The Gold Report: You recently attended the Precious Metals
Summit and Denver Gold Forum in Colorado. What sense did you get of investor
sentiment toward Colombia at those events?
Paul Harris: It was a mixed bag. The recent announcement by Continental
Gold Inc. (CNL:TSX; CGOOF:OTCQX) that it had to change its environmental
licensing strategy from the regional to the national level basically signaled
"country risk" to a lot of investors. The question remains: Can you
get projects permitted there? There are many positives in Colombia. Red Eagle Mining
Corp. (RD:TSX.V) got its San Ramon gold project permitted and the company
has since broken ground on construction. Cordoba
Minerals Corp. (CDB:TSX.V) is also progressing with its San Matias
copper-gold exploration project in Cordoba Province. But it is a mixed bag in
general.
TGR: What's your sense of the current government attitude toward
mining investment? Are its actions at odds with public statements?
PH: Over the last 10 years, the government's attitude toward mining
investment has been positive inasmuch as the message has always been "We
want mining investment." The government recognizes that mining can help
advance and develop the country. The issue is that there's a big gap between
what the government says it wants and the practical implementation of those
desires.
Middle-level government and local government haven't been able to create a
system that both attracts mining investment and allows the necessary activity
to happen, such as getting regulations and legislation working so that
mineral exploration and development can progress smoothly in a reasonable
timeframe. That has been the Achilles heel of the mining sector in Colombia.
A company enters an administrative process, and there's no sense of when it's
going to get out on the other side, particularly regarding environmental
permits.
TGR: Are there tangible signs that mining investment is welcome?
PH: Colombia was successful in attracting a lot of mining
investment. About 30 years ago several big nickel and coal mines were built
and those have done well. The government has since gone out of its way to
promote Colombia at different global conferences to attract exploration
companies. Unfortunately, the inability of companies to progress because of
administrative issues with the government has hampered things. The government
will soon tender a round of exploration blocks, so, yes, it very much wants
to attract mining investment. It just needs to get its own house in order
enough to enable the mining sector to do what it does best.
TGR: Colombian President Juan Manuel Santos said recently that his
country's financial outlook for 2016 is grim given the global slide in crude
oil prices, which contribute heavily to GDP. Is that likely to change the
Santos government's position on mining permits, especially environmental
permits?
PH: The government has tried to address the problem by creating a
concept called Projects of National Interest. If a company's project is
deemed to be of national interest, the company gets access to a
multi-ministerial committee that supposedly exists to collectively overcome
administrative and political hurdles so that projects can advance. That is
what Continental Gold is tapping into now. Its Buriticá project is a project
of national interest, and it chose to go to that central government level
where it can access the multi-ministerial committee to get its environmental
license approved and push things forward.
TGR: Are there some key mileposts in the next 12–18 months for
investors with an interest in Colombia?
PH: Absolutely. Red Eagle should have its San Ramon mine in
production within that timeframe. That will be a key step to show that it is
possible to explore, permit, develop and bring a gold mine into production in
Colombia. And in the next 6 to 12 months, hopefully sooner, Continental Gold
should get its environmental permit for Buriticá. The company should be able
to bring that into production some time in 2017–2018, assuming it gets the
permit.
TGR: Why did Red Eagle get its environmental permit while
Continental Gold did not?
PH: The two projects are very different beasts. Red Eagle's San
Ramon is a much more modest project than Continental's Buriticá. Also, Red
Eagle had the advantage that the regional environmental authority,
Corantioquia, had an office in the town where its project is based. Buriticá
doesn't have that. For Red Eagle, it meant that it could have a much closer
working relationship with the environmental authority; it's much easier for
officials to see things progress. Continental didn't have that. Continental,
it would be fair to say, has had some issues with the governor of Antioquia,
which didn't help things. The regional governor, Sergio Fajardo, is not a fan
of mining. That is a significant stumbling block.
TGR: Would an environmental permit at Buriticá be sufficient to
move the needle on investor sentiment nationwide?
PH: It would get a lot of mileage. Buriticá is a high-profile
project. The mine would produce 200,000–300,000 ounces gold a year. It would
be a big flag to put into the sand to say, "Yes, it is possible to
permit big, modern gold mines in Colombia."
TGR: Red Eagle Mining has broken ground on its fully permitted and
financed San Ramon gold mine, which is scheduled to begin production in
mid-2016. What are some key reasons Red Eagle received its approvals?
PH: As I mentioned, it has a more modest project, so its
environmental and social footprints are smaller, which makes it more
manageable and perhaps easier for the people in the government agencies to
understand what is going on. Red Eagle has a good group of people locally and
good management, which is essential. Management did a great job engaging with
the community and the different stakeholders. It has gone out of its way to
make stakeholders understand the implications of San Ramon and its essential
benefits. At the end of the day, it should be a relatively low-impact
underground mine. It's pretty much the first company to go through Colombia's
permitting process in modern times.
TGR: Red Eagle is in a bidding war with Batero Gold
Corp. (BAT:TSX.V) for CB Gold Inc. (CBJ:TSX.V). Red Eagle now has more than 50%
of CB Gold's outstanding shares and is calling for a shareholder meeting to
change the CB board. Why is CB Gold garnering such interest?
PH: CB Gold has the Vetas project in Santander, which is a
narrow-vein, high-grade gold deposit with a modest resource that could almost
certainly be expanded. Vetas is in an area that has been mined for centuries.
So there's a mining culture there. Red Eagle and Batero both believe that
they could establish a modern, underground mining operation with the
potential to grow and be very profitable. And CB Gold is out of money, so it
is a good merger and acquisition (M&A) target. Red Eagle is already
building an underground mine and the people behind Batero have a lot of
experience building and operating underground gold mines in Peru. So it's a
good target for both companies, and it's in an area of Colombia where a mine
is likely to get permitted.
While there has been a lot of exploration activity in Colombia, not many
projects have advanced to the resource definition stage. Red Eagle's San
Ramon is one; Continental's Buriticá is another. Both CB Gold and Galway Gold
Inc. (GLW:TSX.V) have projects with defined resources in the Vetas
District, which is really a key area to look at. There are few M&A
targets like those in Colombia.
TGR: Tell us more about Galway Gold.
PH: The Vetas project was spun out of Galway Resources Ltd.
(GWY:TSX.V) when Galway sold its California project to the AUX Group. That
became the key asset in Galway Gold.
TGR: What are some other companies that you wrote about in the most
recent edition of Colombia Gold Letter?
PH: Atico
Mining Corp. (ATY:TSX.V; ATCMF:OTCBB) is looking very good. It has been
operating the El Roble copper-gold mine for well over a year. The company has
enhanced the mill to expand production. It has also been doing a lot of exploration.
Atico now thinks it could undertake an expansion project that could produce
more copper and gold. It is going very well.
TGR: What did you make of the latest resource on El Roble?
PH: Atico keeps expanding and increasing the resource and that's
just the resource around the current mine. The company has yet to start
drilling regional targets to find other resource mantles or lenses that it
thinks are on the property. I think there is a lot of upside with El Roble.
TGR: Tell us about some other companies you're following.
PH: Cordoba Minerals has a very interesting partner in High Power
Exploration Inc., a private exploration company indirectly controlled by
Robert Friedland. Through that partnership, Cordoba has access to the Typhoon
geophysical system, which should soon arrive in Colombia. Cordoba expects to
start using that technology in the next month or so to start generating field
targets. The Typhoon system has such a high power that it can identify
targets up to two kilometers below surface. In particular, Cordoba is looking
for bornite and chalcopyrite in its project area. The company expects to
start drilling again early next year on any targets that the system
generates.
TGR: In the recent issue of Colombia Gold Letter you noted
that Cordoba hit 101 meters of 1% copper and 0.65 gram per ton gold on the
Montiel East target. What are your thoughts on that result?
PH: It's a great result. The company has generated a lot of
interest in the project from major mining houses. High Power Exploration is a
good partner. Robert Friedland has a track record of finding large copper
deposits and High Power is funding exploration up to the feasibility study
stage. Cordoba essentially gets a free ride until the project reaches a much
more advanced stage.
TGR: Are there companies outside Colombia that you're following?
PH: Yes. Because the number of companies conducting mineral
exploration in Colombia has decreased, Colombia Gold Letter has started
to take more of a regional focus, looking at Central America and neighboring
countries, such as Ecuador, and in the Caribbean, as well. There is some good
activity going on out there.
GoldQuest
Mining Corp. (GQC:TSX.V) has a good resource in the Dominican Republic.
It seems to have capable people running the company who have experience
building mines in the Dominican Republic. The company is currently doing a
financing.
In Nicaragua, there's a similar situation with Condor Gold Plc
(CNR:LSE), which has a high-grade gold resource at La India. It is
currently looking to do some kind of corporate transaction to really get the
value from the deposit it has there.
TGR: GoldQuest Chairman Bill Fisher attempted to reposition his
company with a revised preliminary economic assessment (PEA) that includes
much smaller capital costs. Did he succeed?
PH: With the revised PEA, what Fisher has done was to present
various possible alternatives with some numbers attached to each so that
potential partners, buyers or investors could more easily see the potential
of the Romero project. Time will tell if he will be successful in this or
not.
TGR: Condor is about to apply for its Environmental Impact
Assessment permit. Does the company have the management team to move this
project through the next phases of development?
PH: Having spoken to Chairman and CEO Mark Child at the Precious
Metals Summit, I believe his aim is really to interest another party in the
project to take over and take it forward, which is why he engaged Cormark
Securities to undertake a strategic review for the La India project in
Nicaragua. La India contains 2.3 million ounces grading 4 grams per tonne
gold and Child sees the company as being worth more than its approximate $14
per ounce valuation, and so he would prefer to do a transaction as a way to
drive more value from the project.
TGR: What kind of shorthand could you give to investors looking at
Colombia?
PH: There seems to be a dichotomy between what the Street wants and
what the mining exploration sector is. Mining and exploration investment is
long-term investment, but the Street typically wants returns in the short to
medium term. And what has happened in Colombia illustrates that gap. Colombia
came back onto the map 5 to 10 years ago as the new gold frontier. People
were expecting returns and exploration results within two to three years,
which really doesn't happen.
Colombia is a long-term investment. The gold is there. The geology is
there. Unfortunately, the fluidity of government action is not there yet. So
any investment in any exploration and mining project in Colombia is going to
take time to mature because it's not the most agile government in the world.
TGR: Thank you for you insights, Paul.
Colombia Gold Letter.
