Smoother, not easier. What a new regime means for investors in Colombia’s gold sector
By Paul Harris, editor
Gold: US$1,739/oz, YTD -3%, last 30 days +2.1%
A final frontier in America’s gold exploration, Colombia is living-up to its promise and rewarding investors. A rush of money and entrepreneurs which began 15 years ago have grappled with the growing pains of an emerging jurisdiction, with their persistence bearing fruit. Ventana Gold (2011) and Continental Gold (2020) were two startups which fetched nearly US$3 billion in their respective takeovers, with plenty more exploration and corporate action to come.
Juniors to watch in Colombia
GCM Mining (TSX:GCM), production (C$321M)
Aris Gold (TSX:ARIS), development (C$223M)
Collective Mining (TSXV:CNL), drilling, pre-resource (C$164M)
Cordoba Minerals (TSXV:CDB), feasibility (C$55M)
Max Resource (TSXV:MAX) early exploration (C$51M)
Royal Road Minerals (TSXV:RYR), drilling, pre-resource (C$45M)
Outcrop Silver & Gold (TSXV:OGC), PEA (C$26M)
Baroyeca Gold & Silver (TSXV:BGS), drilling, pre-resource (C$7M)
By no means an exhaustive list …
The swearing-in of Gustavo Petro (below) as president of Colombia in early August was met with some trepidation by the mining sector due to his avowed distaste for natural resource exploitation funded by foreign capital, desire to raise taxes on resource companies and promises to increase environmental hurdles. This only increased when one of his first official acts was to enter a sweeping tax reform bill before Congress. Among many other things, the reform proposed export taxes on gold, coal and oil exports. Leftist Petro has a Marxist bent, which at best views the aims of private capital (and foreign direct investment) with suspicion. His appointment of academic environmentalist Irene Velez as mining and energy minister contributed to sleepless nights among mining and exploration company executives who foresaw a shrinking window of opportunity to advance projects into production in the country.
Three weeks into the Petro administration and a different complexion is emerging, at least at face value. Minister Velez has publicly stated many times that the government is not against mining and that it recognizes the value mining and exploration projects add to opportunity-starved rural communities.
Now, Colombia’s finance minister Jose Antonio Ocampo has said the government has scrapped plans to introduce a 10% export tax on gold as part of the tax reform bill before Congress, having recognised that it would likely increase smuggling while damaging efforts to bring small miners into the formal sector. Speaking at a forum organised by ANIF Centre of Economic Studies minster Ocampo said, “it will be uncontrollable, much of the gold that Colombia exports is smuggled and the other thing is that there are many large gold companies working with small producers, and we are interested in promoting small producers, as well as agricultural producers, industrial or services, the popular economy," said the minister.
Proposed export taxes on oil and coal will remain in the bill as the administration of new president Petro seeks a greater contribution from the natural resources sector to finance the public sector and his plans to create a more equitable country. “Basically because it is booming internationally and we are capturing a bit of casual income from the sector," he said.
The Petro administration had included a 10% export tax on the value of gold exports above a reference price of US$400 per ounce. No other jurisdiction in the hemisphere has an export tax although Chile is attempting to implement something similar, a tax on sales value. These are unpopular among miners as they take no account of the profitability of an operation. At lower metals prices, they would threaten their viability. The government's logic perhaps stemmed from a recent report by the Comptroller General of the nation that 85% of the nation's 50 tonnes per year of gold exports are from informal or criminal production, and as such, the government does not receive tax revenue or royalty payments from them. The tax would essentially have been a punitive tax on criminal production.
The gold sector responded by showing with the ACM mining association and individual companies lobbying elected officials that such a tax would be counterproductive by incentivising gold production to be smuggled out of the country, while also reducing investment in the formal gold sector and adding a barrier to efforts to formalise traditional miners.
So what is happening? Petro is an economist and so should understand numbers. He was elected on a ticket of implementing sweeping social change to reduce the vast disparity between rich and poor with plans to invest in health, education and level the playing field. He wants to end the war on drugs and has suggested the International Monetary Fund forgive Colombia’s foreign debt so the country can invest in protecting the Amazon rainforest, one of the biggest carbon sinks in the world, as part of overall decarbonisation and energy transition plans.
Despite the colour of his armband, there are things to like about the Petro administration, which has the potential to facilitate permitting new mines. Let’s be clear here: while Colombia has had pro-business and investment governments for the past 20 years, mining sector development never really got going despite it being declared a motor of the economy by former president Juan Manual Santos (2010-2018), with a similar position taken by his successor Ivan Duque (2018-2022)and his predecessor Alvaro Uribe (2002-2010). Despite the pro-mining position of the top man, other branches of government failed to heed the call, particularly the environment ministry, which saw their role as protecting the environment at all costs, regardless of the economic opportunity mining would provide impoverished communities. With Petro at the helm really pushing energy transition and environmental maintenance policies, projects which now receive government approval may have a smoother path through permitting.
Smoother, not easier. Colombia has some of the most demanding environmental regulations in the hemisphere and are likely to get tougher, which means companies are going to have to go the extra two or three miles to convince authorities of the minimal impact they will have on water and forest resources, that their mitigation plans are extensive, and that communities will benefit much more than simply having jobs for a few years.
Aris Gold
This set-up could play into the hands of Aris Gold (TSX:ARIS - C$225M mkt cap) which has rapidly established a beachhead in Colombia through with the Marmato gold development project in Caldas (see below) in the Middle Cauca Belt, the key regional geological feature on the same subduction arc/geological corridor as Chile, Peru, Ecuador and Panama but much less explored by modern exploration techniques, and which hosts multiple porphyry gold-copper deposits, via the acquisition of Caldas Gold in late 2021. The company doubled down by striking an earn-in deal with the Mubadala fund to earn a 50% interest in the massive Soto Norte gold project in Santander which has potential to produce 400,000oz/y where previous operator Minesa, the development company formed by Mubadala to take Soto Norte forward, failed to obtain an environmental permit. And Aris is looking to triple down through the acquisition of GCM Mining (TSX:GCM - C$322M mkt cap), former owner of Marmato and who spun out Caldas Gold, and more importantly, owner of the Segovia operations in Colombia, which produce more than 200,000oz/y and is one of the highest grade operations anywhere in the world.
Why should you be interested? BMO calculated a >US$1.1B NAV for ARIS (pre-merger) and a post merger combined NAV of >US$3.0B, so there is potentially a lot of value growth available as the company executes on its plans port-merger.
Aris brings an experienced management team with long years working in Latin America and with communities, and meeting environmental obligations. Led by Neil Woodyer, a well-respected mining name and backed by a veteran board including Ian Telfer as chair, David Garofalo, Peter Marrone and others, and with special advisor Frank Giustra. The track record of these individuals should help Aris access capital. A side note is that streaming company Wheaton Precious Metals (TSX:WPM) has invested in Marmato, which is a strong endorsement of the project, the operator and the jurisdiction given it has a team whose full-time job is to do technical due diligence on investment opportunities. WPM also invests in corporate social responsibility initiatives alongside the companies it invests in.
And these later points will be crucial. Marmato mountain has been mined for more than 200 years with an historic town built on the top. Due to community resistance, GCM predecessor Gran Colombia Gold abandoned its plan for an open pit mine about a decade ago and switched to explore the deep underground potential below the existing 27,000oz/y operation it had. This resulted in the discovery of the Deeps project which has been worked up and grown into the project which Aris is now permitting to bring into production to increase output to 175,000oz/y.
Resolving social and environmental issues, and repairing the damage inflicted to local relations by the former Minesa administration, will also be the key to develop Soto Norte. Projects in the California valley where Soto Norte is located have a history of running into community opposition. Greystar Resources spooked locals by revealing an open pit project to mine the Angostura deposit almost 15 years ago, causing the government to backtrack on its support. By the time it had reconfigured the project as an underground mine (and changed its name to Eco Oro Minerals) the day had already been lost, with the company (and project) effectively snuffed out by a drawn-out process to define a nearby national park boundary. Both Greystar-Eco Oro and Minesa failed to adequately take into consideration the town of Bucaramanga some 80km downstream where many people rightly or wrongly feared for potential impacts on their water supply.
When I spoke with ARIS CEO Neil Woodyer earlier this year he said, “we will meet with people and just listen for the first year”. This is an encouraging approach, and Woodyer did not rule out looking into providing the local region with participation in the project so they would get a share of the future profits for a regional development fund or similar. Incidentally, this is an approach that Mark Bristow of Barrick Gold (NYSE:GOLD) is championing to unblock projects around the world in Pakistan, Tanzania and Papua New Guinea.
There is a lot to like about ARIS, from its management and board, to its cash flow (assuming the GCM deal is crystallised) which means much of its work will be self-funding. The company will also have several key catalysts in the months ahead including the completion of the transaction to acquire GCM Mining, finalization of its permits to build Marmato and its baby-steps to bring Soto Norte back onto the table.
Collective Mining
A handful of miles northwest of Marmato, and looking on with interest is Collective Mining (TSXV:CNL - C$164M mkt cap), a junior created by Ari Sussman and the management team behind Continental Gold, which has been a public company for about a year. Management has significant Colombia experience which it used to hand pick and stake the Guayabales gold-copper project in Caldas. The team has three key things going for it.
1) The ability to recognise geological potential. At the Buritica project with Continental Gold, it recognised the geology was not epithermal veins but a carbonate base metals system, which was the key to unlocking exploration success which resulted in a deposit hosting more than 10Moz at about 8g/t, resulting in a mine producing some 200,000oz/y. Challenging the accepted wisdom is bearing fruit at Guayabales. The project was explored by other juniors but CNL is testing a different geological hypothesis and hitting at its Apollo (see below, 95% massive sulphide in core) and Olympus targets. In August, it reported an intercept of 207.15m @ 2.68g/t AuEq at Apollo, some 555 gram-metres.
2) The ability to finance. Sussman raised $$$ early-on in the Continental story and cash in the bank insulated the junior from the worst of the 2012-2018 bear market because. CNL raised C$15M pre-IPO and accelerated the exercise of warrants in August 2021 to bring in another C$13.5M.
3) Success. The success of Continental rewarded investors and helped the authorities in Colombia believe in the potential of developing the formal gold sector. Those past relationships now benefit CNL.
There is plenty more to come from CNL at Guayabales although there is a long way to go for the company to turn some good drill holes into a deposit that is economic to mine. The CNL team has been through this process before in Colombia, however, and as yet there is no reason why it shouldn’t be able to do so again. Who knows, at some point ARIS may continue its Colombia acquisition streak and come for CNL to add Guayabales to Marmato.
Royal Road Minerals
I want to mention one other company in this Colombia gold article: Royal Road Minerals (TSXV:RYR C$45M mkt cap). In 2019, RYR obtained two significant exploration packages in Colombia from AngloGold Ashanti (NYSE:AU) to add to its existing concessions in the country and exploration properties in Nicaragua. The highlight so far has been the Guintar-Niverengo project in Antioquia where it has reported drilling hits up to 303.7m @ 1.1g/t AuEq. G-N is a stonesthrow away from the Anza project where Agnico Eagles Mines (TSX:AEM) is the operator of a JV with Newmont (NYSE:NEM) and junior Orosur Mining (TSXV:OMI). AEM is also an 18% shareholder of RYR. RYR is an explorer and is not above selling its discoveries as evidenced by the 2021 sale of its 50% interest in the Luna Roja gold project in Nicaragua to Mineros (TSX:MSA) for C$22.5M and a 1.25% NSR.
As I discussed above, license to operate in Colombia is critical and often more of a challenge than the geology. In this regard, the ESG aspects of RYR are class-leading. Its Accelerator local business development initiative won the 2021 CGS Economic Development Award at my CGS Medellin (www.ColombiaGold.co) conference and it more than offsets its carbon footprint through planting trees on its concessions.
Colombia also has investment opportunities in energy transition metals copper and gold, which I will discuss in future posts, including looking at Cordoba Minerals (TSXV:CDB, C$55M mkt cap), Outcrop Silver & Gold (TSXV:OGC, C$26M mkt cap) and Baroyeca Gold & Silver (TSXV:BGS, C$7M mkt cap).
ARIS, CNL and RYR are leaders in Colombia’s gold sector and their progress will also benefit the more than 20 other listed junior explorers with projects in the country.
Junior news highlights
Snowline Gold (CSE:SGD, C$343M mkt cap) reported one of the drill hits of the month with 283M @ 2.3g/t Au in the Valley zone of its Rogue project in Yukon, Canada. That is a massive 651 gram metres! The stock rose 13% on the day to a 52-week high at a time when many peers are experiencing 52-week lows. This stock has doubled since I met with CEO Scott Berdahl in Dawson in July. Sector powerhouse investor Sprott said its “bad math” estimate for the potential of the 400m by 400m core zone could be more than 20Moz!
First Majestic Silver (NYSE:AG, US$2B mkt cap) also had a doozy of a hit at its Jerritt Canyon Au mine in Nevada, USA which confirmed the presence of a high-grade pod of mineralisation above the water table and about 90m SE of the new connection drift between the SSX and Smith mines. Highlights included 23.2m @ 19.35g/t. Ore production from the West Gen mine is also planned to begin in October and is expected to increase fresh ore production at Jerritt to over 3,000tpd by year end.
Marathon Gold (TSX:MOZ, C$443M mkt cap) received a positive federal Environmental Assessment decision for its Valentine Au project in Newfoundland and Labrador, Canada from the Minister of Environment and Climate Change Canada. The project has been fully released from environmental assessment in both the provinces and federally, allowing development to proceed. MOZ aims to build a mine to produce 180,000oz/y over a 14-year mine life following an initial capital cost of C$450 million.
Maritime Resources (TSXV:MAE, C$18M mkt cap) In the same corner of Canada, MAE announced feasibility study results for the Hammerdown gold project in Newfoundland and Labrador. The FS details an open pit mine with run of mine operations with an ore sorting plant to provide 700tpd @ 6.76g/t Au of mill feed, producing 50,000oz/y at an AISC of US$912/oz for five years following a C$75 million initial capital investment. The project would yield an after-tax NPV of C$102.8M at a 5% discount rate and an IRR of 48.1% based on a US$1,750/oz Au price.
Filo Mining (TSX:FILO, C$2.3B mkt cap) announced two more drill holes at its Filo del Sol project in San Juan, Argentina. Holes 61 and 63 extended the strike length of the Aurora Zone by 180m to a total of 1.6km, and it remains open to expansion. Highlights included 701.2m @ 1.13% CuEq in hole 61, with the hole ending in mineralisation at a depth of 1,093m. Filo will add two new, state-of-the-art diamond rigs in September to drill even deeper as it plans to drill about 40,000m with 11 rigs over the next 12 months.
That’s all for now. Plenty of news is expected in the coming weeks as the sector moves closer to the September conference season.
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Paul