeros to design and

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Geopolimeros

build reservoirs to collect rainwater.

Geopolimeros saved AngloGold money and ensured conformity to regulations.

Besides building the reservoirs, Geopolimeros also supplied geotextiles to build access roads, prevent falling rocks, and re-vegetate the hillside surrounding the project. In the future, Pérez predicts Geopolimeros will expand its business with gold explorers as their projects enter mature phases.

Protecting the environment from contamination is an important part of Geopolimeros’ work. The company has found that after using geomembranes in lixiviation, for example, impact is about 90% lower. To Pérez, though many companies have sustainability policies, there is a large gap in mentalities between the boardroom and the workers in the field. “There are many times when we go to the field to do installations, and the workers do not comply with the quality standards we demand,” she says. “It shows that there needs to be a change in attitudes and more education on environmental issues.” One incentive to bring about change is the round of tax breaks granted by the Ministry of Environment and Sustainable Development. The Ministry certifies Geopolimeros’ products, so clients looking for tax breaks can work on a geosynthetics solution with the company’s engineers.

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MTS roundup geophysics Frank Primerano Head of Business Development MPX Geophysics

Until 2010 there was little momentum for airborne service, but the mining boom hit and demand for our services exploded. MPX has concentrated on airborne, magnetic, and radiometric surveys, but we’ve expanded our arsenal to include fixed-wing and gravity capabilities. We do 98% of mining airborne surveys in Colombia. We also have plans to increase our mining and petroleum operations into Asia and North Africa while adding drilling and ground geochemical services.

geophysics Carlos Alberto Orozco General Manager Sondeos Geofisicos

Most of our experience is in the coal and energy sectors; but we’re beginning to adapt our business toward gold and base metals exploration companies. This year we have dedicated resources to invest in new equipment and customer service.

We’re importing an acoustic televiewer to provide precision drill-hole measurements.

This, along with the acquisition of new certifications and staff, will ensure that we remain at the vanguard of technology.

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mineral sampling

drilling equipment

Alex Caniguante Lab Manager Actlabs

José Carlos Restrepo Country Sales Manager Core Tech

We opened our lab in Medellín as part of our expansion strategy that will see 40 labs worldwide. We now have a full lab offering mechanical preparation, fire assays, and instrumentation (ICP, AA, and RXF). We plan to expand further, according to our customers’ needs. We want to provide Colombia with the same quality technical service and fast analysis times that we have brought to the international market for 25 years.

With operations in Peru and Mexico, we decided to open the Colombian sales office in order to service our customers here and access new clients. As representatives of companies including Atlas Copco and FMC Technologies, we sell everything for diamond drilling— from the rig to the bit and everything in between. We also provide field support.

Our team of specialists works to ensure the best service 365 days a year.

mineral sampling

drilling services

Iván Acevedo Acosta General Manager Inspectorate Colombia

Jose David Alzate Country Manager Logan Drilling

Inspectorate began operations in Colombia in 1986, but in 2011 it was acquired by Bureau Veritas. We have a very diversified portfolio of services worldwide; in Colombia, however, 65% of our revenues come from coal. We certified 45Mt of coal last year. Since 1993, we’ve managed the certification laboratory at Cerrejón mines and we also inspect the volumes that they ship.

In the last year we’ve increased our fleet from four to nine rigs operating in Colombia. We’re confident that the first quarter of 2013 will bring increased demand for drilling. Logan is a performance-based company, and our response times are extremely fast. For example I was in a meeting with a potential client on a Thursday in Bogotá, and by the following Monday (which was a holiday, by the way), we had all our gear and crew on the spot with the drills on the ground.

MTS roundup Seismic Processing

supplier

sustainable technology

Hugo Gravini General Manager Geofields

Ruben Arismendy Founder Mining Chemical

Ricardo Currea Miranda Director Tierra Armada Freyssinet Tierra

Our traditional focus is on seismic processing for oil and gas, but we began experiencing demand from the mining industry. We were the first to use induced polarization method in frequency domain to Colombia. We were contacted by a major Canadian gold producer to use this method and now we are growing rapidly.

The biggest challenge here is the depth of the deposits—but we are importing new technologies to deal with this.

We put everything together in one company so that juniors and mineral laboratories can find what they need here in Colombia. We have been in the market for two years, during which time we have become an important contributor, offering fire assay equipment and supplies, certified reference materials for mining and exploration, and safety equipment, among others. We know this country and how it works.

The company is divided into five specialized civil engineering business lines—MSE Walls, Pre-stressing, Bridges, Special Repairs, and Techspan vaults. Tierra Armada specializes in reinforced earth, which leads naturally into crushing technology. We are currently developing a patent on a specialized support for crushers. Freyssinet focuses mostly on special structural repairs, prestressing, stay cables for large bridges, and road infrastructure works.

exploration services

supplier

environmental consultancy

Diego Caicedo Colombia Manager Samsa

Nelson López General Manager Kaeser Compressors

Harving Díaz Technical Director C&MA

Colombia is a whole different story; it’s not like entering Peru or Argentina. Samsa started with NI 43-101 assessments for Australian companies, but we’ve increased our client base to AngloGold Ashanti, Ashmont, and Codelco. Many of our clients tell us that they wanted to enter Colombia but they had no idea how to do it. You want to come into Colombia? We can be your local partner by finding and assessing projects.

We have been in the country for 15 years and have worked with most of the mining cooperatives in Colombia’s main coal mining areas to help them mechanize their production. The savings through increased productivity were clear and helped us to establish ourselves as the market leader. We have teams operating at the mine sites of our clients to provide tailor-made solutions.

Although most of our clients are in petroleum, we are making large strides in the mining industry. Having worked on a handful of coal projects, we are now entering a joint venture with Walsh Environmental, a firm with significant expertise in mining. There are many environmental issues in Colombia today; we strive to work with clients to find solutions that benefit all stakeholders.

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company focus

Rex Ingeniería (2000) Civil engineering & construction, contract mining ISO:9001 certified, Liebherr equipment HQ: Bogotá

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rex ingeniería

In developed mining markets contract mining is big business. The global leaders can undertake projects, often worth more than $1 billion, to manage and operate pits on behalf of the mine owners. In Colombia, however, contract mining is still in its nascent phase. The country’s biggest coal mine, Cerrejón, is operated directly by the company, while Masering operates the mines at El Hatillo and La Francia. Increasingly, however, local engineering firms are entering the market. Since 2000 Bogotá-based Rex Ingeniería has built a reputation in civil engineering and construction works, building roads and flood-control infrastructure across the country. The growth of the Colombian mining industry has opened up a new avenue of work for the firm, however.

Rex’s president Fabio Rodríguez Leal believes that mining projects can provide Colombian construction companies with a “switching” option for periods when civil projects are limited.

Rex’s first mining project requires the exploitation and commercialization of stone aggregates at the La Loma quarry in the department of Cundinamarca.

While the firm had previously mined raw materials for its own civil construction projects, the project is the first in which the product was extracted for onward sale. By mixing the products mined at La Loma the firm can meet the quality standards of government agencies

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The growth of the mining industry offers plenty of projects for local construction and engineering firms. Rex Ingenieria is growing its experience to meet this demand.

Fabio Rodríguez Leal President Rex Ingeniería

involved in the construction of the country’s infrastructure projects. Rex boasts a strong fleet of heavy machinery, including Liebherr excavators. According to Rodríguez, the firm’s top-of-the-range equipment combined with ISO:9001 accreditation puts the company in a strong position to extend its services to Colombian coal miners. “As the mining industry grows in Colombia, we see a strong market growing for contract mining services in the coal sector,” he

says. "A number of smaller mines are coming into production and the owners don’t have the capacity to purchase and operate their own machines. It’s a great opportunity for local construction firms with their own equipment.”

Volatile coal prices pose a challenge, however. When prices are high, mine owners look to source equipment to maximize production in the short term, but when they fall, machines sit idle. For this reason, maintaining a dual focus on mining and infrastructure projects allows firms such as Rex to hedge against fluctuations in price. Rodríguez also sees more long-term opportunities for local construction firms willing to make the push into the mining sector.

Rex has undertaken a number of environmental recuperation projects in Colombia, Ecuador, and Brazil that could provide vital experience for the company when mine-closure projects become more prevalent.

market focus

Albert Crutcher Managing Director KTTM Geophysics

We’ve established a new technology—the MPP Probe— that employs X-ray fluorescence and allows an instant X-ray on site, giving us a reading within 90 seconds on the geochemical makeup of whatever ore we are testing. The technology, which we engineered ourselves, will be great for copper, arsenic, zinc, and ammonium. It requires a homogenized, pressed sample in order to get a reading, which we can also prepare using our in-house technology.

It provides a separate sample for every meter drilled.

Instead of leaving your project up to the discretion of a geologist, you’re getting a dependable, scientific reading.

Marco Antonio Nieto Geophysics Manager Mibex Mining Business & Exploration

We see large potential in south Bolívar, though there are some difficulties with security. In Norte de Santander, about 200 kilometers southeast of Drummond, lies a highly prospective copper region, where the ANM is staking out a few areas. We’ve already seen some very indicative alterations in the formations there. Right now we’re in a gold peak, but in my opinion copper will soon become more of a story in Colombia, after all the juniors are now less preoccupied with gold exploration. We hope to do much work for these juniors, consulting with them on how they can test their deposits efficiently and economically.

Oscar Fernando Guzmán Rey Chief Technical Officer Datum Ingeniería Ltd.

When we were working for AngloGold, they had an area of interest that was heavily covered by clouds.

Every time they required coordinates for infrastructure development we would send an unmanned aerial vehicle to map out the land remotely. This technology is capable of flying below cloud coverage so it can construct high-accuracy maps. We are now looking to expand our business by offering similar cutting-edge services to junior explorers, services like underground nickel surveys, coal mapping, and weather forecasting in areas of interest.

geophysics & GeoMapping In mining, it’s the geomapping and geophysics firms that enter prospective areas first. Long before drills bore into the earth’s surface, the land is analyzed and sectioned off for exploration. Often these companies have the earliest understanding of where future mines will be located. And, like much of the mining services industry in Colombia, both geomapping and geophysics firms have taken major strides in the past few years. Innovative new technologies are always entering the market, allowing samples and surveys to be taken faster, cheaper, and more accurately.

Aerial mapping is quickly becoming a choice method for juniors exploring in Colombia’s challenging topography and climate. In the area of geophysics, some geophysicists foresee a day when samples can be tested and sampled on-site, all in a matter of hours. In a country as rich in exploration opportunities as Colombia, many geomapping and geophysics firms predict that 2013 will be a year of major growth.

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consultancy, financial & legal services

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lead article

TAKING

StoCK T

he year 2012 has proved difficult for the worldâ&#x20AC;&#x2122;s financial markets, and even more difficult for mining companies. Fears of European contagion have left equities markets in an uninterrupted slump, while worries over a slowdown in China have made mineral prices fall dramatically from their 2011 highs. Investors are hesitant to allocate capital to risky mining projects; on a global level, about 25% of juniors have less than $1 million in treasuries, a figure far worse than 2008. The culprit for this trend has been a dramatic evaporation of equity capital on the global exchanges. In the first six months of 2012, C$1.51 billion of equity capital was raised on the TSX-V, a steep decline compared to C$4.14 billion in the same period of 2011.

A beacon in the storm has been the surge in precious metals prices following round after round of quantitative easing from central bankers around the world. Though below its 2011 high of $1,920 per ounce, gold is up 16% year-to-date in the fourth quarter of 2012 and shows signs of hitting (or surpassing) the previous yearâ&#x20AC;&#x2122;s high. Investors are still making bets on the upside: during the second quarter of 2012, George Soros and John Paulson, two leading hedge fund managers, increased their holdings of the SPDR Gold Shares ETF by 276% and 35%, respectively.

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lead article

Juan Pablo Córdoba has led the Bolsa de Valores de Colombia since 2005

As demand for both physical and paper gold persists, exploration companies in Colombia are weathering the difficult global climate better than their peers exploring in other areas of the world. In late October 2012, Red Eagle Mining closed a $20 million private placement, while the juniors Seafield Resources and Cordoba Minerals raised $2.6 million and $4 million respectively. Juniors in Colombia are also looking for new sources of financing like debt and the divestiture of non-core assets, while some companies like Eco Oro are implementing cost-reduction strategies. Gran Colombia Gold has financed itself through a blend of equity, debt, and asset sales: in July 2012 it sold a property in the Nariño department for $5.5 million while also issuing $100 million in gold-linked notes to finance the expansion of its Segovia operation.

Eike Batista, Brazil’s richest man, has spearheaded some of the past year’s most prominent deals. His gold company, AUX, acquired Ventana Gold in March 2011, only to begin selling a 49% stake worth about $2 billion to the Qatar Investment Authority in September 2012. AUX announced further consolidation in its California neighborhood in October by acquiring all outstanding shares of Galway Resources at the end of the same month. Batista is also divesting his Colombian coal venture, CCX; on May 25, he announced plans to sell between 30% and 50% of the company, perhaps to Asian investors—a trend reflecting Itochu’s 20% stake in Drummond.

As many investors await sunnier market conditions, juniors are also considering mergers to strengthen their balance sheets. Three main types of M&A deals now dominate the Colombian merger scene. First, larger international players (mainly in coal) are entering Colombia through acquisitions. Second, local gold producers are taking advantage of the low selling prices of their rivals and expanding.

And finally, juniors are consolidating to weather the difficult market.

Many believe that a large wave of consolidation is heading towards Colombia; by October 2012 a handful of transactions had already been announced. IAMGOLD and Tolima Gold formed a joint venture in October while in March Teck Resources and Colombia Mines announced a $15.5 million joint venture. August saw a merger between Touchstone Gold and Atlantis Gold, bringing their total land package to over 300 square kilometers.

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$1,920

peak price of gold in 2011

To advise these deals, Colombia’s financial and legal sectors are growing rapidly and stepping up to offer their expertise.

This year’s flutter of M&A activity in the mining sector has been mirrored in the financial services industry. Though large international banks stayed clear of Colombia, a string of acquisitions activity is reshaping the Andes region’s banking sector. This year the four-country Andean Community has seen 18 deals in financial services, compared to 11 the year before.

Lending grew by 17% in the year to July, and will only expand given that banking penetration, at 50%, is notably low. On the retail side, Corpbanca, the Chilean Bank controlled by billionaire Álvaro Saieh, purchased Helm Bank for $1.28 billion in October, following its $2.53 billion acquisition of Banco Santander’s Colombian operations in December 2011.

The standout deal on the investment banking side is BTG Pactual’s acquisition of both the local investment bank Bolsa y Renta and the Chilean brokerage Celfin Capital’s operations in Colombia and Peru. Though one portfolio manager, who asked not to be identified, classed BTG Pactual’s strategy as “extremely risky,” Jorge Tabares, the Co-head of Investment Banking at Bolsa y Renta, explains that “BTG Pactual is an investment bank that likes to invest, not advise.” BTG Pactual, with a market cap close to Bancolombia’s, will act as a catalyst in modernizing the

lead article BVC any time soon. Local investors that invest in exchangeGlobal Mining Equity traded securities are not ready to see companies without a Financing trend (1999–2012) clear growth story. For example, in the fixed-income space, it’s very difficult to find non–AAA rated transactions being done. This market needs much more depth to attract interest in companies that are riskier.”

Equity Raised on Other Exchanges Equity Raised on TSX/TSX-V

Source: TSX, Gamah International

Working alongside Colombia’s bankers is the country’s extensive legal sector. International firms have founded offices alongside their long-established local counterparts. Both can provide expertise in legal issues ranging from the incorporation of a legal entity to M&As and corporate law. Colombia has unique legal issues that investors need to address with care.

Past fears of money laundering persist and to this day it can be complicated to repatriate capital. Acquiring land and mining titles can also be difficult; local firms that specialize in natural resources like Sanclemente Fernández Abogados, Arce Rojas Consultores, and Alianza WJ offer a multitude of solutions.

Colombia remains one of the most popular destinations in the world for minerals exploration, and the country will see a large percentage of the estimated $236 billion of incoming investment destined toward project development over the next decade. Its financial and legal sectors will ensure that the exploration occurring today will have the resources and advice to become operating mines in the future.

financial service industry by expanding the scale of existing deals, introducing more sophisticated financial products, and bringing significant M&A expertise. Since last year BTG Pactual has been on a deal-making frenzy with the aim to control the Integrated Latin American Market (MILA), the combined trading platform of the Peruvian, Colombian, and Chilean bourses.

In 2003 the traded volume on the BVC was $204 million; by 2011, this figure had grown to $1.2 billion. Nevertheless, the Bogotá bourse has been slow to boom despite promises of the MILA sparking liquidity and volume. Since its inception the MILA has served mostly as a “diplomatic link” that has yet to gather economic momentum. Given that the platform’s three countries are at very different stages of development, the majority of the orders are outbound from Chile. Colombian companies are beginning to benefit from the interconnected market; Pacific Rubiales is the most traded company in the MILA with Ecopetrol in third place. Even though Colombian investors have yet to fully capitalize on the benefits of the MILA, Colombia’s large companies are beginning to see investment from abroad.

The interest in Colombia’s oil companies is encouraging to the mining sector, where to date only Mineros has listed on the BVC. Many analysts believe that the petroleum sector’s success on the BVC will be replicated by the mining sector in a few years, once the sector grows further. For now, however, the BVC is not sophisticated enough and Colombian investors are far too risk-averse to invest in junior mining companies.

Bernardo Vargas, founder of Nogal Asesorías Financieras, explains: “It is not likely that we will see juniors listing on the Mining Leaders

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q&a

María Catalina Pérez Senior Lawyer SFA

Diana Sanclemente Partner SFA

one-stop shop

Sanclemente Fernández Abogados, one of Colombia’s most recognized law firms, works mainly with the mining and hydrocarbons industries. Now 70 years old, the firm provides assistance to new firms entering Colombia with legal issues ranging from foreign investment and incorporation of companies, to immigration, M&A, due diligence, as well as labor, corporate, and environmental law.

SFA provides an array of legal services to miners. In which areas have you seen the most demand?

Due diligence is one of our specialties and it is essential to the success of any project. We recommend that our clients have a checklist, which involves a thorough understanding of the area in terms of political, social, and environmental issues and status of compliance with all governmental obligations. Every region of Colombia is different and what’s even more important is that a due diligence incorporates the specificity of a particular mineral. We do most of the work in-house but for certain specialized areas, such as geology, we can draw on an excellent pool of consultants.

under ex-President Uribe. However, that was just one factor of many that are influential in creating a positive jurisdiction.

We need to look into organizing the land map of mining titles.

Currently the country has been divided into two zones and auditing firms have been awarded contracts to perform a due diligence on mining titles over such zones. Once these studies conclude and the online platform for land applications is updated, we will see a significant improvement. At this point there is so much expectation but investment is forced to wait due to bottlenecks in the organization of the sector and the extension of the moratorium on new mining permits.

The firm has a particular knowledge of tax practices. What tax exemptions can the mining industry benefit from?

Given the government’s interest in promoting the mining industry, significant tax incentives have been granted to this sector. The specific incentives are custom duties and VAT exemption on import of exploration machinery, technical equipment, and related spare parts, including a 50% exemption on custom duties on machinery and equipment for exploitation, transformation, and transport of minerals. Other incentives that apply to all basic industries (a category that includes mining) are: VAT exemption on temporary import of heavy machinery; discount on VAT paid in the nationalization of heavy machinery; amortization of exploration and exploitation costs for no less than five years (if the investments are not successful, the amortization can take place within the same fiscal year or in the following two years); deferred (semi-annual) payment of VAT and customs duties on long-term temporary imports; and no VAT and customs duties on shortterm temporary imports. Royalties, in turn, are applied depending on the type of mineral you are operating in.

What effect will the National Minerals Association (ANM) have on the titling process?

Colombia has been slow to react in formalizing legislation and has lost some investment as a result. The application system for direct contracting has been closed since 2010—the same year that Law 1382, which amended the Mining Code of 2001, was declared unconstitutional but valid until May 2013, when a new law will have to be enacted. A bill is now in progress but it has to be submitted to Congress and exhaust the consultation proceeding. The establishment of the ANM is a very positive step: it shows a government willingness to improve the system. We will have to wait to see whether it can cope with the demand for mining investment and will be able to quickly open direct contracting or bidding processes and approve pending applications and assignments.

Until 2012 the Fraser Institute had consistently judged Colombia as an improving jurisdiction. But this year the country took a fall. What are the reasons behind this drop?

Colombia’s improvements over the last 10 years are directly linked to the improving security situation that came about

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Do you believe that the ANM is drawing too much from the National Hydrocarbons Agency (ANH)?

The ANM can take advantages of lessons learned from the ANH. There is a big difference in the roots of the two industries—the hydrocarbons industry has always been centralized and organized.

Mining has always had a central mining authority but also local governmental agencies, which had a great deal of autonomy.

This lack of centralized power has limited the growth of mining in Colombia and made control difficult. However, in order to

++++name of the guy

take some positives from the ANH, this focus on centralization is a good start and it should include an accurate land map and a clear application system. The hydrocarbons system was split into bidding rounds, direct application, and specific areas reserved for the government. In 2012 that has changed so that the main process for obtaining areas is bidding rounds. We believe that the best combination is to have both direct application and bidding rounds for specific areas. The problem with having only bidding rounds in place is that exploration will be restricted to certain zones and interested contractors will have to wait until the processes are launched. Applications for areas have to be consistent with the market needs. The peaks and troughs in the industry do not last long, thus direct applications should always be available. Once money is raised in the market, there should be a possibility of making an application. Some lessons can be learned, but any adoption of policies from the oil and gas industry must also be considered in light of the distinct nature of mining. Investing in oil requires in general larger capital amounts and technical teams.

Mining is less formal, can be started with smaller budgets, and strongly depends on market demand for a given mineral at a certain moment.

How do you view the governmentâ&#x20AC;&#x2122;s attempts to curtail illegal mining and what steps are now being taken to combat the problem?

Every time the mining code is amended, illegal miners receive amnesties. The problem of these amnesties is that they are never measured or followed up. Illegal mining is tied up with money laundering and now probably it is worth more than the

drugs trade. The hope of the government is that illegal mines will formalize and work in conjunction with legal operating companies. However, that is not happening and everyone is losing as a result, especially the government. The illegal miners pay neither royalties nor taxes. The government lacks coverage and the resources necessary to combat illegal mining.

Moreover, the situation is fueled by a mix of security and social problems. The steps government has taken toward auditing mining titles is encouraging, since it will assist the ANM in determining legality and status.

What needs to be improved to ensure that consulta previa functions correctly?

The Government wants everything to go to previous consultation, but there is not enough personnel or investment to fulfill this commitment. Regulations can be very confusing.

The Minister of Interior is in charge of leading this long process.

There have been cases where companies have been awarded titles, only to find out later they are operating in indigenous territory or natural reserves. The government needs an accurate map and needs to implement a system common in the oil and gas industry, known as Phase Zero, in which the contract is signed but it is on standby until the point at which a complete survey of the area is completed. None of the ministries currently share the same land map or information. The government is taking the right steps in re-ordering the legal system and obtaining accurate statuses of all concession contracts. Our firm has followed these processes closely in order to be able to properly advise mining-focused investors in Colombia.

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legal overview

the lay of the land Economic deregulation and inclusion in the globalization process have resulted in a considerable increase in foreign investment in Colombia. The government has made efforts towards providing and maintaining clear rules for these investments by establishing legal stability regulations and signing protection agreements to eliminate double taxation.

Start UP: Firms entering Colombia have

the choice between setting up a branch or establishing a Colombian legal entity.

Branches of foreign companies do not have legal status independent from that of their headquarters, but they do have legal representation and a tax file number and are subject to all the legal norms governing Colombian companies. Firms can set up a Legal Entity in Colombia in one of four categories.

Stock Company. Within this category are corporations and joint-stock associations. Capital contributions, which must be of equal value, are represented by share certificates, which are suitable for public trading. The public corporation is separate and distinct

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from its owners, shareholdersâ&#x20AC;&#x2122; liability is limited to their capital contribution, and its legislation framework is complex.

A minimum of five shareholders is required for its creation.

Simplified Corporations. Single or multiple shareholders are permitted.

No public deed is required, it may be registered through a private act. Liability is limited to capital contributions. No auditor is required.

Company by Quotas. Under this type of company are limited partnerships and limited liability companies. Capital contribution is represented in quotas of equal value, which constitute rights in the companyâ&#x20AC;&#x2122;s capital stock. The transfer of quotas requires an amendment of the companyâ&#x20AC;&#x2122;s statutes.

Sole Proprietorship Companies. This company has a legal status independent from that of its owner. Liability for the sole proprietor is limited to capital contribution, except in cases where the corporative veil may be lifted. The benefit of asset separation allows the owner to transfer his or her assets, separately

manage them; it also allows for the transferring company quotas. This legal precept is a particularly ideal mechanism for small businesses and for a foreign company to make an investment through the so-called controlled subsidiaries.

Labor law enjoys significant constitutional and legal protection. The prerogatives granted by law may not be renounced or negotiated, and workers are entitled to stability and to vital, mobile remuneration, in accordance with the quality and quantity of his or her work. Minimum wage and transportation subsidies are determined annually. For 2012 the monthly minimum salary is COP $566,700 (roughly US$298).

Human factor:

Workers are entitled to severance pay equivalent to one monthly salary, interest on severance pay of 12% over the annual severance pay amount, a service bonus for a total of one monthly salary per year, payable every year half in July and half in December, and vacations equivalent to 15 working days.

The Environmental license is the authorization granted by the respective licenses:

environmental agency to undertake any project or activity which may deteriorate renewable natural resources or the landscape. Environmental licenses may be global (for mining or oil and gas projects) or individual, and include all permits, authorizations, and necessary concessions for the development of the project. They are issued by the Environmental and Sustainable Development Ministry, by the CAR (Regional Autonomous Environmental Corporations) and by the so-called Greater Urban Centers, that is, cities with more than 1,000,000 inhabitants.

When a project is within an indigenous reserve, indigenous territory, or Afrocolombian collective, a previous consultation (consulta previa) process is necessary with the respective minorities in the zone of operations, pursuant to what is set forth in Decree 1320 of 1998. issues: Mining activities in Colombia are governed by the Colombian Mining Code Law 685, 2001 as amended by Law 1382, 2010 (declared unconstitutional by the Constitutional Court C-366 May 11th, 2011 but with deferred effects until May 10, 2013, during which time Congress must pass a new law observing previous consultation with Afrocolombian and indigenous groups). Some key provisions include: mining

Concession. This law establishes rights to explore and exploit mining reserves that would be granted by means of a mining concession contract. This new form of contracting did not affect preexisting mining titles (licenses, contributions, and concession) until their own expiration.

Approval. The assignment of rights arising from a concession contract require prior written notice to the mining entity. If, once this notice is received, such entity does not object to the assignment within a 45-day period, it is deemed to have no objection to the assignment and the registration of the assignment in the National Mining Registry.

Ownership. Concession contracts and other titles derived from the state do not transfer to the beneficiary the right of ownership of minerals in situ but

establish, in an exclusive and temporary manner within the area granted, the existence of minerals in a usable quantity and quality, and the legal right to take possession of the same by means of extraction or capture and to impose on third-party properties those easements that are necessary for the efficient exercise of such activities.

Duration. The concession contract is granted for a maximum term of 30 years, with three years allocated to the exploration period and three years allocated to the construction and staging period. The construction and exploration periods may be extended up to eleven years within these periods.

The concession contract may be extended for 20 years.

Obligations: Holders of mining titles

are subject to financial, environmental, and technical obligations. On the financial side firms must obtain a Performance Bond (both mining and environmental), pay a Surface Fee (during exploration phase) and pay royalties (during exploitation phase).

They may also be subject to additional contractual fees in some specific and extraordinary kind of contracts defined in the current Code.

As part of a firm’s technical obligations it must accomplish exploration activities within the terms of reference and

mining guides issued by the competent mining authorities. It must submit, obtain approval, and accomplish a Plan of Works and Installations. Some terms of reference issued by the Ministry of Mines and Energy should be followed by the contractor in this regard.

All environmental obligations must be followed and accomplished prior to entering into the execution of each phase of the contract. There are some restricted, excluded, and reserved areas from the mining activities.

For example, national natural parks zones, forest reserves, wetlands, sensitive ecosystems such as páramos and subpáramos.

To submit a study of the environmental management plan for the exploration period, no authorization from the environmental entity is required.

Production firms must obtain an environmental license before the Ministry of Environment or the local environmental entity, depending on the volume of the mine’s production.

They must also obtain permits for the use and disposal of renewable natural resources before the environmental competent entities. These liabilities are part of the contract of concession; as a consequence, if such obligations are not fulfilled by a contractor, the contract could be declared unilaterally terminated by the competent entity.

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supplement

Finance Partner Feature

A Capital

Achievement

John Carlesso Chairman Cervello Capital

Led by Chairman John Carlesso, Cervello Capital is a private merchant bank based in Toronto that offers seed capital, managerial leadership, and capital markets advisory services to projects seeking to raise capital on international exchanges. Cervello Capital has broad international experience in countries such as Mexico, Colombia, Mongolia, Chile, Brazil, and the United States.

Cervello’s Portfolio of Companies

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1. Honker Gold • Alaska, USA 2. Vulture Peak • Arizona, USA 3. Global Antimony • New Brunswick, Canada 4. Mogul Ventures • Mongolia 5. Oremex Silver • Mexico 6. Oremex Gold • Mexico 7. New Sage Energy • Latin America 8. Llave Oro • Colombia

What is the history and structure of Cervello Capital?

I founded Cervello Capital after working for many years with another merchant bank. We have extensive experience operating in Latin America. We are an international team; our head office is in Toronto but we have a presence in London and in Europe.

Cervello Capital has a variety of projects across many jurisdictions. What does the company look for in a project?

We utilize our own value–asset quality formula. Jurisdiction is an important factor in the equation. Our philosophy is that each company should have a thematic focus and dedicated technical resources in order to develop a valuable project portfolio. Our investors are located all over the world. We work with an incubation model and generally look for great assets that lack funding or have suffered from some external factors. We then provide seed capital and draw on our network of technical people to restructure the company. We also offer managerial leadership to bring the company to IPO.

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Oremex Gold in Mexico and Llave Oro in Colombia are two gold companies in Cervello’s portfolio. With the challenging environment for junior mining companies, why should gold investors stay the course?

While we may have companies in similar asset classes, there are differences in strategic focus and objectives. We view Colombia as a unique opportunity to participate in an exciting phase of growth in a very dynamic country. In the end, fundamental asset quality is critical to withstanding market volatility and something we believe investors should be focused on.

How do you plan to expand Cervello Capital over the next two years?

We see a major issue being the large number of junior companies, too many in fact, and the competition for capital that it has created. I believe there is a wave of consolidation coming that should result in interesting assets again becoming available.

company focus

Downing Teal (2007) Executive & professional recruitment HQ: Bogotá 60 Employees in South America

DOWNING TEAL

Fernando Jaramillo, Managing Director of Downing Teal Colombia, entered the recruitment business almost by accident. Having led a successful career in the oil and gas and mining industries with a variety of major projects and companies, including serving as President of British Petroleum in Colombia, and of Cerro Matoso before that, Jaramillo found retired life somewhat dull. When the opportunity arose to establish the Colombian branch of Downing Teal, the Australian specialist recruitment firm, Jaramillo saw a chance to leverage his experience in the natural resources industry to fill what he saw as a significant gap: “I used to hate headhunters. Very few of them truly understand the business.”

Jaramillo contends that it can be very difficult for someone from outside the industry to understand the particular soft skills required by mining specialists.

Mining is conducted in remote locations,

Because we come from the oil and gas and mining industries, we know the jobs, the trends and the type of people needed to make things happen.

Fernando Jaramillo Managing Director Downing Teal

and life and work are often intimately connected, meaning that knowing how to balance teamwork and autonomy and having a good grasp of interpersonal skills weigh equally alongside experience and educational background. Downing Teal splits its recruitment evenly between majors and juniors. With a broad reach and a long list of executives and professionals searching for better prospects, the company acts as a broker, linking companies with the right people.

Growth of Employment in the Mining Sector, 2005–10 Number of Jobs in the Mining Sector

Source: DANE–Departamento Administrativo Nacional de Estadistica

Colombia’s position as an attractive mining jurisdiction increasingly depends on the availability of human resources.

Competition for talent comes from the oil and gas as well as infrastructure sectors, and is more intense due to a decade of lost investment in human resources. Michael Keough, Downing Teal’s new General Manager, notes, “We believe talent will become a major issue in the near future, and companies with projects that are five years out should be considering the key talent they will need now. Chilean firms are already recruiting in Colombia for talent needed in 2017.” Keough, a former VP for Human Resources for Occidental Petroleum, has seen this happen in the oil and gas sector already, and sees the same pattern occurring in mining. A lack of information about the talent that exists makes it difficult to plan for future needs.

Jaramillo adds that one of Downing Teal’s strengths is understanding community relations—an increasingly important aspect of mining projects in Colombia.

He is particularly enthusiastic about creating private-public partnerships.

“Some companies we work with are very active with SENA [Colombia’s National Learning Services Centre]. The partnership produces excellent results for operators and technicians. Using approaches such as these for hiring locally at the mine site could help companies build their community relationships and add value to their projects.

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company focus

Knight Piésold (2012) Engineering & environmental consulting Colombia HQ: Medellín 1,000 workers worldwide

knight piésold

International engineering and environmental consulting company Knight Piésold has had its eye on Colombia for some time. Having worked on projects in the country since 2008, it decided to pull the trigger in July 2012 and open a permanent office in Medellín.

Knight Piésold has worked on major mining projects around the world including Yanacocha in Peru and the Palmarejo silver mine in Mexico’s Sierra Madre. The Colombian office, led by Andrew Markle, has worked with Gran Colombia Gold at its Marmato and Segovia projects and also with AngloGold Ashanti at its La Colosa and Gramalote projects in Colombia. The main services for which Knight Piésold is currently seeing the most demand are environmental studies, water and waste management, and engineering.

Knight Piésold’s expertise includes geotechnical, hydrological, hydro­ geological and geochemical inves­ tigations, waste and water manage­ ment systems design, heap leach pad design, foundation engineering, geo­ mechanical analyses, reclamation planning, and social and environ­ mental planning and impact assessments. Knight Piésold also specializes in wastewater treatment and power generation systems planning and production and provides

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We see great potential in Colombia. There is interest on both the regulatory and industry sides to develop a sustainable and environmentally sound mining industry.

Andrew Markle Colombia Manager Knight Piésold

construction quality control and operational assistance services. Most people perceive Colombia as the recipient of knowledge flow from more mature mining countries like Canada or Chile—Markle’s long-term vision is to reverse this trend. “The new mining and environmental frameworks being developed in Colombia are moving in a world-class direction and my longer

term goal is to have Knight Piésold’s Colombian engineers eventually exporting their expertise elsewhere,” he explains.

Knight Piésold has been participating in the Colombian Ministry of Environment’s discussions on the development of wastewater legislation.

Industry has also sought out Knight Piésold’s expertise to assist in creating practical regulations for wastewater management, including regulations that protect the environment and are economical to implement.

Colombia faces certain challenges in developing its mining sector. Knight Piésold’s Colombian office plans to play an integral role in the development process to assist in creating a sustainable, productive and environmentally protective mining industry.

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power generation Past & Projected sources of electricity

MW

gw/h year

Hydraulics

gas

coal

others

Enficc

Source: Asociación Colombiana de Generadores de Energía Electrica

Colombia lags behind much of Latin America in power generation. The national grid covers only onethird of Colombian territory, and the percentage of the population it serves has consistently hovered beneath the Latin American average of 95%. Coverage in rural areas is especially patchy: roughly 93% of the urban population receives its electricity from the national grid, compared to 55% of rural inhabitants.

Hydroelectric power has dominated the electricity market since the 1970s, and still provides most of Colombia’s total ENFICC, a measure of powergeneration capacity. But recurrent droughts and the low long-term capacity of hydroelectric plants have created a growing demand for thermal power. Since 1994, a wave of reforms to Colombia’s power generation industry has promoted private investment as well as the streamlining of the national grid. Private companies now own around 50% of Colombia’s electrical generation capacity.

Mining projects in remote areas of Colombia’s mountainous regions are often cut off from the national grid. Ad hoc logistical solutions such as constructing temporary power plants or contracting companies that specialize in power generation have helped fill the power supply gap for Colombia’s burgeoning mining sector. But it falls to the state to develop a long-term plan to meet the country’s power needs.

The Colombian government attempted to address the problem with a 2001 law designed to promote alternative energies and alleviate some of the pressure on hydroelectric and thermal sources in the future.

Furthermore, Colombia and Panama are collaborating to construct a 372-mile transmission line between their two national grids, with planned operations beginning in 2015. This transmission line could carry up to 300MW from Colombia to Panama and 200MW in the opposite direction. The project forms part of the Puebla-Panama Plan, a regional economic development plan that aims to integrate Colombia with Central America and southern Mexico.

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q&a

Bernardo Vargas Founding Partner Nogal Asesorías Financieras

Making the

Investment Grade

Bernardo Vargas has been at the head of Nogal Asesorías Financieras since 2001 and was part of the team that oversaw the sale of Colombia’s largest gold mine, Frontino, in 2010. Having been involved in discussions with the government about introducing institutional changes and financial tools to strengthen the country’s infrastructure, Vargas offers a unique perspective on the economic factors affecting the foreign investment climate in Colombia.

Has the weak global recovery impacted investor appetite for mineral projects in Colombia?

Colombia continues to attract interest in the mining industry from foreigners, both in coal and other minerals, in particular gold. In 2010 and 2011, investors showed higher risk appetites, and were more willing to look at projects in very early stages without necessarily having initial exploration drilling studies, or proven reserves. But today companies are finding that investors are not keen to stake risk capital on empty titles or on projects without a clear path to production. With the current lower commodity prices, international investors are more selective about their investments, and are looking for more information before they commit financial resources. The same goes for other commodities such as petroleum.

What advice would you give foreigners looking to purchase projects in Colombia?

Companies need to spend the time and resources to prove mineral reserves, to begin and advance the early studies, and to secure a title in good order. Colombian mining is in the nascent stages of its development, in terms of establishing the appropriate regulatory framework and technical development of the resources. This dynamic creates a great opportunity for collaboration between companies, government, and other stakeholders on many aspects of the business, from improving environmental standards and social wellbeing to developing regulations. Openness to cooperation and patience are important characteristics for companies entering the industry.

Despite efforts by the Santos government, infrastructure gaps still create large bottlenecks for the Colombian economy. How will the country finance the enormous improvements needed?

I have witnessed firsthand the drive and interest of Santos and his ministers in pushing to design all the necessary legal, institutional, and financial tools to develop infrastructure as fast as possible. The details of infrastructure improvements are at the heart of government discussions at the highest level.

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Examples include the legislation that produced the Agencia Nacional de Infraestructura (ANI) and the new APP law (Ley de Asociaciones Público-Privadas) for public-private partnerships.

Commercial banks have played an important role in providing debt for many of Colombia’s big infrastructure projects.

Infrastructure debt provided by local banks has grown at rates of around 20% per annum over the past five to seven years.

But even more will be needed in order to complete the project for new roads that the Agencia Nacional de Infraestructura announced recently. Institutional investors also express a strong appetite to finance such projects, and the ANI is in the process of designing an infrastructure bond that can be used to finance road construction from investors in the capital markets. Up-front equity will also come into the financing equation. In past rounds of infrastructure development, equity wasn’t needed because the government was giving anticipos (advances) to concession holders in order to get work under way. Now concession holders will need to provide equity up-front and provide information to give assurance on their financial strength.

The Colombian peso has been one of the world’s bestperforming currencies in 2012. Does an expensive peso deter or encourage investment in Colombia?

I’ve never seen the exchange rate as the principal determinant of investment decisions. If investors believe they have a good investment destination with stable policy and contractual terms, along with strong growth potential, and a long-term view, then exchange rates should not be a huge deterrent. Furthermore, despite the appreciation of the peso, it is a low-volatility currency— no one thinks there will be a sudden devaluation. The Colombian central bank acts upon sound technical grounds, with ample foreign-exchange reserves and controlled inflation. It is not only willing to manage the exchange rate responsibly to the extent it can exert some influence by buying or selling foreign currency, but also has the macroeconomic firepower to do it.

leader insight David Arce Rojas Founder Arce Rojas Consulting

David Arce Rojas founded his consulting firm in 1997, and it has since grown to be the leading firm in land acquisition. Having worked with leading petroleum companies, Arce Rojas has begun to take on large mining clients including Cerro Matoso, CCX, Gold Fields, and Holcim. Mr. Arce Rojas has served as a senior lecturer in energy law in Colombia’s most important universities over the last 25 years. He is also an expert on human rights and security and has written a book on the implications of terrorist attacks on oil infrastructure.

Less Talk, More Auction In February 2012, the then-Minister of Mines and Energy Mauricio Cardenas announced that Colombia would auction 17.6 million hectares of Strategic Mining Area (SMA) in an attempt to repair the country’s disordered cadastre system. The issue of mining concessions has been problematic since March 2011, when a moratorium on new mining concessions was put into effect. Though the National Mining Agency (ANM) had planned to end the moratorium in October 2012, “technical issues” prevented miners from applying for new concessions. The ANM still needs to process about 10,000 concessions. The auction system has received much criticism for its resemblance to past auctions of petroleum assets, and for seemingly giving advantage to larger players.

Despite the critics, the auctions system is a step in the right direction because it will eliminate speculation on titles and ensure that only companies with sufficient technical, financial, and environmental capabilities are active in Colombia.

Colombia’s petroleum agency, the ANH, provides a case study for the mineral auctions system, because the ANM was created to resemble the ANH. Four years ago, Colombia was inviting everyone into the country to develop petroleum projects of all sizes. Though aiming to spur investment, Colombia saw a wave of small companies without technical or operational capabilities enter and acquire concessions without any long-term development. This laissez-faire approach suffocated the development of petroleum projects, and based on this experience, the Ministry of Mines and Energy wants to dictate a more organized approach for the mining sector. Today the country’s petroleum sector is efficiently managed and has attracted about $3.5 billion in FDI in the first six months of 2012.

The mining sector saw a similar boom in the acquisition of titles—a boom that ultimately resulted in the moratorium.

Though the auctions system may seem to deter investment, I believe that this is the solid policy that Colombia needs.

Foreign mining companies looking for titles quickly found that Colombian prospectors, with no intention of developing the land, had acquired the majority of titles. It was a disaster because anyone with 500,000 pesos ($280) could acquire a title. Colombia remains 90% unexplored, largely due to past titleholders’ ambivalence about working their properties. For example, one man in Colombia currently holds the titles to almost all of the country’s coltan deposits. In an attempt to gain revenues from mining, auditors are combing through the thousands of concessions and finding that many surface canons are not being paid. Titles with unpaid canons will expire and be funneled back into federal care. The mining concessions auction is designed to prevent speculation that could choke off development of the land.

The SMA has been divided into 202 blocks, or roughly 15.4% of Colombia. The majority of the SMA is in the eastern departments of Guainía and Vichada, on the border of Venezuela; and in Amazonas, where blocks of gold, uranium, coltan, and iron will be up for auction. On the Panamanian border, in the Guaviare and Chocó departments, large plots with potential in platinum will hit the auction block. Though no date has been set, the first round of auctions is expected in the first quarter of 2013, where 2.9 million hectares will be open to bidding.

Though the auctions system may seem to deter investment, I believe that this is the solid policy that Colombia needs in order to repair the disorder in the current titles system.

It is also a challenge from an environmental and social point of view, since many of the mines lie in areas of environmental interest or belong to ethnic minorities, and their development could affect their rights. I have faith that by implementing auctions for mineral reserves, Colombia will be able to attract capable companies with the tools and desire to release the country’s geological potential.

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company focus

Golder Associates (2011) Consulting, design, construction HQ: Bogotá Clients: CCX, Cerrejón, Cerro Matoso

Golder Associates Improving security conditions combined with a greater governmental interest in Colombia’s mining potential provided the final push for Golder Associates to formally enter the country and set up shop. Of course, there was also the small matter of continuing the consultation work to CCX for its giant $5.2 billion, 35Mt per year thermal coal project in the south of La Guajira. “It’s a big project so we wanted to be able to provide the best support we could,” explains William Feragotto, Golder’s Country Manager for Colombia. “Our local presence now means we are closer to other clients like Cerro Matoso and Cerrejón, among others.”

Despite the strong presence of major companies in Golder’s portfolio, the firm is not exclusively focused on big players and considers juniors an extremely important part of its development. Technical and environmental due diligence, mine permitting, mine design planning, reserve statement and closure, and environmental and social impact assessments are some of the services for which the company is seeing high demand in Colombia. Feragotto explains that the biggest challenge in undertaking due diligence is gaining social permitting, and maintains that Golder has extensive experience in developing transparent communication

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Developing the business in Colombia is of huge importance to us. We are diversifying, investing in people, and trebling our size to be closer to our customers.

William Feragotto Country Manager Golder Associates

policies. Mine closure legislation, Feragotto contends, is still lacking in the country and needs to be developed. The company also draws on the knowledge of its partners in Canada, the United States, the United Kingdom, Australia, Chile, Peru, and Brazil.

Currently Golder has 20 employees, but by 2014 Feragotto expects that number to grow to 120. Security, human resource

availability, and infrastructure remain challenging in Colombia, but, typical of the firm’s philosophy, Feragotto is taking a creative approach to the shortages in personnel. “We have quite an aggressive recruitment plan and we target very talented Colombians living in Colombia and abroad, bringing them back by offering them great prospects, an attractive salary, and the chance to become shareholders in the company.”

Golder’s presence in 40 countries across the world gives it an advantage in publishing this information and in finding ideal candidates.

Aside from the growth in staff, Golder plans not only to build on its traditional strengths of engineering and environmental consultation to mining projects, but also to diversify its portfolio into oil and gas, infrastructure, and manufacturing.

“The key to success,” says Feragotto, “is diversification.”

q&a

in the bag

Jorge Tabares Co-head of Investment Banking Bolsa y Renta

Jorge Tabares, who leads Bolsa y Renta’s investment banking division, has overseen dramatic growth since 2006. In June 2012 BTG Pactual, the Brazilian investment bank, announced plans to acquire the Colombian investment firm, a deal that will reshape the country’s finance industry. The bank now has $2.6 billion in assets under management and 270 employees.

What does the merger and acquistion landscape look like for Colombian mining right now?

Raising capital has stalled in today’s market, so at the moment it is hard to sell not just the story but also the future of the mining sector over the next year. Quite a bit of M&A activity is now underway, with three major types of M&A deals dominating the landscape. First, there are large- and medium-sized international corporations that want to take a piece of the Colombian mining sector—but for the most part they’re coal players like Vale (in and out) or CCX. The next type of deal is happening among the handful of noncoal producing companies in Colombia; they are thinking seriously about how to expand. Mineros stands as a prime example; they have a great deal of firepower and the desire to invest. The final category is comprised of companies seeking to consolidate; many juniors are suffering and I believe that the time has come for more very small companies to become small companies and try to diversify their portfolios. A company that focuses on just one property exposes itself to very high risk levels. If you can put together a portfolio of two or three juniors’ assets you can spread risk across different maturities and it can help a company to improve its risk profile and increase its chances of growing.

Unlike on the Lima Stock Exchange, juniors have not begun to seek dual-listings in Colombia. What explains this lag in junior listings?

We want the main players to list in Colombia, and we have the capabilities to list them. In spite of this, we prefer to help them grow and consolidate instead of rushing them to the market.

You can’t create any alchemy just by listing: the company needs to have developed a solid fundamental story and have reached a certain size for that kind of strategy to succeed. If you’ve reached this size in your home market, then you should come and list in Colombia to create a second market for your shares.

Canada has always been the place to raise money, but it doesn’t make sense when you have a $500 million company, with all of

its assets in Colombia, to not be listed on the local market and not allow a local investor base to be created. In the oil and gas sector, some Canadian exploration firms with dual listings on the Bolsa de Valores de Colombia have reported an increase in the liquidity of their stock.

Besides this liquidity increase, what other benefits does a company gain from dual listing?

More liquidity means better price formation. But also, from the stakeholders’ perspective, it is a far better situation to be a foreign company with local investors. Every conversation that the company has with regulators, authorities, and neighbors will be different and in the company’s favor. I think people see the benefits and there will be more dual listings in the next couple of years.

It is expected that $121 billion will flow into Colombia’s pension funds by 2014. What impact does a mandatory pension system have on Colombian markets?

I would venture to say that the mandatory pension system has been more important than the security changes in Colombia over the last ten years. These funds oversee large amounts of money and naturally the first place to invest it is in the local market; they mostly invest in fixed income, but they also put significant money in equities. More importantly, they can invest up to 5% in alternative investments such as private equity and hedge funds. What we are doing is creating alternative vehicles for the funds to participate in infrastructure projects. When you get to the point where you need to fund the construction of a mine, I believe that we’ll be able to create a channel for the pension funds’ money to be deployed via a combination of equity and fixed income. There are six main pension funds in Colombia with internationallevel capital; if you take 5% of $70 billion, that’s $3.5 billion being invested into alternative investments. If targeted correctly, these alternative investments could greatly benefit Colombia and contribute to growth.

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company focus

C&MA (1999) Environmental consulting HQ: Bogotá Clients: Ecopetrol, Pacific Rubiales, Petrobras, Canacol Energy, Petro Testing Carbones

C&MA

Like many successful companies, Consultoría y Medio Ambiente (C&MA) is the result of two entrepreneurial university students. Harving Díaz was studying an environmental engineering specialization in Bogotá when his college friend Carlos Arenas asked him to come work at his new oil and gas environmental services company. In 1999, the two partners decided to start a new company and C&MA was born to specialize in environmental services. As an environmental consultancy, C&MA specializes in the legal, social, technical, and ecological permissions and licenses required for all the extractive industries.

The company today has built up a track record by working with some of the largest oil companies in Colombia including Ecopetrol, Pacific Rubiales Energy, Petrobras, and Canacol Energy. Although 80% of the company’s operations involve the petroleum sector, the company has also worked with important mining clients. In 2004 C&MA was hired as the environmental supervisor for the coal project at Petro Testing Carbones in Ontanche, Boyacá, where it secured the permits from the authorities and conducted all the social and environmental studies. One service that C&MA specializes in is forest subtraction, a legal procedure to gain access to projects in forest reserve or protected areas. C&MA is now applying the subtraction procedure to help Carbones de Toledo secure licenses

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Many people think mining completely pillages the environment and devastates communities. This perception needs to change.

Carlos Arenas & Harving Díaz Founders C&MA

for mining in a forest reserve area in Norte de Santander. No matter the issue, C&MA aims to provide top technical and legal expertise to ensure that companies can reach a solution.

Arenas sees the mining industry evolving similarly to the petroleum sector and hopes that modern best practices will create a sustainable industry with model companies much like Ecopetrol. “We have many problems

in the mining sector today such as illegal mining and political uncertainty,” says Arenas. “However, the sector’s principal challenge in Colombia is its perception: many people think mining completely pillages the environment and devastates communities. This perception needs to change.” Arenas hopes that as modern mines come into production, the public will see that responsible mining brings about significant economic growth.

Arenas and Díaz have oriented C&MA to grow with a new partner, the Boulder, Colorado–based consultancy Walsh Environmental. Walsh has deep ties to the mining sector at the international level, and it now wants to leverage that experience in Colombia, particularly in helping companies sidestep bureaucracy.

Walsh’s experience in mining combined with C&MA’s local expertise should position the firm to offer tailored, Colombia-specific solutions for the country’s miners.

market focus Outside NP

inside NP

Páramo Zones within the Colombia National Park System

Source: Mining Leaders, based onMorales et al. 2007

Environmental Regulation

Since the country has opened itself to international mining firms, many have stumbled over environmental issues. Colombia’s enormously varied ecosystems have made it difficult to create a consistent, predictable, and effective regulatory regime for mining. The chaotic regulatory regime can cause damaging delays to mining projects, as was the case at AngloGold Ashanti’s La Colosa mine in Cajamarca and Eco Oro’s Angostura project in Santander. However, the launch of the National Mineral Agency (ANM) in late 2011 should provide some much-needed structure and help standardize policies in areas of jurisdictional overlap between the Ministries of Mines and Energy, the Environment, and the Interior. The ANM’s immediate tasks include clarifying the system of environmental tax incentives, implementing a legal definition of the protected páramo (moorland) regions, and formalizing artisanal miners. In the future, the ANM and the Colombian mining sector must collaborate to establish an efficient and environmentally respectful mining code.

Demand for environmental consultancy is growing in Colombia. We aim to show companies that instead of implementing environmental regulations only because it is necessary, they can receive longer-term benefits. For instance, environmental regulations cut down on Alberto Mejía Restrepo water and energy costs among other CEO things, saving companies money in Ambientalmente the long run. In Colombia many of the smaller mining companies arrived first with outdated equipment or technology; often it is the case that the new upgraded models of mining equipment are not only more efficient at their task, but are also better for the environment.

It is important to look to markets like Chile and Mexico to see the direction Colombia should take with its environmental policy. Across the region we have seen the development of corporate responsibility as CEOs recognize the monetary value of sustainability. Our biggest achieveClaudia Restrepo ment in our six years here has been Executive Director to show our clients the connection BSD Consulting between sustainability and competitiveness. We have advised on making supply chains sustainable, protecting human rights, facilitating PPPs, and developing alternative economic sources. Our external consultancy team includes some of the country’s best environmental legal experts.

I think consulta previa is going to be improved; the Santos government wants to draft a new law. It is now only a procedure. Communities don’t have the right to veto, and the only thing that mining companies have to show is that they fulfilled the relevant steps— Sandra Manrique that’s nonsense. Why go through Partner a difficult, expensive, and somePrietocarrizosa times dangerous procedure if no agreement with the community comes out at the end?

The government should oblige companies not only to fulfill the procedure but also to secure and comply with the agreements that come out of the process.

Each region’s environmental policy is managed by a Corporación Autónoma. Colombia has a huge diversity of ecosystems—deserts, moors, and rainforests. It is important to have the corporations because it could not all be managed from Bogotá—but it does complicate the Carlos Alberto Arenas process of obtaining licenses from so Founder many levels of bureaucracy, especially C&MA since each corporation can set its own regulations. For example, if coal production is over 1Mt per year the miner is responsible to the minister, but at lower production levels then the corporation is the authority. The regulations could differ greatly depending on the authority.

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company focus

Alianza W.J. (2007) Legal & accounting consultancy HQ: Medellín; office in Bogotá 10 minerals lawyers, 3 accountants

Alianza W.J.

Medellín-based law firm Alianza W.J. is Colombia’s sole law office dedicated completely to the mining sector. Its lawyers and accountants are available to provide a multitude of financial and legal services for foreign clients looking to establish business in Colombia. In June 2012, Alianza W.J. celebrated its fifth birthday. “We were born in the mining sector and we intend to continue helping it grow,” says Tamara Romero Restrepo, Alianza’s General Manager. Though largely in its infancy, Colombia’s mining sector is growing thanks to the efforts of Alianza in facilitating the entrance of foreigners into the country.

Romero says her firm offers mining companies all the legal and accounting services they need to establish a presence in Colombia. Though the firm started as only a law firm, it has since begun providing financial and accounting services. On the legal side, the company has 10 minerals lawyers, who can offer personalized service in the creation of foreign subsidies, negotiation of mining titles, community relations, visas, technical studies of titles, and consulting on permits. “Delays with mining titles are commonplace in Colombia,” explains Romero. “However, no one likes surprises, and it is our job to help prevent these.” For financial issues, a team of accountants navigates taxes

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Some issues, such as security and bureaucracy, can be difficult to navigate. It is important to have a local partner with a proven record.

Tamara Romero General Manager Alianza W.J.

and the importation of capital, an often-thorny issue due to intense scrutiny from the taxman to prevent repatriation of drug revenues. It is the deep expertise and specialization in mining that distinguishes Alianza from other firms that usually only have small teams of minerals lawyers.

Alianza works primarily with foreign companies; junior exploration firms

like Bandera Gold, Atico Mining, and Waymar Resources are key clients.

Romero notes that she is representing an increasing number of Latin American service companies, both foreign and international, as they invest in the Colom­bian gold rush. Alianza is now the legal representative and delegated administrator for many companies that want to have a presence in Colombia without becoming fully immersed in it. The team offers a bespoke solution for every stage of a company, from registration and recruiting through to the study of titles and community negotiation. With offices in Medellín and Bogota, the team can be on site at a project anywhere in Colombia without major delays. “Because the legal and accounting procedures are equal across industries, we could probably diversify our client base, but we prefer not to,” says Romero. “We want mining to always remain as our primary focus.”

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lead article

C

olombia’s allure during the past 20 years has inextricably been tied to mining. Foreigners came to the country in droves, then left, then came back again, all thanks to its highly prospective gold industry. But now, as security threats have ebbed and the investment environment has flourished, there’s more reason than ever to add Colombia to the list of worthwhile business destinations. The country is now self-consciously renewing its efforts to attract both tourists and foreign miners, with the government agency Proexport running an iconic tourism campaign in 2011 noting that "the only risk is wanting to stay" and the Economist recently proclaiming "a new era of mining" in South America’s third-largest economy.

PHOTO: City of Bogotá

For mining executives visiting Colombia, Bogotá is clearly the focus.

The capital city lies high on an Andean plateau, some 2,600 meters above sea level, and serves as the industrial center of Colombia, housing the headquarters for the majority of mining firms present in Mining Leaders

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lead article

#3

Colombia’s Rank among South American Economies in 2011

PHOTO: City of Medellín Medellín, the City of the Eternal Spring, in the Aburrá Valley of the northern Andes

the country. Bogotá is also Colombia’s undisputed logistical hub, with its newly renovated El Dorado Airport, the 33rdlargest airport in the world in terms of cargo shipping, carrying roughly 648,221 metric tons in 2011.

International operators such as Lufthansa, Air Canada, and Continental offer frequent flights in and out of the city. Direct flights arrive regularly from Toronto, Mexico City, Paris, New York, and Caracas. Flights from Australia typically connect in Santiago, Buenos Aires, or Los Angeles. Domestic flights between other cities are also cheap, and tend to be less than $200 depending on flight times and availability. Other cities in Colombia, including Medellín, Cartagena, Barranquilla, and Cali, have international airports as well.

On the ground in Bogotá, travel can be slightly more vexing. Traffic in the city is congested, especially in the bustling business districts. The bus system and TransMilenio public transit network, while affordable, are almost invariably crowded and chaotic, with routes that often perplex even locals. Taxis and hired drivers are relatively economical and thus the leading mode of transportation for tourists and business travelers.

Accommodation options in the city are growing fast, with a number of multinational hotels setting up shop

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in the sprawling north of the city. The Hilton is a favorite for newcomers to the city, and offers a litany of amenities, including gym, pool, fully licensed restaurant, and a selection of lounges.

Other chains like BOG Hotel and BH Hoteles offer a relaxing and comfortable escape for business travellers.

Medellín, in northwestern department of Antioquia, is the second most populous city in Colombia, and a more stylish version of its larger companion.

It is known mostly for its stimulating nightlife, fashion, and rich Paisa culture.

Yet Medellín is also an integral part of the mining sector, and the undisputed center for gold production. Many international gold explorers centered their operations there. Flights into the city arrive at the José María Córdova Airport, up to a 40 minute drive from the city center.

With regards to visas, nationals of the USA, Australia, New Zealand, and much of Western Europe do not require entry visas. Tourist visas typically last 30 or 60 days, and can be renewed at DAS offices for up to six months within the same year. From there visas can be easily upgraded to business or entrepreneurial types.

Some of the most widely read daily newspapers include El Tiempo and El Espectador, both of which provide local context to the most pressing mining issues. A comprehensive English-language publication can be found at colombiareports.com.

Bogotá also has a free English newspaper, The City Paper, that circulates in haunts for foreigners like the Bogotá Beer Company or the city’s numerous Irish pubs.

PHOTO: City of Bogotá

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HOTEL LISTING

La pRovincia apart hotel

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dann carlton medellín

Located in the most exclusive area in Medellín, these luxurious apartments and suites, tailored perfectly to travelling executives, can be leased weekly, biweekly or monthly.

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The San Fernando Plaza Hotel is devoted to luxury business travelers, services include a business center and the commercial amenities of the San Fernando Plaza complex.

Carrera 42 A No. 1-15, Medellín (574) 444 5353 www.hotelsfp.com

This remodeled hotel is located on the Gold Mile of El Poblado near shopping malls, parks, small businesses, and the entertainment hub of the city.

Cra. 43 A No. 7-50, Medellín (574) 444 5151 www.hotelesmedellin.danncarlton.com

hilton Bogotá

smart suites royal

bog hotel

Enjoy the central location and stylish atmosphere of the Hilton Bogota hotel located in the heart of the financial district, minutes from the Zona Rosa and the Zona G. Carrera 7 No. 72-41, Bogotá (571) 600 6100 www3.hilton.com

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Medellín Royal was conceived to achieve the highest standards of quality and service, and can offer you all the comfort and tranquility you need.

Cra 42 No. 5 Sur - 130, Medellín (574) 448 5700 www.hotelesroyal.com

A design combination of textures, colors, and luxury, inspired by the resources of Colombia; gold and emeralds unite for an unforgettable hotel experience.

Carrera 11 No. 86 – 74, Bogotá (571) 639 9990 www.boghotel.com

HOTEL LISTING

BH Hoteles

blue doors hotelS

BH Hoteles are identified by their architectural design, modern décor, and comfortable and spacious rooms, custom made for the businessmen and women of today.

Carrera 7 No. 14 - 93A, Bogotá (571) 347 0099 www.bhhoteles.com

The Blue Doors Hotels collection features five lifestyle boutique hotels offering unparalleled service in some of the most desired locations in Bogotá.

Calle 73 No.9-42, Bogotá (571) 639 9990 www.bluedoorshotels.com.co

With the Country International’s convenient location guests can enjoy easy access to Barranquilla’s must-see destinations and all the city has to offer.

Carrera 52 # 69-30, Barranquilla (575) 369 5900 www.countryinthotel.com

Hotel Estelar Alto Prado

hilton cartagena

hotel Almirante cartagena

This beach hotel is surrounded by the Caribbean, with picturesque views, a tranquil atmosphere, and an oceanfront position just ten minutes from the ancient walled city.

Av Almirante Brion (575) 665 0660 www3.hilton.com

In the main tourist area of Cartagena, surrounded by a beautiful beach and just 5 minutes from the historical city, this hotel has modern and spacious rooms with a sea view.

Avenida San Martín (575) 665 8811 www.hotelalmirantecartagena.com.co

A 5-star hotel situated in Barranquilla´s exclusive country club district. It offers stylish rooms and an outdoor pool with panoramic city views.

Calle 76 No. 56-29, Barranquilla : (571) 646 1581 www.hotelesestelar.com

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BH Hoteles

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Inside Back Cover 71 131 Inside Cover 15

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EXPONOR

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Hotel La Provincia

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Touchstone Gold

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www.anm.gov.co The Colombian National Mining Agency is the governmental authority in charge of the administration of mineral resources in the country. Within its functions, the Agency aims to promote and develop the mining activity. It executes, administrates and monitors the concession contracts and mining titles for exploration and exploitation of minerals. It also settles, collects and administers the transfer of royalties; promotes mining safety and performs mining rescue activities.

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The Agency targets to build an ethical and responsible industry, with sustainable and environmental-friendly development in order to position Colombia as one of the most attractive investment destination in the mining industry.

12/18/12 7:18 PM