Mining Leaders: Colombia 2012

Mining Leaders

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colombia 2012

Mining Leaders

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TSX-V: BAT

56,000 metre drill program.

On time.

On budget.

Amid Colombia’s prolific Mid-Cauca belt, we have completed an aggressive drill program to delineate gold and copper porphyry discoveries. A maiden NI 43-101 resource estimate is expected by the end of the year.

Strong growth platform. Favourable share structure.

Our Batero-Quinchia project has earned the support of retail and institutional investors alike.

Exploring a better way.

Socially invested.

Environmentally sensitive.

Our technical and management teams are building strong community support by hiring locally, investing in social programs and striving to exceed environmental standards.

TSX-V: BAT Corporate head office:

info@baterogold.com

3703-1011 W. Cordova Street Vancouver, BC V6C 0B2

Tel: 604.568.6378 Fax: 604.568.6834

www.baterogold.com

Disclaimer: Some of the statements contained herein may be forward-looking statements that involve known and unknown risks and uncertainties. Without limitation, statements regarding potential mineralization and resources, exploration results, and future plans and objectives of the Company are forward-looking statements that involve various degrees of risk. The following are important factors that could cause the Company’s actual results to differ materially from those expressed or implied by such forward-looking statements: changes in the worldwide price of mineral commodities, general market conditions, risks inherent in mineral exploration, risks associated with development, construction and mining operations, the uncertainty of future profitability and the uncertainty of access to additional capital.

PARTNERS:

POLITICS & ECONOMY 9 lead article: Do the Locomotion 11 box: A New Leaf 13 box: M. Cárdenas, Minister of Mines & Energy 14 Leader Profile:

J. M. Santos, President of Colombia 16 Q&A: C. Díaz, Colombian Chamber of Mines 17 Jurisdiction Overview 18 Q&A: C. Rodado Noriega, Former Minister of Mines & Energy 20 Lead Issue:

Risk Management 22 Leader Insight: R. Mateus & A. Lemaitre, Portex 23 Company Focus: Asomineros 24 Leader Insight:

37 Company Focus: . MILPA

· Pacific Coal 38 Q&A: I. Graham, Discovery Harbor Resources 39 project Focus:

Cañaveral, MPX 40 Leader Insight: J. M. Sánchez, Carbocoque S.A

GOLD: CAUCA BELT 41 lead article: El Dorado Revisited 45 Q&A:

R. Herz, AngloGold Ashanti 46 feature interview: P. Dias, Minatura International 48 Q&A: B. Rook, Batero Gold Corp 50 Lead Issue: Mining Reform 52 project Focus:

Publisher: Freestone Publishing Editor-In-Chief: Mat Youkee Country Editor: Alexandre Guyomard Sub-Editor: Emma Tracey Contributors: Peter Martin, Jennifer En

C. Jiménez, Gran Escala 25 Q&A: D. Sullivan, Austrade 26 Company Focus: Colombia-China Commerce & Integration Chamber

Art Director: Miguel Alejandro Camacho Graphic Design Collaborators: Nuno Caldeira, Isabel C. Arias

coal 27 lead article: Red Hot Coals 30 interview:

Administrative Assistant: Silvia González Printing: Printer Colombia Email: info@mining-leaders.com www.mining-leaders.com Directors: Raluca Monac & Charlotte de Casabianca

32 33 35 36

León Teicher, Cerrejón Q&A: M. Puccini, Vale map: Coal Deposits Lead Issue: Infrastructure Company Focus: Frontier Coal

53 54 55 56

Titiribí, Sunward Resources Q&A: I. Slater, Red Eagle Mining Leader Insight: S. Letwin, IAMGOLD box: Major Oversight project Focus: Anzá, Waymar Resources

57 Company Focus: · Quimbaya · Colombia Crest Gold 58 Q&A:

M. M.Williams, Continental Gold 59 Company Focus: Grupo de Bullet 60 project Focus: Marmato, Gran Colombia Gold Mining Leaders

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colombia 2012

GOLD: OTHER regions 61 lead article: California Dreaming 65 Q&A: F. Capponi, CB Gold 66 feature interview:

base metals 83 lead article: Basically Ignored 86 Q&A: R. Carrington, Colombian Mines 87 map: Base Metals 88 Company Focus:

Financial & Legal Services

C. Johnson, B2Gold 68 geology overview 69 map: Colombia’s Gold Deposits 70 Company Focus: Norvista Resources 72 Q&A: M. Escobar, Ashmont Resources 74 project Focus: Rio Pescado, Touchstone Gold 75 box: Of Paramo Importance 76 q&a:

R. Thibault, Antioquia Gold 77 Company Focus: · Auro Resources · Quia Resources 78 q&a: T. Russell, Trident Gold Corp 80 Leader Insight:

A. Rendle, Cosigo Resources 81 Company Focus: · Samaranta Mining · West Rock Resources 82 Company Focus:

Mineros S.A

109 company focus: ·INMA ·PME 110 company focus: Axesat 111 map: 3G Coverage 112 q&a: R. Monrás, ABB

89 90 91 92 93 94

CuOro Resources box: Pig-Headed Q&A: A. Duarte, Brexia Resources market focus: Copper project Focus: Berlin, U308 box: Latin Power project Focus: Cerro Matoso

MINING TECHNOLOGY & SERVICES 95 lead article: Into the Unknown 99 Q&A: S. Petrovich, AK Drilling 100 feature interview:

D. Fernández, Siemens 102 market focus: Drilling 103 company focus: · M&NC · Cryogas 104 Q&A: G. Escobar García, Geominas Ingenieros 105 company focus: · Atlas Copco · Logan Drilling 106 project Focus: SGS Assay Lab 107 box: It’s a blast!

108 company focus: Topen O&G

113 lead article: Banking on Colombia 116 leader insight: A. Correa, Beltrán & Correa Lawyers 117 Q&A:

G. Toulemonde, BNP Paribas 118 leader insight: I. Zuluaga, ARP SURA 119 company focus: · Baker McKenzie · ME Investments 120 Q&A: E. Acevedo Schwabe, Correcol 122 leader insight:

R. Stebbings, Celfin Capital

ml recommends 123 lead article:

A Fashion for Passion 126 hotel listing 130 directory and Advertisers Index

Mining Leaders is a trade mark of Freestone Publishing Inc. Copyright Freestone Publishing Inc. 2011. No part of this publication can be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopied, recorded or otherwise without the prior permission of Freestone Publishing Inc. Freestone Publishing has made every effort to ensure that the conent of this publication is accurate at the time of printing. However, Freestone Publishing makes no warranty, representation or undertaking, whether expressed or implied, nor does it assume any legal liability, direct or indirect, or responsibility for the accuracy, completeness or usefulness of any information contained in this publication.

Mining Leaders

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Prospectors & Developers Association of Canada

PDAC2012 Where the world’s mineral industry meets

International Convention, Trade Show & Investors Exchange March 4–7, 2012 Toronto, Canada Metro Toronto Convention Centre, South Building

Diamond Sponsor

pdac.ca www.pdac.ca

LEAD ARTICLE

Do the Locomotion Colombia’s improving security situation has stimulated investment and allowed the economy to grow at a steady 5%. President Juan Manuel Santos has named the extractive industries as one of the five ‘locomotives’ of the Colombian economy. At present only the mining and hydrocarbons industries can provide the revenues, through taxation and royalties, which will make investment in the other sectors possible. As such, mining will play a key role in the future development of the Colombian economy.

In July 2011 Colombia discreetly marked the 20th anniversary of its 1991 Constitution. There were no public celebrations but it did give government figures and the media a reason to pause and reflect on how far the country has come since its creation. Drawn up at a time when the guerrilla conflict and the power of the drug cartels were at their peak, the 1991 Constitution has not fully achieved its goals of bringing peace to the country and reducing inequality but it has had a powerful net-positive effect. It has laid the legal groundwork to allow the government to tackle the longstanding guerilla issue and to create a more participatory democracy. Today the threats posed by the guerilla and

drugs cartels are limited, Colombia is a much safer place to live and the growth of the economy is providing higher living standards for millions of Colombians.

The military successes against the Farc that began under the administration of Alvaro Uribe with the implementation of Plan Colombia have continued under President Juan Manuel Santos. Shortly after his election in August 2010 armed forces were able to locate and kill Mono Jojoy, one of the Farc’s most feared generals. In November 2011 Alberto Cano, the group’s leader since 2008 was killed by a soldier in the department of Cauca. Cano was the fourth member

of the seven man 1993 Secretariat – the group’s core leadership – to be killed by government troops between 2008 and 2011. A fifth, Ivan Ríos, was killed by his own security guard. With the Farc at its weakest point militarily, the prospect of peace talks has been mooted.

Entering talks with the guerrilla is a difficult subject. In the late 1990s during the episode Colombians refer to as ‘El Caguán’, Farc forces led by Cano used a safe zone in the south of the country set aside for peace talks to train new forces.

The abuse of the safe zone led to the loss of any residual sympathy the Colombian public had towards the guerrilla and was a major factor in the election of Uribe in Mining Leaders

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LEAD ARTICLE

$8

Billion U.s investment in plan colombia 2000-2010 Under Uribe, Plan Colombia - the donation of billions of US dollars of military assistance to tackle drug production - had a huge positive impact on the security of the country

2002. Following Uribe’s two terms and the success of Plan Colombia, one of the most often aired criticisms of Santos is that he is weak on security issues compared to his predecessor. While his Law of Victims and Land Restitution has been praised by human rights groups, it has been attacked by figures on the right, including former President Uribe. Santos needs to avoid being seen as a ‘soft touch’ but from the start he has claimed that while the door to peace talks was currently closed to the Farc, the government had not “thrown the key to dialogue into the sea.” With his credentials as an effective Commander-in-Chief established, it would now seem more possible for Santos to offer an olive branch to the Farc. Whether the Farc’s new leader, nicknamed Timochenko, has built up the leadership credentials to accept it, however, is a different matter.

Some experts fear that the country could be on the brink of an ‘end without closure’, whereby a small Farc force, living of its drug activities, lives on indefinitely, too weak to mount a serious military threat, but resilient enough to absorb large state military and financial resources. Nevertheless, the group seems to have very little public support.

The February 2008 government-sponsored anti-Farc demonstrations attracted millions of Colombians to the streets. However, it was the October 2011 student protests that demonstrate the sea change most clearly. The mainly peaceful protests resulted in a victory for the demonstrators, with the government making a U-turn on its proposed reform to tertiary education. The hope is that, in the future, young Colombians will see such

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actions as the favored mechanism for change and deny the guerilla a new generation of members.

A direct result of public opposition to the Farc has been the traditional weakness of the left in domestic politics. At present Santos heads up the National Unity coalition, made up of a myriad of groups including the Liberal, Conservative and Green parties and his own group, the Party of the U. The existing center-left opposition, the Democratic Alternative Pole, has been steadily weakened in recent years. However, it was a former member of the party, running as an independent, who won the race to be elected Bogota’s mayor in October 2011. Assuming what is widely regarded as the country’s most important political position after the presidency, Gustavo Petro, who was also briefly in the M-19 guerrilla group,

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continues the recent trend for left-ofcenter mayors of the capital.

On the international stage, the new administration has focused on diversifying foreign policy. In August 2010, Santos re-opened negotiations with Venezuela, negotiated the payment of some $800 million of debts to Colombian exporters and labeled Chavez his ‘new best friend’. The country has also seen increased trade and investment from Asia. Whether by fault of by design, Latin America’s diversifying trade network has led the Obama administration to reassert US business ties in the region. In October 2011 the US signed a free trade agreement (FTA) with Colombia.

Expectations for the FTA are high. It is forecast to stimulate Colombian annual exports to the US from $17 million to $50 million. Fears persist that the Colombian agricultural sector is not prepared for the resulting inflow of

COLOMBIAN GDP (US $ Billions)

400 300 200 100 0 (Source: Indexmundi.com)

A new Leaf Just over a year into his term of office, it appears clear that Juan Manuel Santos aspires to be a transformative president. Although he has so far been modest in his stated intentions, it is widely assumed in the Colombian press that he intends to be the president to bring peace to the country. While the battle against the guerilla continues, it is his bold social policies that distance him from his predecessors.

There are over 5 million internally displaced people in Colombia as a result of the years of conflict, the highest number in the world after Sudan. In June 2011 Congress passed a key bill designed to compensate these refugees and turn over a new leaf in the country’s history. The Law of the Victims and Land Restitution aims to compensate 4 million victims of the armed conflict since 1991. An estimated $10 billion in cash will be given out and six million hectares of land returned to its original owners.

The plan is one of the most ambitious of its kind and Santos has stated that passing this one bill alone was enough to make his presidency worthwhile. Nevertheless the bill has received criticism from the political right for recognizing the past violence as an internal conflict rather than a terrorist insurgency and for compensating victims of state violence equally to those of guerilla violence. Less ideological criticisms point out that the bill is premature when the internal conflict is still not over and question where the funds will be found. The implementation of this law will be one of the most important political challenges of the coming years. A new office and special courts will be established to deal with claims and the law will apply to victims until 2021.

Mining Leaders

LEAD ARTICLE

5

th

Worldwide for Investor protection (Source: Presidencia de la República de Colombia)

Having signed a free trade agreement in October 2011, Obama’s administration has focused renewed energy on improving business ties with Colombia

cheap US imports, but for many industrial sectors – including mining – the opportunity to import machinery with lower costs and fewer delays is a major boon.

Following several years of steady economic growth between 4-5% most analysts expect similar growth for 2011. Preliminary data suggests that total exports for 2011 could close in on $50 billion with a record $13 billion of FDI during the year. Projections for growth in 2012 are also rosy, or at least they were until the Eurozone crisis deepened in November 2011, jeopardizing the world economy. With strong domestic demand, plenty of foreign currency and gold reserves and a relatively unexposed banking system, Colombia looks well placed to see out an external shock. Indeed, it was one of the few Latin American countries not to fall into negative GDP growth in 2009. However, a decrease in global trade and a fall in commodity prices, coupled with a fall in investor confidence as a result of the Euro-crisis would surely prevent Colombia reaching the forecast growth of 5% for 2012. Should the worst happen, the government would likely stimulate domestic demand by stepping up its investment in infrastructure projects.

Meanwhile, with Chinese demand for raw materials keeping commodity prices high, the extractive industries sector was named by President Santos as one of the five ´locomotives´ of the Colombian economy in the national development plan. The other four – infrastructure, agriculture, housing and innovation – may be promising for the

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economy but will need huge investment in the coming years. At present only the mining and hydrocarbons industries can provide the revenues, through taxation and royalties, that will make this investment in diversification possible.

Extractive industries account for 85% of current FDI in the country. The importance of the mining and energy sector in this respect appears to be fully appreciated at national government level. However, there has been a recent rise in resource nationalism at the local level. This has partly been fueled by conflicting studies on the level of government take for mining projects.

Industry associations estimate a 68% take on projects whilst a study by the University of the Andes concluded that government take was only 22%, one of the lowest rates anywhere. The reform of mineral royalty distribution has also

1200 1000 800

increased sub-sovereign political risk.

Designed to spread mineral royalties more evenly across the country and avoid some of the accountability and transparency issues encountered at the local government level, the reform is to be welcomed. However, as local regions share of the bonanza drops it could make business with local governments more difficult. While increases to royalty and taxation rates are unlikely in the short to medium term, new Minister of Mines & Energy Mauricio Cárdenas has refused to rule out changes in the long term.

Despite these concerns, the future looks bright for the Colombian mining industry. The government is pro-business and has a history of supporting foreign investment. The reorganization of the mining institutions should bring much needed clarity to the industry. If in recent years the Colombian resources bonanza has resembled a runaway train more than a locomotive of growth, 2012 will be the year which puts it on the right track.

FORECAST INVESTMENT IN MINERAL EXPLOITATION (US $ millions) coal gold

600 400 200 0 (Source: MME)

Welcoming Cárdenas The appointment of Maurico Cárdenas as Minister of Mines & Energy in September 2011 marked a change of direction for the ministry.

Following on from Carlos Rodado Noriega who was in his second spell in the post, Medellin born Cárdenas is more in the technocrat mold. A Senior Fellow and Director of the Latin America Initiative at the Brookings Institution, he has previously served both as Minister of Transport and as Director of the National Planning Department.

The Minister’s remit is clear, to create what President Santos has defined as “a new model for the development of a sustainable export industry.”

In his first months in charge Cárdenas engaged in dozens of meetings with key public and private sector players to establish the priorities of his mandate. One of his most high profile engagements was a joint press conference with the newly appointed Minister of the Environment, Frank Pearl. A lack of coordination between the two ministries has been a common complaint of many investors in the country’s natural resources sector, especially with regards to understanding exactly where oil and mining exploration can take place and where it cannot. Cárdenas said that there were many titles in areas where the environmental conditions would not justify exploration. Those areas with particularly high mineral potential would be considered ‘reserve areas’ and would be subject to a different licensing process. Instead of continuing with the previous titling policy which operated on a first-come-first-served, companies will now be chosen based on their technical and financial merits. He concluded that 5,000 of the current 9,500 titles awaiting environmental licenses would be refused.

Cárdenas also took a hard line towards illegal mining, saying it should receive similar treatment to narco-trafficking. He said that drug gangs, guerrillas and criminal groups were using illegal mining to finance their operations and that on discovering such activities police should destroy all the machinery at the mine. While the new Minister’s clarity on the issues of environmental permitting and illegal mining was a welcome sign for investors he was more evasive on the subject of royalty reform in the mining sector. Following a reform to the way by which mineral royalties were distributed throughout the country, there has been speculation that the rates themselves could go up on coal and gold. But Cárdenas refused to be drawn, saying “I consider it inopportune to open the issue of royalties at the moment, the country still has to consolidate mining developments. The debate should be re-opened when the industry is more stable.”

Mining Leaders

Leader PRofile

cometh the hour...

POLITICS & ECONOMY

Juan Manuel Santos has confounded pre-election predictions and emerged as a true reformer. Elected as the supposed continuity candidate for outgoing president Alvaro Uribe, Santos has introduced a raft of important laws that aim to boost prosperity, tackle corruption and finally turn the page on Colombia’s violent history.

When Juan Manuel Santos was elected as Colombia’s 17th president in August 2010 it was the first time he had stood before a public vote. However, the president comes from a distinguished political family - his great-uncle was a former president, his cousin a former vice-president and his family owned El Tiempo, the country’s most prominent daily, until its sale in 2007.

Following nine years as Colombia’s representative to the International Coffee Organization in London, he served as Minister of Foreign Trade under President Cesar Gaviria and then as Minister of Treasury and Public Credit under President Pastrana.

Santos was propelled into the public consciousness, however, as Minister of Defense during Alvaro Uribe’s second presidential term. A central player in Uribe’s ‘Democratic Security’ policy which aimed to re-establish state control in the areas worst hit by guerrilla and paramilitary violence - in 2008 he orchestrated two of the most successful strikes against the Farc. The first, Operation Phoenix, a series of air strikes a kilometer into Ecuadoran territory

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led to the death of the Farc’s second in command, Raul Reyes. The second, Operation Checkmate, led to the successful rescue of 15 high profile Farc hostages, including Ingrid Betancourt, a former presidential candidate who had been held captive for six years.

Given Uribe’s unwavering focus on subduing the country’s guerrilla groups, it was of little surprise that Santos, as his right-hand-man in this field, became his implied successor as the 2010 candidate for the Party of the U, a political vehicle designed to continue the mandate of uribismo. Just two months into his presidency, Santos resumed where he had

The sheer range and scale of the new reforms introduced during the first twelve months of Santos’ presidency have been impressive.

left off as Minister of Defence, ordering an assault on a bunker complex in the Macarena region which

resulted in the confirmed death of Mono Jojoy, one of the Farc’s most notorious leaders. But while Santos’ determination to ‘not take one step back’ in the fight against the guerilla was to be expected, it is the crucial moves he has made to ensure ‘three steps forward’ towards building prosperity for Colombians that have attracted the most comment.

Following eight years of Uribe’s presidency, Santos came to power at a time when Colombia had already enjoyed several years of strong economic growth and increasing foreign investment as a result of the significantly improved security situation.

Nevertheless the sheer range and scale of the new reforms introduced during the first twelve months of his presidency have been impressive. The most resonant of these reforms is also the one which has most distanced Santos from his predecessor and revealed the extent of his ambition. The Law of Victims and Land Restitution, which passed through Congress in May 2011, was not a reform without precedent. Proposals to provide compensation and return displaced lands to victims of the country’s internal

Juan Manuel Santos conflict have been around since the 1940s and were most recently discussed in 2008, during Uribe’s final term. These plans were always abandoned, however, either for political motives or reasons of cost. Santos, however, was prepared to stake his presidency on this single reform and his determination to see it pass has led to success where previous attempts have failed.

Perhaps inevitably, the perceived distancing of the Santos administration from that of his predecessor led to accusations of him being a soft touch on security issues. It is obvious that Santos has brought about a change in focus in domestic policy. Whereas Uribe put the country on a quasi-war footing, Santos has focused on a more diverse set of deep-seated problems that the country needs to tackle, such as poverty, corruption and fiscal irresponsibility.

But it would be hard to argue that displacing the guerrilla issue as the be-all-and-end-all of domestic policy has led to a worsening in the security situation. In addition to the elimination of Mono Jojoy, the military has killed or arrested numerous other senior Farc members, including Farc leader Alberto Cano, and the improved relationship between Hugo Chavez and Santos has led to greater cooperation with Venezuela. In June 2011, Venezuelan forces handed over Guillermo Enrique Torres, Raul Reye’s right hand man, after his capture in Venezuelan territory. The government has also maintained a tough stance towards peace talks with the Farc, refusing third party mediation. “We have not thrown the key to dialogue into the ocean, but the door is closed,” Santos said in June 2011. “[Guerrilla groups’] deceitfulness in the past has made us incredulous. Now the government is holding the key, and we won’t give it to anyone until the conditions we have outlined are met.”

In the international arena too, Santos has renewed friendships not just with Venezuela but also with neighboring Ecuador, a relation that had been strained following the air-strikes on Raul Reyes in Ecuadoran territory.

Santos’ presidency has coincided with a renewed reputation on the regional

83%

President Santos’ Approval rating january 2012

While Santos has remained focused on security, his policies also aim towards more inclusive reforms

stage. The country was elected as a nonpermanent member of the UN Security Council representing Latin America and the Caribbean in October 2010. In April 2011 Santos, along with Venezuela’s Hugo Chavez, was requested to broker the return of deposed Honduran president Maunel Zelaya to his country.

With Dilma Rousseff, the current president of Brazil not showing the same flair for international diplomacy as did her predecessor Luis Ignacio Lula da Silva and with Mexico fully engaged in tackling a serious wave of drug-crime, Latin America’s two traditional regional powers have left the door open for Santos and Colombia to play a greater role on the world stage. It’s a role that Colombia’s president appears to relish.

While Santos is broadly committed to continuing the pro-investment policies of the last eight years, he is not opposed to tinkering with the rules in order to further his long term goals. The removal of tax exemptions for fixed-asset investments and the overhaul of the

mineral royalty system are two examples of such changes. And while the mineral industries were identified as one of the five ‘locomotives for growth’ in the country’s development plan, Santos told Mining Leaders that one of his principle economic aims was to diversify the Colombian economy, in part to tackle the threat of currency appreciation. He also accepted that the mining sector was in need of an institutional framework like the National Hydrocarbons Agency which governs the Colombian oil and gas industry. “We want to replicate this structure in the mining sector, one that allows us to regulate and promote investment in the industry, because we as a country are very rich in minerals.”

He added that investment in mining projects was growing at such a rate that it was tough to control and that improving mining safety records would be a major challenge. Reforming a sector that has historically been a wild-west of land title speculation and illegal operations will not be easy, but Santos may well be the right man to achieve it.

Mining Leaders

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q&a

César Díaz, President Colombian Chamber of Mines

Responsibility Pays

POLITICS & ECONOMY

Uniquely focused on the mining sector, the Colombian Chamber of Mines has been defending and promoting the interests of local and foreign companies since its creation in 2005. The chamber has quickly established itself as one of the most important associations in the country and maintains a strict policy of promoting the highest standards of responsible mining amongst its members and the sector at large.

What role does the Cámara Colombiana de Minería (CCM) play in promoting the industry?

The CCM was formed just five years ago when the major international mining firms started to invest in Colombia. The Uribe administration allowed Colombians to return to the roads and countryside and it also allowed geologists to return to the field. The CCM was formed to defend and promote the rights of the mining industry in the country. Our policy is to ensure that all the companies we represent operate with high standards regarding the environment, worker safety and local communities.The best investment a mining company can make is to conduct itself well. We ask the government that they promote and assist those companies that are acting responsibly in the country and that they punish those that aren’t, either through fines or closure. We are also asking for more oversight of the mining sector.

To what extent has the image of the mining industry in Colombia been damaged and what can companies do to improve the situation?

The reputation of the Colombian mining industry has undoubtedly been damaged by illegal mining and poor environmental practices.

When people hear news of fatal mining accidents, they make no distinction between illegal mining and legal, responsible mining. In recent years Colombians have acquired a far more developed view of their responsibility towards the environment. In the past they had a habit of openly disposing with their waste materials, contaminating rivers and causing deforestation. In tandem with this changing attitude towards the environment, mining companies are now implementing best practices towards the issue. Today shareholders do not forgive environmental disasters. We are now entering a new era, where the majority of companies value responsible business.

To what extent are mining projects opposed by green groups in Colombia?

In Colombia today there are powerful NGO groups who often consider themselves to be the only ones concerned with the protection of the environment, failing to recognize that all

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Colombians are interested in preserving the biodiversity of the country. We need to bring the best models from around the world and implement them here. But often these groups are in opposition to mining outright, without reason. We all want to live in a healthy environment, but it’s a fact that everyone consumes mineral products every day. Living in an apartment, using a cellphone or catching a plane, all this is made possible by mining. Nothing is free.

Of course mining has an environmental impact, the debate should be about how best to mitigate and compensate its impact.

How supportive of the mining industry is the current Santos administration?

If the government wants the industry to fulfill its role as an economic driver then it needs to support projects which are environmentally sustainable. They need to provide technical and scientific studies of the key mining regions. The country has yet to understand how important exploration is. We need to promote it. Up until now we have lacked a strong institution such as the National Minerals Agency and we lack the articulation of policy. At the moment there are huge delays in titles because of confusion between the Ministry of Mines & Energy, the Ministry of the Environment, which supplies the environmental permits and the Ministry of Interior which oversees issues surrounding community relations. We need more interaction between the ministries. The current government has made significant steps towards this.

What key advice would you give to foreign firms looking to break into the Colombian market?

Investors are in the right sector, in the right country at the right time. In 25 years working in the sector, I have never seen a better time to do business in the country. My advice is to do something very small which will have big effects. Open an office in the country, have a local manager and geologists, attend the local congresses and conferences. In the past those firms that have established a local presence have been the most successful. I say come to Colombia, get to know the country and the people and build the business relationships necessary to grow to the next level.

jurisdiction overview RAnking of mining jurisdictions

The 2011 Fraser Institute survey of mining jurisdictions reported that Colombia has become the third most attractive destination in Latin America for mining investment, trailing only Chile and Mexico. In addition, the country was ranked first in terms of geological potential.

With a fair tax regime and excellent investor protection, Colombia has laid the regulatory groundwork necessary to attract long term investments.

(Source: Fraser Institute)

COlombia: NET PROFITS TAX

33% Brazil 34% Chile 17%

AN IMPROVING JURISDICTION

“The new ‘BRICs’ are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (CIVETS). They are countries with major populations, dynamic, diverse economies, political stability and each of them has a brilliant future.”

Michael Geoghegan CEO HSBC

royalty rates COAL

PRECIOUS METALS

strength of investor protection

world ranking country 5

Colombia

20

Peru

28

Chile

44

Mexico

74

Brazil

109

Argentin a

109

Panama

179

Venezuel a

(Source: WB Doing Business 2011)

BASE METALS

10% 4% 5% For operation producing >3Mt, 5% for operations producing <3Mt

Alluvial Gold and Silver – 6%

Emeralds 4% Platinum 5% Radioactive Materials 10% Mining Leaders

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q&a

Carlos Rodado Noriega Former Minister of Mines & Energy

With Open Arms

POLITICS & ECONOMY

Hailing from the department of Atlántico, Rodado Noriega was appointed Minister of Mines & Energy

by President Santos in August 2010 having previously held the position in the 1980s. He has also served as President of state oil firm Ecopetrol and as Colombia’s ambassador to Spain. He was a central figure in the recent reform of the country’s mining sector before vacating the post in 2011.

You have said that despite the oil boom, Colombia’s future is as a mining country. What underpins that belief?

Colombia has a great mineral wealth which if we can convert into production will become one of President Santos’ locomotives of the economy. In August 2011 former president of Brazil Luiz Ignacio de Silva visited Colombia as part of an international forum to promote business between the two countries. At the event I said that Colombia was like a smaller Brazil. All the elements of the periodic table can be found here.

Both countries have such a rich diversity of natural resources, but Colombia’s are usually on a smaller scale. The exception to this is coal. Colombia has half the reserves in Latin America and it’s of a great quality. Cerrejón in La Guajira is the largest coal open-pit mine in the world. The petroleum industry has been growing rapidly, but the country’s oil reserves are only slightly over 2 billion barrels. This would last us around ten years at our current rate of consumption and export. On the other hand, we have potential coal reserves of 17 billion tons, enough to last us a century. We have sufficient gold to carry on producing for several decades. We also have nickel, copper, platinum and of course our famous emeralds. All these minerals are waiting to be developed. Colombia is a country to explore. Only 51% has been mapped out geologically, only 30% has been studied with geochemistry and only 4% has been subject to geophysical tests. It’s a treasure waiting to be discovered.

What effect will mining have on development in the country?

Colombia has a great potential in mining. In the last six years the sector has grown at 3.2% per year, with GDP growing at a rate of 4.5% and the petroleum industry at 13.9%. Mining is still not a locomotive of the Colombian economy. If the mining sector continues growing at 3.2% by 2020 it will contribute $5.2 billion a year to Colombian GDP. However, if we undertake all the expansion projects currently on the table we expect to see the industry grow at an annual rate of 9.5%. In this scenario we would generate $12 billion in royalty payments from mining in the coming ten years. This is dependent on the improvement

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of regulations and institutions. In 2010 the sector directly employed 227,000 workers, but this will grow significantly.

Why reform the country’s mining institutions?

One of the main barriers that has led to the underdevelopment of the mining sector in Colombia has been the weakness of our institutions. There have been attempts in the past to reform the sector, but they were not successful. With Ecocarbon, Mineralco, Minercol and then Ingeominas, one centralized body has always replaced another. Centralized institutions have many limitations. They don’t have flexibility in terms of contracts and salaries. Logically, lower salaries do not attract the best human resources. Ingeominas is nearly 100 years old and during its history it has done a great job providing basic geological information on the country and managing seismic and volcanic risks. However, it did not have experience in studying and approving applications for mining titles or supervising the development of projects. As well as institutions, we needed to improve regulations. The previous mining code made no requirement for technical or financial capacity in order to apply for a title, it was basically done with your identification card. It was run on a first come first served basis and led to huge speculation on titles. There were also some perverse rules, for example one could apply for a mining title to a land package of any shape. The result was that there are many areas left between two exploration zones leading to awkward negotiations. The new mining code will resolve a lot of these issues, most importantly allowing the government to award permits to only those companies that are technically and financially capable of developing the property.

What role will the ANM play in the administration of the mining industry?

The ANM will be the only institution in charge of administrating the country’s mineral resources. It will also supervise the technical and economic requirements of mining concessions and promote the sector. It marks a major overhaul from the

q&a

Infrastructural improvements are essential to the continued growth of the sector

previous system and makes a separation between the licensing process and the oversight of the sector. There has never been a diagnosis of the mining sector like this before, with the support of McKinsey, the World Bank and world-class consultants.

Having an accurate diagnosis of the problem is 70% of the solution, now we have to focus on implementation, making these proposals become a concrete reality.

America. In Colombia there has never been an expropriation of a foreign company and it was the only country in Latin America not to default on its loan payments during the crises of the 1980s. We respect the rules of the game and honor our commitments. Mining is set up for private investment. There is not a ton of coal or an ounce of gold that is taken by the state. There are three things that you can’t undo in life: the arrow shot, the word spoken and the opportunity lost. There are opportunities in this country that you shouldn’t let pass by.

How can interaction between the Ministry of Mines & Energy and the Ministries of the Interior and Environment be improved?

With the current reform a Directorate of Environment and What can be done about mining related fatalities?

Communities has been created under the Ministry of Mines. Its Mining is a very risky business in whatever part of the world role will be to work as the interlocutor with the Ministry of the and there will always be accidents. But with good supervision Environment in the area of environmental we can minimize these occurrences. I permits. It will also work with the Ministry personally fought hard for the formation of of the Interior on the topic of ‘prior “Colombia has become an the government’s royalty policy to ensure consultation’ which is needed for mining that 2% of total royalties from mining attractive destination for foreign and hydrocarbon projects are channeled titles in indigenous territories. There will be a dedicated professional in the Directorate investors in recent years, but we to ensure proper supervision. Our goal responsible for this issue, acting as the still need more companies. We is to halve the number of fatalities in interlocutor between the Ministry of the need junior companies, they are Colombian mines by 2014. The main Interior and the mining associations. fundamental to improving our thrust of the campaign will be in Boyocá, Cundinamarca, Norte de Santander and geological knowledge.”

How important is foreign investment to Antioquia. Supervision is important, but the Colombian mining sector? it will never substitute the responsibility of Colombia has become an attractive the mining title holder. destination for foreign investors in recent years, but we still need more companies. We need junior companies, they are What infrastructure projects are needed to ensure that the fundamental to improving our geological knowledge. Here in country benefits fully from the current resources boom?

Colombia there are already over 50 juniors, but in Peru there Mining requires a strong infrastructure network to ensure the are over 300. We also need to attract more big-leaguers. We flow of cargo and exports at competitive prices. In Colombia currently have only three of the ten largest coal companies it is essential to improve modes of river, road and freight worldwide and two of the largest gold companies. Perhaps these transportation and upgrade ports if we are to mobilize the large companies still have a wrong perception of the country. growing production in coal, construction materials, nickel and The improvements in security in recent years have been well gold. The Ministry of Mines & Energy has already undertaken documented. But I would also stress that Colombia has the a study of the sector with the aim of developing a multi-mode best legal security that an investor can find anywhere in Latin transport and logistics plan for the country.

Mining Leaders

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CHALLENGES IN THE LAND OF OPPORTUNITY Colombia has been cast into the center of the mining world’s attention. However, for all the excitement surrounding the potential development of the sector, difficult challenges lie ahead for mining companies – many of which seem to be rushing into projects and areas without the adequate risk management structures in place, particularly when it comes to managing local risks.

At the macro level, Colombia is a very attractive destination indeed. However, no activity is more grounded at the local level than mining, and this is precisely where most of the challenges to mining activities in the country will come from. To begin with, security continues to pose a credible and serious risk to mining operations in large parts of the country. Illegal armed groups and organized crime continue to operate in most of the mining areas of the country. They are active in extorting from companies, using kidnapping and potential attacks against personnel and assets as a threat.

Perhaps more concerning, as these groups get more sophisticated, setting up service companies that also act as fronts for their criminal activities and buying up gold from illegal miners, they are quickly turning into a legal and reputational risk for companies, particularly those more exposed to international legislation. The growing sophistication of the Farc also means that the old approach to mining, letting operations settle and develop before starting to raise extortion demands, has also changed, and now the group is actively targeting vulnerabilities, particularly at the exploration phase and seeking to extort companies in more diffuse ways.

Mining in Colombia is obviously also exposed to some of the same challenges that are present around the world, such as illegall mining and opposition from anti-mining and environmental activists, which are yet to form into well-organized groups but are certainly gathering strength. The current regional trend for changing the way royalties are distributed, together with the relatively unregulated push for prior consultation, will certainly provide an additional challenge for mining companies, throwing local politicians, business interests and NGOs into the mix of key stakeholders.

For all these challenges, the opportunities in Colombia far outweigh the risks, most of which can be effectively managed. In the meantime, companies should be looking at the three keys, outlined on the opposite page, to successfully develop projects.

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lead issue CASE STUDY 1: ILLEGAL MINING Managing illegal and artisanal miners is a challenge across the world, particularly around large gold deposits.

A large multinational mining company, understanding that most of the communities around its planned project made a living mostly out of mining, sought to develop a comprehensive approach to integrate their activities into their project – providing health and safety instruction and equipment, giving out advice on the use of mercury, and even offering to buy their gold production.

However, the program proved to be a big failure when most of the miners where threatened by local criminal elements to prevent them from taking up the offer of selling their gold to the company. The company then sought the support of local leaders within the community only to discover that traditional power patterns had been eroded by the new wealth being generated by these same criminal elements.

The company is currently working on a carefully crafted strategy that involves the national and local authorities and attempts to separate artisanal mining activities from illegal mining activities, aiming to provide support and security to the former and bringing justice to the latter.

CASE STUDY 2: FORMALIZED EXTORTION As organized crime and the Farc become more sophisticated, extortion demands in some parts of the country are becoming more difficult to understand and manage. While in the past most “front” companies were just a paper trail used to hide criminal activities and launder money, most of these companies are now real entities that do provide goods and services, representing a serious legal and reputational risk for mining companies. Their appearance around mining areas is particularly troublesome, as they tend to combine the subtle application of pressure and implicit threats.

A leading mining company with long-standing operations in Colombia was the subject of this new type of extortion demand.

Individuals, thought to be members of one the Bacrims operating in the area, approached several of its employees and strongly suggested they use the services of a local hotel and a transportation company. This was a clear departure from the normal extortion patterns and as well as other problems ended up creating internal difficulties for the company as it sought to provide reassurance to employees over security. The company has implemented new communication policies and training programs for employees on their corporate protocol, as well as a vetting procedure for vendors and subcontractors.

The policies are similar to those of the FCPA and the new UK Bribery Act regulations.

RISK ManAGEMeNT

Daniel Linsker Senior Manager, Global Services Control Risks

RISK MATRIX # RISK

CU1 Mine invasion CU2 Demonstrations at mine site CC1 CC2 CC3 CC4 CC5 CC6 CC7 CC8 CC9 CC10 CC11

Theft of equipment from supply chain Theft of products from supply chain Theft of equipment at mine/exploration site Theft of product at mine Theft of confidential information at mine Theft of materials from mine Assault or intimidation of employee Assault or intimidation of contractor Armed robbery at mine Robbery at offices in main city Express kidnapping in main city

LD1 LD2 LD3 LD4 LD5

Damage to power/fuel/water supply at mine Damage/theft of equipment at mine Blockage of access/roads to mine Intimidation of employees Violent demonstration at mine

ND1 Damage to property and equipment at mine ND2 Significant earthquake at mine ND3 Disruption due to heavy rains/earthquake

three keys to succesS 1· Think local: go beyond the “communities” approach and think about other factors, including the illegal groups and local politicians. Remember that at the local level, the support of the national government might count for little.

2· Map stakeholders and plan your strategy: even before first contact, make sure you have a consistent, realistic and transparent message, that you share and shape with the different stakeholders. Most of the time is not even about the money think more in terms of empowerment.

3· Integrate risk management: avoid approaching risk along internal business units or functions, or as a static issue that does not evolve with the different stages of the project.

OC1 OC2 OC3 OC4 OC5 OC6 OC7 OC8 OC9 OC10 OC11 OC12 OC13 OC14 OC15

Extortion of executives Theft of product from mine Assault or intimidation of contractor Theft of equipment at mine Assault or intimidation of employee Theft of explosives at mine Assassination of employee Use of supply chain for smuggling narcotics Assassination of contractor Extortion of employee Kidnap of contractor/employee Sabotage of supply chain Direct attack on mine Kidnap of employee in main city Direct attack on headquarters in main city

PG1 PG2 PG3 PG4 PG5

Accusations of local community Media campaign against mine Sabotage of mine equipment or infrastructure Demonstration at headquarters Demonstration at mine

R1 R2 R3

Involvement/accusation of corruption Informal payments to military/police Informal payments to illegal groups

T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12

Theft of explosives at mine

Extortion of mine management personnel Extortion of employees Exposure to indirect attack Assassination of employee Armed confrontation at mine Terrorist incident affecting contractor Kidnap of mining employee Direct attack against mine Assault or intimidation of employees Direct attack on headquarters Operational disruption due to an attack

Mining Leaders

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leader insight Rafael Mateus & Augusto Lemaitre Directors Portex

Established in 2005, Portex is a public relations firm dedicated to building corporations’ reputational value in Colombia. Combining corporate communications with corporate social responsibility (CSR) programs, the company also undertakes fieldwork such as social baseline studies and reputation diagnostics. In its short existence the firm has built up a strong portfolio of clients from the mining and oil industries.

Your Reputation POLITICS & ECONOMY

Precedes You Today Colombian business and society finds itself repeating the same discussions that were prevalent 30 years ago when the oil industry was taking off in the country. At that time the oil industry was relatively underdeveloped. The population didn’t know what to expect and segments of the media portrayed multinational companies as agents determined to steal the country’s natural resources. Over time that perception has changed amongst most segments of society as people have come to understand the benefits the hydrocarbons industry brings in terms of jobs, development and exports.

industries can feel their reputation at risk. There are thousands of examples of environmentally and socially responsible mines around the world. We need to build awareness about these examples.

So how should mining companies focus their public relations efforts? At the early stage it’s important to prioritize local engagements ahead of national The mining industry is still largely misunderstood, however. Colombia is not a visibility. Firms need to start a sincere mining country. In the past we have had small, often illegal mines which have had dialogue with communities, hiring very poor social and environmental records. If this is what Colombians equate with Spanish speakers and respecting local mining, it is not surprising that many fear the growth of the industry in their country. customs. We are fortunate to already have some good examples of local The four major mines in the country, producing coal and nickel, inherited what communications. Both Cerrejón and were previously government projects. The firms involved bought into projects that Cerro Matoso have improved their local already had a history of mining and where there was less need for grassroots social communication through radio stations work at the outset. However, the current and television placements, allowing mining boom has seen hundreds of them to spread the message about the exploration companies enter the country, “When a company has good work they are doing in education and often in areas with little or no experience practices, it should communicate health in the communities. You don’t of formal mining. These companies need them.

When a company have to be an established multinational to to undertake social baseline studies with undertake successful CSR projects. Junior communicates, it should have local communities and explain how companies can also make positive impacts formal mining will affect their way of life. good practices to talk about.” on communities. They might not be able to fund a school or hospital on their own but When a company has good practices, they often have the connections and means it should communicate them. When a of finding capital for such projects abroad. company communicates, it should have These projects are often more sustainable in the long term, because the good practices to talk about. When other actors maintain their presence.

You don’t have to invest a lot of money to Portex first started working in the have a positive effect, you need to do it carefully and intelligently. There are plenty country we found that many companies of true mining companies willing to make these investments. It’s important that had huge media exposure but many the Colombian mining industry attracts these sorts of firms rather than maverick of their claims on the social side were investor companies only focused on maximizing share price in the short term. simply not true. We also found a number of smaller companies in the business There is no single recipe for maintaining good community relations. In Colombia, to business sector which had excellent what works in one region will not always work in another. Similarly not every operating practices but didn’t talk about mining company has the same standards and experience when approaching social them. It’s important that we close that challenges. At Portex we analyze each situation individually to ensure a bespoke gap. The industry needs to develop good solution for every company and project. Sometimes the programs we recommend CSR practices and then publicize them. take time to implement, but when investing in a 20-30 year project it is worth taking When an event such as the Macondo oil the time to procure social licensing during the early days. spill in the Gulf of Mexico happens, entire

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Company FOCUS

Asomineros Eduardo Alfonso Chaparro Ávila Executive Director

In operation since 1932, the Colombian Mining Association (Asomineros) is the longest standing mining chamber in Colombia. Absorbed by ANDI, Colombia’s biggest business association and one of the most important in South America, Asomineros benefits from sharing resources with the larger organisation including centralized legal teams and economic analysts.

Asomineros also organises the country’s largest mining show, the International Mining Fair, held every August in Medellin. The fair has grown in size in recent years and hosted over 250 exhibitors in 2011. Eduardo Chaparro, the president of Asomineros, says that the association plans to grow the fair into the third largest mining event in Latin America after Santiago’s Expomin and Arequipa’s Perúmin. Thanks to its long history, ANDI holds significant influence in the shaping of government ORGANIZATIONAL STRUCTURE OF ANDI

POLITICS & ECONOMY

“Colombia could become the Mecca for the mining industry in Latin America over the next 20 years. The country has a unique geology and its metallurgical areas are ready for discovery. Although coal and gold have been the traditional minerals, the future will be in base metals such as copper and lead.” policy. The organisation’s participation in the current debate about the future of the Colombian mining industry is its top priority, “we are very concerned about the debate surrounding the possible revision of mining royalties and the restructuring of the autonomous regional commissions for environmental affairs,” Chaparro said, “we live in a democratic country with open debate, but we need to make sure that the environmental debate is not high-jacked by left-wing groups masquerading as greens.”

Chaparro said that more exploration firms are needed in Colombia if the country is to achieve its full potential in terms of production of not just coal and gold but a range of other metals including platinum, copper and lead. “In order to attract the foreign investment we need, we have to make sure the rules of the game are clear and consistent,”

Asomineros ANDI (1932) 34 Asomineros members International Mining Fair, Medellin 250 Exhibitors in 2011 he said. In addition to lobbying for the mining industry’s economic interests, Asomineros also looks to promote responsible mining and corporate social responsibility projects. ANDI is a member of the UN’s Global Compact, which commits businesses to adopting universal principles regarding labour rights and the environment, and has signed up to the International Council on Mining & Metals ethical principles.

Having previously worked to eradicate child labour in Colombia, Asomineros is currently advising how other Colombian sectors such as flower and energy industries can do the same.

In addition to the country’s geological potential, Chaparro points to Colombia’s unique positioning as the only country in the equatorial zone with both Pacific and Atlantic coasts as a major advantage for the mining sector, allowing exports to the Gulf of Mexico, Europe and Asia. He also said that skilled craftsmen in Colombia combined with its gold and emerald wealth could help the country develop a jewellery industry like that of India or Amsterdam.

Mining Leaders

23

leader insight Claudia Jiménez Jaramillo Director, Sector de la Minería de Gran Escala

The Sector de la Minería de Gran Escala is the industry association for large-scale mining in Colombia.

With 13 member companies, including some of the biggest names in the coal and gold mining sectors, the organization acts as an interlocutor between business, government and the public to promote the interests of the industry. Claudia Jiménez Jaramillo, the association’s director, explains that the largest priority for the association and the industry is to change the image of mining in Colombia.

POLITICS & ECONOMY

towards a unified sector As the industry association for large mining companies operating in Colombia, my organization’s mission is both to defend the competitiveness of Colombia as a mining destination and to improve the image of the industry nationally and overseas. Although these two challenges are distinct, they often overlap. When politicians or pressure groups attempt to provoke reform that would reduce the competitiveness of the country and increase government take of profits they are often exploiting a lack of popular understanding regarding the industry. The Colombian mining industry needs to improve its public image, by showing the benefits that mining already bring to the country and we need to distinguish between illegal mining and well run projects that can benefit communities and minimize environmental effects.

So what benefits does the industry currently afford the Colombian state? The first thing to say is that our sector provides quality employment to many people who wouldn’t otherwise have it. In some regions of the country, for example in La Guajira, mining companies offer the only alternative employment option. Mining also provides direct economic benefit to the entire country which, through the centralized royalty system, also spreads to those areas without mining operations. The industry contributes 2.21% “So what benefits does the industry of GDP and 23% of all exports, but both of currently afford the Colombian these figures are set to grow rapidly as state?

Quality employment, 2.21% the industry moves from exploration to GDP contribution, 23% of all production. The sector currently accounts for 30% of foreign direct investment into the exports, infrastructure and $16m country and is scheduled to attract over $8 investment in corporate social billion in the coming five years. responsibility projects” Mining also requires roads, airports, ports, bridges and electrical networks, and we’re one of the few sectors with the capacity to build all these things. Over $300 million is earmarked for major infrastructure projects and we are not the only industry that profits from these upgrades when they are built.

This contribution to national development is especially important for an emerging market like Colombia, since infrastructure is key to accessing international markets.

Finally, in 2009, mining firms invested $16 million in corporate social responsibility projects in the areas in which they operate.

Despite these contributions, the sector still faces an image problem. This is not a

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uniquely Colombian phenomenon. The way to resolve the problem is not, as some powerful green groups would suggest, to ban mining projects in the country and turn our back on this powerful source of economic growth and employment. The debate is not about whether to mine or not, it is about how to ensure that mining is responsible towards communities and the environment.

One way to improve the image of the industry is to tackle the country’s illegal miners, who are often the worst perpetrators of environmental damage and social dislocations. Colombia is waging a serious battle against illegal extraction.

Through responsible, legal mining our industry helps Colombia distance itself from its violent history, as many of the zones in which our companies operated used to be very complicated regions for security. We have done a great deal, and we continue to fight to provide people with stable, legal work, thus pushing out illegal activity and stabilizing the country. The fight against illegal mining is ultimately the responsibility of the government.We’re encouraged to see the steps being taken.

However, my organization’s main priority is to create a comprehensive policy for the sector. We need an institutional framework of laws and regulations and standards that everyone involved in the industry, companies, the government, the public and investors, understand and respect. Our industry is leading the push for better regulation and enforcement, because we understand how crucial these are to the long-term success of what we do. And we’re looking to develop a better culture of self-control and self-regulation by which, even without government oversight, our industry follows international standards, develops quality certifications and implements best practices.

Colombia must continue discussing the best way to take advantage of its natural resources.

We believe that legal, responsible and productive mining is the best answer. Mining is sure to play an important role in the country’s development. Other Latin American countries, such as Chile and Peru, have proved it is possible so why can’t Colombia?

q&a

aWAITING wIZARDS

FROM OZ

Daniel Sullivan, Trade Commissioner, Austrade

What has Austrade done in recent years to boost trade and business ties between Colombia and Australia?

Our role in Colombia is to help Australian investors who are interested in entering the Colombian market. We aid them in understanding the challenges and opportunities and help them connect with the organizations and people they will need to know in order to succeed. We also want to promote Colombia amongst Australian executives. We are assessing the growth areas where we see the greatest opportunities, which include mining, mining services, infrastructure, water management and the oil and gas industry. While Australian executives are currently very focused on integrating with Asia, Latin America is also Australia’s neighbor in the other direction, across the Pacific.

There are considerable growth opportunities here as well.

Are there any lessons from Australia’s development as a mining country that could be relevant to Colombia today?

Australians have a sense of responsibility encoded into their DNA. We have the benefit of already having experienced many of the issues that Colombia is now facing itself: How do you balance the needs of indigenous communities? How do you protect the environment? How do you distribute mining royalties in a sustainable fashion? Australia spends around $4 billion a year - between government, industry and academics - on research and development. The University of Queensland Sustainable Minerals Institute is one of the most recognized sustainable mining institutes in the world. We have a lot to offer in terms of research and policy setting, our experience with closing and rehabilitating mines is particularly relevant for Peru, for example. Colombia wants to improve its mining policies to attract more investment while improving relationships with local communities. Australia has demonstrated that this is possible through a culture of commitment to sustainable mining.

Mining and development is an emotional and highly politicized issue, particularly in Latin America. High commodity prices have further inflamed the issue. Australia would like to assist Colombia in its journey towards sustainable mining.

POLITICS & ECONOMY

Australia is the world’s leading exporter of coal, iron ore and zinc and the second largest exporter of gold and uranium. Having successfully faced the issues surrounding land rights, profit sharing and sustainability, the Colombian mining industry can learn a lot from its Australian counterpart. From its offices across Latin America the Australian Trade Commission (Austrade) aims to boost Australian investment in the continent.

What role does Colombia play in Australia’s wider Latin American focus?

Austrade is focused on what we call the Latin Six. The Latin Six are the half a dozen countries that we see having the strongest opportunity for Australia. There are no surprises in the list: Peru, Mexico, Chile, Argentina, Colombia and Brazil. However, Bogota is the only capital city of the six without an Australian embassy, so that gives you an idea of how much work needs to be done by Australia in Colombia, not just at the commercial level but also at the diplomatic level. Australian firms already have a presence in the country. BHP Billiton is the largest taxpayer in Colombia through its investments in Cerrejón and Cerro Matoso. That really gives a stamp of approval to Colombia for other Australians. But the relationship between the two countries is still young. It’s like a blank canvas and it’s an exciting time. The only problem is that of perception. When you talk to investors about Colombia, their first reaction is often skepticism. That’s the result of the lack of a historical relationship between the two countries. Colombia is unfamiliar to Australians and we need to update those perceptions.

How competitive is Colombia’s mining sector compared to other mining countries in Latin America?

Colombia is very cost competitive. Everything is about risk and reward. Colombia is maybe a little riskier than places like Chile and Peru but the entry cost is lower too, so the reward is higher. However, I think most Australians would like a more predictable, stable mining framework.

What measures could the Colombian government take to make the mining sector even more attractive to investors?

Everyone is waiting for the new mining code. It appears to be a big improvement on the existing regulations.The restructuring of the concessions to make them more exploration friendly and the focus on tackling illegal mining are positive steps. I think Colombia is looking to replicate and even improve upon Peru’s mining framework. Once this is implemented I think we will begin to see even more investment coming from Australia.

Mining Leaders

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COMPANY FOCUS

Chicc Miguel Angel Poveda Mesa President Colombia-China Commerce & Integration Chamber

POLITICS & ECONOMY

“The new ambassador is more business-oriented than the last.

Colombia is thinking about building a consulate in Shanghai and increasing its civil servants at the embassy. Proexport wants to open more offices, and we will follow suit.

We are facing a unique moment.”

Colombia-China Commerce & Integration Chamber (2004) 500 members Bogota office and three Chinese offices The entrance of Chinese firms into Latin American markets has spawned numerous articles and opinion pieces in the international press about southsouth cooperation and the decline of US influence in the hemisphere. Historically trade between China and Colombia has been low in comparison with other Latin American nations. That changed in 2010, when Colombian exports to China grew 127% on the previous year’s figure and the Asian giant overtook Venezuela as Colombia’s second largest export destination. Raw materials have long dominated Colombia’s trade with China; for 20 years, ferronickel accounted for a full 90% of Colombian exports to the country. But 2010 saw a sharp increase in the volumes of Colombian oil, coal and scrap metal reaching Chinese shores.

As trade between the two nations grows and diversifies, specialist organisations are establishing themselves as a conduit between them, building business ties and promoting investment.

The Colombia-China Commerce and Integration Chamber (CHICC) promotes integration between Colombia and China in a diverse field of activities

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including commerce, academy, tourism, science, technology, culture and sports.

Its underlying purpose is also to foster an environment of friendship. CHICC´s main goals are three-fold: to promote international trade, trigger investment and to encourage specialized fairs. Miguel Angel Poveda Mesa, the organization’s president pinpoints 2010 Shanghai Expo as the moment when Colombia-China relations experienced a paradigm shift.

The government realized the importance of establishing a Chinese export market and started to draft a well-defined policy towards China. “Santos plans to establish China as Colombia’s main economic partner of the future”, says Poveda. In addition to establishing an office in Shanghai, CHICC has built up its presence among key Chinese industries and now boasts agreements with the Chinese Chambers of Mining, Jewellery and Construction as well as the Chambers of

Commerce of 14 Chinese cities, including growing economic powerhouses such as Guangzhou. In Colombia the chamber has established links with eight universities outside of Bogota in order to foster academic exchanges between students.

Although it is currently the global leader in terms of coal and gold production, Chinese mining firms are increasingly looking for projects outside their national borders.

The country’s coal imports increased by 31% in 2010 to meet industrial demand.

Chinese delegations frequently visit Colombia to explore possible projects.

In July 2011 a Chinese delegation arrived in Bogota to investigate Colombia’s world renowned emeralds. Collaboration with local providers of emerald treatment and certification laboratories could yield to a growing trade and knowledge transfer with one of the world’s fastest growing jewellery markets.

COLOMBIA TRADE WITH CHINA (US $ Billions)

(Source: DANE)

LEAD ARTICLE

RED HOT COALS Despite twenty years of large-scale production and the development of a couple of world-class projects, firms have barely scratched the surface of Colombia’s coal potential. With the largest reserves in South America, low production costs and a steam coal renowned for its high thermal value and low sulfur content, Colombia stands well placed to benefit from growing global demand for the energy source.

Much of the investment buzz surrounding the Colombian mining industry focuses on the country’s status as an unexplored, highly prospective country. But the coal industry has long been a key pillar of the economy, seeing $20 billion investment and a doubling of production between 2000 and 2009.

With major investments planned in the coming decade, the industry is expected to become an increasingly important source of revenues for Colombia so long as the challenges posed by the infrastructure deficit and safety issues can be overcome.

In 2010 Colombia produced over 74Mt of coal, placing it amongst the world’s

top ten coal producers. Over 90% of this output came from the departments of La Guajira and Cesar. In La Guajira, the northern-most peninsular of South America, three mining giants jointly operate Cerrejón, one of the world’s largest open pit mines. Starting out in 1975 as a partnership between state firm Carbocol and Intercor, a subsidiary of ExxonMobil, the project was taken over by a partnership of BHP Billiton, Glencore and Anglo America in the mid 2000s. In 2006 Xstrata purchased Glencore’s share in the project. The mine produced over 31Mt in 2010, moving over 29,000m³ of earth per hour. To the south of La Guajira, the department of Cesar

is another focus for coal producers.

According to the Ministry of Mines & Energy the department has estimated potential reserves of over 6.5 billion tons of coal, compared to 4.5 billion tons in La Guajira. Cesar is home to US firm Drummond’s La Loma mine, which currently produces 21Mt per year, and has also become the focus for Glencore, who have a number of projects in the department including the 4Mt/year CMU-Tesoro-Jagua project.

These producing projects are a major boon for the Colombian economy.

After oil, coal is Colombia’s most important export product. The country takes a 10% royalty rate from coal Mining Leaders

27

LEAD ARTICLE

$20

Billion

investment in the coal industry 2000-2009

The Cesar Department has estimated potential reserves of over 6.5 billion tons of coal, compared to 4.5 billion tons in the La Guajira Department.

colombia 2012

300

WORLD COAL EXPORTS 2009 (Mt)

250

(Source: World Coal Institute)

200 150 100 50

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Another ambitious project resurfaced in February 2011. Plans for a ‘dry canal’ linking the country’s Caribbean and Pacific coasts have been drawn

lia

At present Colombia has not been able to fully exploit the high demand for coal in key Asian markets such as China and Japan. High freight costs, which involve either passing through the Panama Canal or transporting coal to the Pacific coast have priced Colombia out of the market for long term contracts, but in 2009 and 2010 some exporters were able to exploit the spot market to send cargos to China. However, a number of major projects point to Asian demand as the way forward. Following the restructuring of the Japanese energy sector in the wake of Fukushima, firms from that

up before, but the current proposals being developed by China Railway Corp with funds from the China Development Bank seem to be the most promising yet. The $7.6 billion project would involve the construction of a 220km rail-link, the expansion of Buenaventura Port and the creation of an industrial city south of Cartagena.

Tellingly, priority on the dry canal would be given to coal exports to China. Given the expansion of the Panama Canal and the associated costs of mounting goods on and off a rail link, it is unlikely that the project will provide a cheaper option for regular freight carriers. But it would give China instant access to coal reserves in La Guajira and stimulate trade with Colombia. However, this plan is still in its early stages, no letter of intent has

country have been looking to move away from nuclear power and diversify their energy portfolios. Nevertheless, it came as a surprise when the Japanese energy conglomerate Itochu bought a 20% stake in Drummond’s Colombia operations for $1.5 billion in June 2011.

The deal gives the firm access to 7Mt of coal, a sizeable portion of its stated goal of 20Mt by 2015, but it has yet to be revealed how Itochu plans to overcome logistical challenges to supply Japan.

The widening of the Panama Canal, which will double capacity to 600Mt/ year upon completion in 2015, is one option.

au st ra

production, resulting in over $650 million per year. With much of the country’s electricity provided by major hydroelectric plants, around 95% of production is sent overseas. In 2010 exports of thermal and coking coal totaled over $6 billion. With a sulfur content of less than 1%, a calorific value of over 10,000 Btu and low ash and moisture contents, Colombian coal makes an attractive import for western economies with high environmental standards. With increasing volumes of South African coal heading towards Asian markets, a greater space has opened up for Colombian coal in European markets. In 2010 approximately 55% of coal exports went to Europe with 30% destined for North America. The 2011 opening of the Keystone Coal Terminal, a $100 million investment in Jacksonville, Florida, which has a capacity of 10Mt/ year is also expected to open up new US markets for Colombian coal.

been signed and it would take many years to come to fruition.

In the meantime, however, investment in the Colombian coal sector is expected to hit new highs. The decade running from 2010 to 2020 is expected to see over $12.5 billion in foreign investment in expansion and greenfield coal projects. By 2020 production is forecast to more than double to 200Mt/year. In August 2011 the three partners behind the Cerrejón project agreed to a $1.3 billion expansion program to increase production by 8Mt/year and add an extra loading berth to Puerto Bolivar by 2013. Just 25 kilometers from Cerrejón, MPX, owned by Brazilian Eike Batista, the world’s eighth richest man, is developing its own coal project consisting of three open pit mines and one underground mine. Having spent $200 million on technical studies on the 65,225 ha site in 2010 and 2011, the firm are eyeing a production of 5Mt/ year by 2012. With an estimated 1.7 billion tons of resources in place this production rate is scheduled to rise to 35Mt/year by 2014. With its own port 150 kilometers from the site, the firm plans to export coal to Chile and Brazil in addition to Asian markets. In 2008 Vale, the world’s second largest mining firm, bought the El Hatillo mine in Cesar from cement firm Argos for $300 million. The firm is looking to boost production from 1.5Mt/year to 4.5Mt/year by 2012.

They aim to achieve this goal through the introduction of a railway link from their project to the coast.

While the major thermal projects have focused on the deposits in La Guajira and Cesar, the departments of Cundinamarca and Boyacá will see a strong growth in the coking – or metallurgical – coal industry. Coke is produced from baking raw coal in an airless furnace and is used primarily for smelting iron. The regions of Boyacá and Cundinamarca contain estimated coking coal reserves of 860Mt and 702Mt respectively, according to HIS McCloskey, a consultancy firm. Both regions currently produce well under 2Mt per year of coke. With much of the industry fragmented between small local players, a consolidation of the market is expected in the coming years.

Local firms CarboCoque and MILPA have already established themselves as growing forces in the industry and the entrance of UK firm London Mining with a $54 million purchase of another local firm has put the Colombian coke industry firmly on the map for international investors. With an initial injection of $30 million, London Mining aim to produce 200,000tons/ year by the end of 2012.

In fact, London Mining’s coke project had been scheduled to enter production in 2011, but the firm, like many other resource companies, fell foul of one of the worst winters in Colombian history. The effects of the La Niña phenomenon led to record rainfalls in the country, displacing over 2 million people and costing 300 lives. The effects on industry were also marked. León Teicher, CEO of

Cerrejón, told local press that his company had foreseen an estimated 500 hours of rain in 2010, but had been inundated with 1,225 hours. The effect of the heavy rains was attributed as the major reason for the Colombian coal industry failing to reach its 2011 target of 82.5Mt production. With more heavy rainfall predicted for early 2012, companies are busy putting together contingency plans to help them mitigate the impact of flooding.

The rains have also brought an increased incidence of fatalities in Colombia’s underground coal mines. Cave-ins and methane build-ups have been the principle cause of death, often due to lax safety procedures in some of the country’s smaller, informal operations.

In 2010 a total of 173 miners were killed in 84 accidents with a further 40 fatalities occurring in the first nine months of 2011. The impact of such tragedies has pushed mining safety to the top of the government’s agenda.

Following an explosion in the Preciosa mine that killed 21 miners in January 2011, President Santos announced a review of mining safety regulations, admitting that the government lacked the resources to control the sector.

The reform of the royalties system will see 2% of total royalties from mining and hydrocarbons projects channeled towards control of the sector, with the Ministry of Mines & Energy targeting a reduction in fatal accidents per million work hours from 3.36 to 1.68. These improvements are imperative for the sustained growth of the industry.

Mining Leaders

29

FEATURE INTERVIEW

KEEP ON TRUCKING COAL

After 25 years of continuous operation, the Cerrejón mine is planning an ambitious expansion.

The mine has a resource base of 5 billion tons, 10,000 employees, 32Mt of exports and $2.3 billion annual income.

León Teicher President Cerrejón

“Coal is one of the most important energy sources in the world. It is responsible for almost 40% of global electricity generation. In recent years, it has seen the biggest growth of any energy source, ahead of oil, gas, nuclear energy and renewable energy,” explains León Teicher. As president of the largest open pit coal mine in the world, he is an ambassador for the industry. Positioned in the most northerly point of South America on 69,000ha of barren desert, the Cerrejón mine is equally owned by three shareholders, Xstrata, BHP Billiton and Anglo American. The mine has two commercialization offices in Dublin, Ireland and in Atlanta in the United States.

Colombia has the largest coal reserves in Latin America – more than 7 billion tons. The country exports 90% of its production, with Cerrejón accounting for 50% of those exports.

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With production at the mine already on a huge scale, it is easy to imagine that Cerrejón could go on producing at a steady rate for many years to come.

However, in August 2011, the mine received approval for their ambitious P-40 expansion project. The project will require an investment of $1.3 billion over the next four years. Teicher explains that the biggest advantage of the expansion is that the development will take place on existing coal reserves and so all the problems associated with expansion into new areas are mitigated. Having said that, Teicher never counted this as a reason to avoid full consultation with the community,

“Cerrejón exports the majority of its coal to North America, where it represents 18% of supply and Europe where it accounts for 46% of imports.”

“the most important thing that Cerrejón has learnt in its 30 year existence is the importance

of listening to our neighbors, to see things through their eyes and understand that Cerrejón is a single, communal entity. For the project to work there must be partnership and understanding. The Wayuú people know the land better than anyone and we have benefited from their wisdom.”

The Wayuú are the indigenous people who have lived in the Department of La Guajira, where the mine is based, for centuries. The nomadic group - whose unique culture meant they were largely isolated from the rest of Colombia before the Cerrejón mine opened - survive in severe weather conditions and traditionally have suffered from a lack of drinking water. In the beginning of the project, the communities felt ignored because of the forced relocations they underwent. However, following the transfer of the project from the Carbocol-Exxon joint ownership in the 1980s to the current ownership, the progress in community relations has been impressive. Today, Cerrejón is often cited as one of the best examples of sustainable and socially

león teicher responsible mining in the world. It is testament to the work done with the community and its positive effect on the mine’s reputation that the P-40 project has so far experienced very few objections from the community. A mutual trust has been built up through the company’s development of social initiatives in health, education, recreation, culture, sports and employment. The most interesting aspect of Cerrejón’s social initiatives is their focus on the preservation of the Wayuú culture.

Communities adjacent to the mine, along the railway and beside Puerto Bolivar receive particular attention.

The statistics are impressive, with more than 235,000 people from 266 communities benefiting from initiatives. $40.7 million has been spent to date on environmental projects, while $10 million was spent on social projects in 2010 with plans to increase this by over 60% in the coming years. A lengthy ‘prior consultation’ process was undertaken by management for the current expansion. Cerrejón opened workshops which investigated the impact of the project in the area.

Teicher explains that “95% of the indigenous Wayuú who live in the area participated in the process, which included a full outline of water management programs, social programs and of how the expansion will proceed.” This was followed by feedback from the community.

One concern that has been everpresent for the community is the issue of air pollution. In recent years there have been a series of articles in the Colombian media highlighting the problem of air pollution coming from open pit mines in La Guajira and Cesar. Teicher acknowledges that it is a constant concern for Cerrejón and as such implementation of various systems to reduce the impact is a huge priority. Measures taken to control dust and gas emissions include spraying roads with recycled rain water mixed with dust suppressant chemicals, dampening and compacting coal

$40.7

million

Investment to date in Environmental projects

Cerrejón is often cited as an example of one of the most responsible and sustainable mines in the world

during transportation, an air quality monitoring network, the bi-annual testing of the air for the presence of gas and the enclosing of conveyor belts at the Port Bolivar infrastructure.

Cerrejón and the community are seeing progress, with a reduction in air pollution of 22% from 2009 to 2010.

The majority of the money invested in the P-40 expansion will be channeled into the development of infrastructure, including the expansion of rail and crushing facilities, the construction of a second loading bay at Bolivar Port and the addition of new mining technology and machinery. The plans will create 1,200 direct jobs. Teicher explains that this is only part of the effect on employment, “For every direct job created between four and six indirect jobs will also be created.”

55% of the people working at Cerrejón are Guajiros, 32% come from the Colombian coast and 12% from the rest of the country. Expats account for less than 1% of those employed

at the mine. Cerrejón is also a major contributor to the state purse, paying $1.4 billion in taxes in 2009 and 2010.

Currently, Cerrejón exports the majority of its coal to North America, where it represents 18% of supply and Europe where it accounts for 46% of imports. Cerrejón’s coal is principally unwashed with typical values of 10,600 – 11,300 Btu/lb. The mine is known for its high efficiency and low sulfur and ash content. It is used largely in the steel industry, in silicon production and in domestic heating. The company entered the Asian markets for the first time in 2010, which Teicher describes as “a landmark move, not just for the company but also for the Colombian coal industry.” Cerrejón supplies both India, a country suffering from a crisis in supply and China, whose well documented economy is eating up resources. Upon completion of the P-40 project, Cerrejón will produce 40Mt of coal a year, with projected exports of $4 billion annually.

Mining Leaders

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q&a

The boys from Marco Puccini Coal General Manager, Vale

Brazil

COAL

Brazilian firm Vale is the world’s second largest mining group and the global leader in iron ore production.

The firm entered Colombia in 2008 as part of the group’s wider diversification strategy, acquiring the El Hatillo coal project from Argos, a local cement producer. Following the upgrading of key infrastructure, the project is well on its way to achieving its goal of 4.5Mt/year coal production.

What motivated Vale’s entrance into Colombia?

Vale is the second largest mining company in the world but the basis of this growth has been the iron industry. Vale’s decision to enter Colombia was based on two things. Firstly, as part of Vale’s growth and diversification strategy we are looking to expand in the coal sector and for this reason we have developed coal operations in Australia, Mozambique and Colombia, our first coal operation in the Americas. The second reason was the attractiveness of the Colombian exploration market itself. Vale is interested in being present in one of the most prospective countries in the world for coal and other minerals.

What are the other challenges facing the Colombian coal industry?

The most important issue Colombia faces is legal stability. The country needs to maintain the framework it has developed in order to guarantee long term investment. We need to see that all the regulations, permitting requirements and royalty rates are guaranteed and that they remain clear and constant. This is what long term investors expect and need. The country also needs to improve its transport infrastructure. Colombia needs more railroads for transporting coal and other minerals. These are the two most important challenges for the industry.

Is the strategy to produce coal for the company’s Brazilian iron operations?

No, we produce coal and sell it mainly to the European and US markets. We also send some of our exports to China and we expect to see that increase in the coming years. In the future I think the expansion of the Panama Canal will open new opportunities to export to Asia.

What is the development status of Vale’s other coal projects?

Vale has two coal concessions and we are still exploring one of them. We are hoping to start a new mine called Las Cuevas which will help us boost our production. It’s close to El Hatillo in the region of Cesar. In 2012 we will also be developing a small mine called Cerro Largo and when this comes online we hope to be producing more than 7Mt/year of coal.

What milestones did El Hatillo reach in 2011?

The El Hatillo project is growing fast and in 2011 we produced nearly 4Mt of coal. Next year we expect to reach our final capacity of 4.5Mt per year. We are one of a group of coal producers in the department of Cesar that funded the Fenoco railroad, which we use to transport the coal to the port of Cienaga for export.

Is Vale exploring for coal or other minerals in Colombia?

Vale has an exploration team focusing on greenfield projects.

We have a number of large projects in our sights which could have a major impact on our future production. At this moment, in Colombia, we are focused on coal. We have nickel and iron operations in other countries but here in Colombia we are most focused on coal. However, if a good opportunity arises for such base metal projects, Vale is always ready to make a move.

What role do majors like Vale play in the development of the Colombian mining industry?

We are bringing the experience, particularly in the area of environmental best practices that Vale has built up over 70 years of working in Brazil and overseas. On the technical side, we have vast experience in open pit mining and coal production systems. What Vale brings to Colombia are international standards in production, environmental management and a proven way to deal with local communities.

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Is Vale looking for investors or partners for any of its projects?

Vale is always looking for opportunities in the market. If there is an investor with a specific strategy that could benefit the company and who shares similar values to Vale, then we would be open to discussions but at this moment we do not need further financing to develop our projects, we already have the necessary resources.

Mining Leaders

lead issue

Making Tracks

Another important railroad project is the Trén del Carare which would connect the coke production centres located in the more remote provinces of Boyacá and Cundinamarca to the northern coastal ports. The Promotora del Trén del Carare was created to lobby in favour of the project, which at the moment is moving more slowly than hoped. In the meantime, the road upgrade from Santander to the Río Magdalena, is a faster option to get easier access to the port of Barranquilla from where vessels loaded with coking coal, take just 12 days to get to its main export market, the huge steel mills of Brazil.

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For the country to meet its stated goal of 160Mt/year of production by 2020, the World Coal Association estimates that $12.5 billion of investment will be needed. With most of southern Colombia as well as the Panamanian border covered in dense jungle, the only exit for local commodities are ports. Several new coal export terminals are expected to be up and running in the next couple of years. Prodeco has a project underway in Cienaga, which, following the completion of the first phase, should handle 30Mt of coal a year by 2013. The Puerto Brisa project in La Guajira has been delayed due to discussions with local indigenous communities. Operations are now expected to start towards the end of 2012. On the Pacific side, Buenaventura is also hoping to take advantage of the growing Asian demand. Today, the port loads 1.5 Mt/year but in 2012, following the completion of the Aguadulce port by ICTSI, that volume could be quadrupled. Early in 2011, President Santos divulged a mammoth project to link both oceans through a 220km-long dry channel, but what was originally thought to be a transcontinental link to rival the almost century-old Panama Canal is more likely to be a coal railroad sponsored by China in order to meet the rising superpower’s ever growing demand.

An alternative would be to connect the Ferrocarril del Oeste to the central and Atlantic network.

projected coal exports (M -ts)

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If there is one factor which constrains investment across Colombia it is infrastructure. The country’s mountainous terrain, the security threat in remote areas and a series of projects started but never finished, mean that all sectors of the economy have suffered.

Local industries bemoan a lack of dual-carriageways, oil companies struggle to find pipeline capacity and in the coal sector, railroad and port projects are desperately needed. In the World Economic Forum’s Global Competitiveness Report 2011-12, infrastructure challenges ranked ahead of tax regimes, crime and policy instability as the most problematic factors when working in Colombia, behind only corruption.

new port projects capacity MM ton/year

port

load

Central Railway

Puerto Nuevo River Port Palermo

Coal General & Mineral Coal Coal Multipurpose

Puerto Bahía

Multipurpose

0.9

Turbo

Multipurpose

2.2

Aguadulce

Multipurpose

2.7

Puerto Brisa

18 Phase 1: 3 Phase 2: 10.7 30 To be defined To be defined

infrastructure port vessel capacity

Capesize Vessels (>80.000DWT)

Panamax Vessels (50.000 - 80.000 DWT)

Handy/Handymax Vessels (10.000 - 50.000 DWT)

railways

Miguel Antonio Parra president MILPA

“The government is trying to attract foreign investors in a concession scheme for the Ferrocarril del Carare but the project is running late. Until it takes off, a faster solution for us would be to have the government complete the road to the Rio Magdalena. In two years, if its finished, we could double our production.”

Central Railway

Ferrocarril del Oeste

Cerrejón

Ferrocarril del Carare

FENOCO

Altiplano

Cabañas - Envigado

Puerto Brisa

Juan M. Sánchez CEO CarboCoque

“All the prinicipal coal producers are promoting the Ferrocarril del Carare at the moment. It is one of the most important projects for the industry.

It will connect central Colombia to the Altantic ports. We have been hearing about it for a long time but we think it is a reality for the current government.”

María cecilia ruiseco commercial director frontier coal

“The best solution to mobilize the coal from Cucuta is to export from La Ceiba port in Venezuela, but it needs to be dredged. Also, at the moment vessels have to self load and have to share the pier. Because of all these bottlenecks, if we want to increase tonnage we have to think of a solution in Colombia. And that would be our Rio Magdalena project.”

Mining Leaders

COMPANY FOCUS

FRONTIER coal Maria Cecilia Ruiseco Commercial Director Frontier Coal

COAL

“For the Rio Magdalena SPDC project, we want a buyer capable of prepaying for coal on a long term contract at lower-than-market price.

This would allow us to finance the project and guarantee the final buyer a reliable supply at a stable price at a moment where there is

scarcity on the market.”

Frontier Coal (2003) Barranquilla Thermal & PCI Coal 150 Employees Frontier Coal currently exports Colombian coal via Venezuela and is looking to develop a major project from their Puerto Libertador mine in the Department of Cordoba. The greenfield deposit, located in the same basin as Argos and BHP Billiton’s operations, has a proven reserve in excess of 100Mt of coal. The intention is to develop an open pit operation with a capacity of 6Mt/year. Total estimated reserves still available for development in this promising basin are close to one billion tons.

The ambitious project includes the construction of a 185 km railway to take the coal to the coast and a port at the gulf of Morrosquillo near the Coveñas Oil Terminal. From there the plan is to export the product to China and India in post-Panamax vessels with capacity of 115,000 tons.

Frontier already holds the land and is working on getting the permits to operate the port. The capital costs are estimated at $350 million for the mine, $250 million for the railway and trains and an extra $100 million for the 15 meter draft port. Frontier is looking

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for an investor to develop the project.

The economic model is all figured out. Production costs from the mine should be low as the coal is very close to the surface, with 31 seams at a depth 150 meters, and it can be mined at a stripping ratio of 9:1. The firm intends to sell the 6Mt/year production for $70 per ton fob, a very competitive rate for coal that is 9,300Btu. Frontier intends to sell the deposit, find a contractor to build the railway and then build and operate the port itself. The port could be multipurpose because it is located in the only port approved area in the department of Cordoba. The Cordoba coal can be washed for a marginal additional cost, thus increasing calorific value to 9,800 Btu, reducing sulfur to 0.8 and ash to 4%.

This is not the only opportunity Frontier sees in Colombia’s lack of

Caribe Port

infrastructure. The company is working on a project called SPDC to reduce transportation costs for metallurgical coal originating in Cundinamarca and Boyacá. The coal would be trucked to Capulco, on the Magdalena river, where Frontier intends to build a river port to allow the barging of the coal from Capulco to Barranquilla.

Despite a distance of 500 kms this is an inexpensive transport solution.

“You can ship a convoy of 13,500 tons for around $10 per ton,” Maria Cecilia Ruiseco explains.

In Barranquilla, Frontier is in the process of building a port that will be able to accommodate Handymax and small Panamax vessels. With this project the internal transportation cost reduction would be $25 a ton, about half the price of trucking the coking coal all the way to the coast.

FRONTIER COAL’S PROJECTS Port Concessions Present Projects Future Projects

company focus Miguel Antonio Parra Castiblanco President

C.I MILPA S.A

company focus Luis Arturo Carvajales CEO

Pacific Coal

PROFILE: Family company founded in 1983 in the coal rich province of Boyacá. MILPA was a pioneer in the export of Colombian coke. The company now produces a third of Colombia’s coking coal, exporting to more than 20 countries.

PROFILE: First independent publicly owned coal producer in Colombia. Part of the same group that developed Pacific Rubiales into the country’s pre-eminent independent oil producer. The firm has producing coal deposits in La Guajira, Cesar and Boyacá.

CLIENTS: MILPA has reserves of 1.5 billion tons of coking coal. 99% of production is exported. MILPA’s main client Brazil absorbs up to 80% of the volumes. Argentina has been earmarked as the next major growth market.

INFRASTRUCTURE: Available infrastructure is sufficient to deal with Pacific Coal’s current production but future improvements will be necessary, particularly at Puerta Brisa Port and the linking rail and road infrastructure.

FACILITIES: The company extracts, treats and transforms its coal at two fully owned production sites located 30km from each other in Samacá, Boyacá, and Guachetá, Cundinamarca. MILPA also has an assay laboratory.

EXPORT MARKETS: Colombian coke is mostly exported to Brazil, the Caribbean and Europe through Barranquilla and Cartagena. A smaller percentage of Colombian coke goes to Asian markets but this will increase in the future.

INFRASTRUCTURE: Transported by truck and shipped from the ports of Cartagena and Barranquilla. MILPA is seeking government help to construct two roads to shorten the distances between production sites and the Magdalena river.

COMPETITION: Colombian steam coal production growth will be concentrated at Cerrejón, Drummond and Glencore’s Prodeco project. In terms of coking coal production, growth will come from MILPA, Coquecol and CarboCoque.

MARKET ANALYSIS: “Brazil could absorb all of our production but we prefer to diversify our clients to be less dependent. Asian countries represent a huge potential growth, but for now we don’t have the capacity to provide them with long term contracts.”

MARKET ANALYSIS: “Improved regulations, consistency between government agencies and a more transparent mining environment are important to us as we are a company with long term commitments in Colombia.”

FUTURE GROWTH: 500,000 tons of coke was produced in 2011. MILPA aims to double its production to one million tons per year by 2013-14, when transport through the Rio Magdalena will be a reality.

FUTURE GROWTH: Global energy demand is going to keep increasing. Colombia will become a major provider of coal.

Pacific Coal’s aim is to reach a production of 3.5Mt of steam coal, 120,000 tons of coke and 1Mt of asphaltite by 2014.

Mining Leaders

37

q&a

Voyage of Ian Graham, President & Director, Discovery Harbour

Discovery

COAL

Discovery Harbour is a Vancouver based junior exploration company looking for coal opportunities in Colombia. Its president, Ian Graham, is a former Chief Geologist (PGG) with Rio Tinto. The company has a 51% ownership of the Wabassi property in Northern Ontario through an agreement with Northern Shield Resources Inc and is exploring for copper, zinc, gold and silver.

Why was Discovery Harbour formed and where does the interest in Colombia come from?

After leaving Rio Tinto, I started exploring the options for new investment opportunities in coal. It became clear that there was something a bit different about Colombian coal opportunities. A lot of noise and excitement has surrounded metallurgical coal but I think that when you look at the measures, the thermal stands out as a very compelling business. My sense was that infrastructure in Colombia was good but not great and I could see that some material was being double or triple handled or trucked but there were still very significant margins and good fob prices. So that usually tells you there is something special about the product.

We traveled to Colombia in early 2011, to Cesar and La Guajira, visited a couple of mines and realized it is still early days for Colombia, that the country still has a lot of development to do.

However, the fact that the country has the world’s largest coal mine has to tell you something. There is a little complexity in the geology but nothing too devastating. I could see a huge opportunity, albeit pending some small infrastructural upgrades, for a phenomenal sector with opportunities for quite significant margins.

What milestone has the company reached in Colombia?

We haven’t rushed things, we are still a small company and currently we are privately held. However, by the end of 2011 we are going to have an initial public offering. When you IPO your ability to be very active and drill is briefly curtailed. So we are evaluating land opportunities and we are negotiating for coal tenements through our Colombian partners. We have signed and paid for one property with a land owner but that deal is still under review by the regulators. So we are not fully landed but what we do have is some important emerging friendships and business relationships.

Is it a challenge to operate in a market dominated by majors?

Having the big groups is not a bad thing. They bring high quality work, they train people very well, and they have more influence when lobbying for infrastructure. Small companies have to adapt to their presence in order to operate at a similar level. One of our

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advantages is that our lead geologist is not just a coal geologist; he’s a hydro-geologist. That’s important because as we begin to work, one of the issues will be to bridge the gap between clean water supply to communities and the coal industry. We hope to work at a high standard even though we’re a small company.

How do you forecast Colombia’s role in the global coal market will evolve in the next ten years?

I think it will expand but I suspect the curve of the rate of growth is slowing, partly because of infrastructure and partly because of the market. Feeding the Asian market requires transition through the Panama Canal so we will see more focus on coal in Europe and the US, but with time and infrastructural improvements there will be an increase in exports to Asia. I think that new discoveries will compete very well in the market. Good resources will return the value they deserve. Even if the dry canal connecting the Caribbean and Pacific coasts isn’t built, Colombian coal exports will grow.

The country has deep-water port opportunities, the existing ones are being expanded and new ones have to be created.

Do investors have the same expectations of a junior explorer entering the coal sector as a junior entering the gold sector?

It’s not as broad, but actually there is remarkable interest. The last several years have definitely changed the way investors look at bulk commodities. I am not suggesting that it’s all a love affair but there is definitely recognition that significant value can be created by companies looking for iron ore, copper and coal, because of the commodity price environment. We are in a difficult time due to the global financial crisis. Nevertheless we are experiencing some of the highest commodities prices the world has ever seen.

What is Discovery Harbour’s strategy for 2012?

I believe we will discover a very significant coal resource. We and our future partners will be motivated to fund and build new infrastructural projects, whilst maintaining good community relations. These commodities are going to remain in demand. As such we plan to become a major supplier of high quality coal.

PROJECT FOCUS

CAÑAVERAL Eike Batista President EBX Conglomerate

MPX (2001) $98.46 million 2010 Revenue 1.74 billion tons potential reserve 20Mt/y max capacity by 2021 When Eike Batista, the charismatic Brazilian billionaire and one of the world’s richest men, released a business plan, in October 2010, for a large scale thermal coal project in the department of La Guajira in northern Colombia the mining community sat up and took notice. Already owning gold mines in Santander and a number of oil blocks in other parts of the country, Batista is no stranger to Colombia. But the Cañaveral thermal coal project in La Guajira is his biggest investment yet.

MPX, the company heading the project is part of Batista’s EBX conglomerate.

Each one of Batista’s companies ends in an ‘X’, a symbol of multiplication of wealth. The group have secured a 66,225 ha concession along 25km of the coal bearing Cerrejón Formation. Following the development of three open cast mines and one underground mine plus the construction of the necessary infrastructure the firm projects to have a yearly output of 20Mt.

COAL

“Everyone in the world is interested in Colombian coal and we have discovered the Carajas [iron ore mine] of coal. This project is an asset that has incredible value.

The quality of Colombian coal is great, and we are investing $100 million to make the mine viable.” over $3 billion for these upgrades. The mine will not only have a private port from which to ship its exports, but it will also have a 150km private railway to transport the coal to the coast. The port will be built in an area of 521ha. Both railway and port should be completed and fully operational from the start of 2016, allowing the mine to function at full capacity of 20Mt per year.

The motivation for such large scale expansion was the results of the drilling campaign, which ended in February 2010 and saw a total of 90,000m2 of land explored. The results were extremely encouraging.

Of the 266 boreholes explored, 195 of them contained coal seams and the team judged a potential coal reserve of 1.74 billion tonnes.

Cañaveral is on an enormous scale and should significantly increase mpx mines mpx port

the overall production of Colombian thermal coal. Until the opening of the railway and port, MPX will export the majority of their coal to their power plants in Brazil and Chile. However, as infrastructure improves and production increases, Batista expects China to become the main market for the coal it’s producing in Colombia.

China is the world’s largest energy user and as demand from the Asian economic power keeps growing so too does the price of coal.

Batista’s new project represents the growing interest in and importance of coal for Colombia. MPX’s stock grew by 40% over the course of 2011.

As of September of 2011, MPX was the only one of Batista’s five publicly traded start-ups to see its share price rise on the Sao Paolo exchange in that trading year.

FORECAST PRODUCTION CAPACITIES (Source: MPX) (Mt/y)

mpx railway

The construction of the mines will be complemented by a simultaneous large scale infrastructural development with Batista announcing a total investment of Mining Leaders

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leader insight Juan Manuel Sánchez CEO CarboCoque

There is growing recognition of Colombia as a major producer and exporter of coking coal. Juan Manuel Sánchez, CEO of CarboCoque, a pioneer in Colombian coal and coke exports, explores the rise and development of the sector and looks toward future investment, competition and growth.

COAL

A Rare Resource Within Central and South America, Colombia holds the unique position of having both thermal and metallurgical, or coking coal.

From Mexico to Argentina, not a single other country can make that same claim. In fact, only six countries in the world have supplies of metallurgical coal. Colombia is therefore one of the enviable few.

Furthermore, its coking coal is of a very high quality and low volatility.

Coke produces far less smoke than coal when burned, making it an ideal fuel for confined areas. Its primary use is as a reducing agent when smelting iron ore in the process of steel making, hence there are strong links between the demand for steel and the price of coke.

Despite being blessed with this rare resource, Colombia’s production of metallurgical coal represents only a small proportion of its overall coal production. In 2010 the country exported just 4Mt of metallurgical coal compared to 70Mt of thermal coal.

of metallurgical coal, buying 400,000 tons of coal and producing 400,000 tons of coke.

65% of our production is metallurgical coke and we now hold 40% of the metallurgical coke industry and 30% of the overall market share of the Colombian coke industry.

Currently, CarboCoque have three mines in development in Cundinamarca. Like our other 21 underground mines, we need to evaluate the area in order to confirm the presence of low, mid and high volatile coal, the three types of coal necessary to produce good quality coke. Q1 2012 will see the construction of those three mines and by 2015 we expect to be producing another 600,000 tons of coke and 500,000 tons of coal for export. And this is not unique to us. We specialize in the production of metallurgical coke, while other competitors specialize in different types of coking coal. Our competitors are embarking on expansion projects across the country. This market has huge potential - the regions of Boyaca, Soacha and Cundinamarca alone hold an estimated coking coal reserve of 1562Mt, but the current estimated existing production is just 3Mt.

The opening up of major export markets for Colombian coke, therefore, has been the primary focus of CarboCoque and the firm’s major achievement to date. The natural markets for Colombian coke are Brazil, the United States, Europe and increasingly India.

Today the world’s attention is often focused on Asia’s growing resource demand, but from our perspective these are already diversified markets and we would have to drop prices in order to compete. It is in fact much better to “Only six countries in the world focus on the potential for development in have supplies of metallurgical our traditional markets. Brazil, for example, coal. Colombia is one of the with its thriving iron industry, currently enviable few and its coking coal constitutes 60% of Colombia’s coke exports is of a very high quality and low and yet Colombian coke represents just 5% of Brazil’s imports. This is a disparity volatility.” to be exploited. Even with competition from Brazilian companies entering the Colombian coke market, Brazil’s demand still outstrips Colombia’s supply.

With the creation of the National Mineral Agency, we are entering into a new phase in the coking industry. In my 25 years in this industry I have never known such At present there is a growing international fervent interest from the government. More than just changes in safety and environmental recognition of the quality of Colombian protection, we are expecting valid exchange between the private companies and the metallurgical coke. That ensures future government. The most important thing for the industry now is the advancement of demand, but how can Colombia boost infrastructure, particularly the Ferrocarril del Carare, which hopefully will connect central supply? The experience of CarboCoque Colombia with the Atlantic coast. The principal coal producers in Colombia are working shows what local firms can do to boost the together on this project in conjunction with Corporación para el Desarrollo del Ferrocarril role of coke in Colombian exports. In 2003 del Carare. This is a reality for the current government. This development will facilitate we didn’t have any mines. We were buying our aim of opening the market to the production and transportation of about 10Mt coal from suppliers, producing coke and of metallurgical coal from central Colombia by 2015. Underdeveloped infrastructure, operating like a trading company. Our underutilized reserves and small scale, undercapitalized mines plagued the industry for expansion began in 2004 and in 2010 we years. However, well financed and well led companies have started to enter the market and produced almost a quarter of a million tons competition, government interest and investment are growing. We are optimistic.

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LEAD ARTICLE

el dorado revisited Featuring over 55,000 pieces, Bogota’s gold museum plays host to the largest pre-Hispanic gold work collection in the world.

These pieces represent just a small percentage of the indigenous Muisca’s production, which was sustained by rudimentary alluvial production techniques. Their huge production success and the El Dorado myth which followed them gives an insight into the riches held in Colombia’s mountains. Today, over 500 years later, the search for El Dorado has begun again.

These days the lake-side town of Guatavita is a peaceful weekend retreat for Bogotanos looking to escape the city and enjoy the famous local trout.

But 500 years ago it was the center of the Spanish conquistadores’ search for El Dorado. Guatavita was the spiritual center of the Muisca people.

During rituals, their leader, the Zipa, would cover himself in gold dust before embarking on a raft to throw offerings of gold and emeralds into the lake. When the conquistadores and later the British attempted to drain the lake, they received meager rewards. Guatavita turned out not to be the lost city of gold the adventurers had hoped for and the hunt for El

Dorado moved on. Today the Zipa’s ceremony is captured in a stunning gold representation of the raft that forms the central attraction at Bogota’s world famous gold museum. Later, under Spanish rule, Colombia became the most important producer of gold in the world, with an estimated production of 49Moz from the time of conquest to 1937.

In the twentieth century the country’s political problems led to the decline of Colombia as a global gold producer.

Most exploration companies simply left the country in the 1990s as the spread of guerrilla groups’ activities made operations in remote areas of the

country too risky to contemplate. In 2007 the country produced less than half a million ounces and although that figure had more than trebled by 2010, the country still lies well outside the top ten producers worldwide.

The country’s largest gold producing company, Mineros S.A. produces the vast majority of its 120,000oz/year production through alluvial projects.

A few hardy companies did manage to weather the storm, however. Grupo de Bullet, an exploration company headed by Bob Allen, a Colombian mining veteran, succeeded in building up a vast portfolio of land titles during the exodus. When the political winds changed in 2002 with the election of Mining Leaders

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LEAD ARTICLE

$4.5

billion investment in gold projects 2010 - 2020

Investment in gold projects has naturally followed.

According to Asomineros, the country’s oldest mining association, $300 million was channeled into exploration projects in 2009, rising to over $400 million in 2010. The association predicts that $4.5 billion will be spent on gold projects between 2010 and 2020, with the expectation that gold production will surpass 3Moz by 2015. The country has been heralded as one of the world’s hottest gold exploration markets, a ‘Mecca’ for the mining industry according to Asomineros’ president Eduardo Chaparro. Colombia’s gold reputation has been boosted in recent years by a number of major discoveries, many of which have been made in the Middle Cauca gold belt.

Quindio and Tolima departments in the south and lies along the CaucaRomeral fault system. It was here that AngloGold Ashanti hit upon the La Colosa deposit, one of the world’s most important gold discoveries of the last decade. The former Grupo de Bullet property has an inferred resource of 16.27Moz, but with exploration of the surrounding areas set to continue for the next two years, many analysts expect the final figure to be in the region of 20Moz. The company’s Colombian CEO, Rafael Herz, has mooted an eventual production of 800,000 oz/year.

AngloGold were the first major gold firm to take a position in Colombia in the late 1990s and early 2000s and built up a large land bank. It drilled a number of properties in the Middle Cauca belt but divested away from some to concentrate on developing La Colosa. This opened the door to junior companies to pick up from where AngloGold left off.

The 300 kilometer long Middle Cauca belt stretches from the north of the Antioquia department into the

Batero Gold’s Quinchia project is a former AngloGold property that is exciting many analysts. Undertaking

In recent years a number of major discoveries have been made in the Middle Cauca gold belt

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COLOMBIAN GOLD PRODUCTION (000s Oz)

2,000 1,500 1,000

2010

2009

2008

2007

2006

2005

2004

2003

2002

0

2001

500

2000

The improvement in the security situation is not the only factor boosting investor confidence in Colombia, however. Under Uribe, a firm pro-business, FDI-friendly economic policy took root, which strengthened the country’s traditional respect for contracts signed with foreign companies. It’s a track record that former Minister of Mines & Energy Carlos Rodado Noriega is keen to emphasize. “Colombia has the best legal security that an investor can find anywhere in Latin America.

In Colombia there has never been an expropriation of a foreign company and it was the only country in Latin America not to default on its loan payments during the crises of the 1980s,” he told Mining Leaders, “We respect the rules of the game and honor our commitments. Mining is totally set up for private investment.” Rodado’s view is backed up by independent studies.

Since 1997 Vancouver’s Fraser Institute has been carrying out surveys of miner’s perceptions of policy and regulations in a wide range of mining jurisdictions. The 2011 study positioned Colombia as the third most attractive mining destination in Latin America, behind Chile and Mexico, but ahead of Peru and Brazil. In 2006 the country was ranked as seventh, behind the aforementioned, Ecuador and Argentina.

1999

President Alvaro Uribe and the success of the new aggressive military strategy towards the guerilla, confidence slowly began to return amongst oil and gas and precious metals explorers.

(Source: Bloomberg)

Mining Leaders

LEAD ARTICLE one of the country’s biggest drilling programs, the firm is targeting seven exploration targets. Just 180 meters from the original AngloGold discovery hole, Batero Gold registered a 452 meter hole containing 0.6 tons of gold and 0.12% copper. Analysts have forecast an upper-limit potential of between 8-10Moz of gold for the Quinchia project, with an NI 43-101 expected at the end of 2011. September 2011 saw the publication of a number of long awaited resource estimates in Middle Cauca belt properties. First the maiden NI 43-101 for Continental Gold’s Buritica project turned up 2.5Moz of inferred gold at 11.4g/t. This was trumped, however,

by Sunward Resources’ second resource estimate on the Titiribí project which registered 6.08Moz of inferred gold with an inferred copper resource of 7.9M equivalent ounces of gold. The other major project under development in the belt is Gran Colombia Gold’s Marmato project. The project has a 10Moz measured resource and a 12Moz inferred resource. It was acquired by the company through its 2011 merger with Medoro Resources and is currently in the prefeasibility stage. As with many Middle Cauca belt properties, Marmato is likely to become a bulk tonnage open-pit mine.

MID-CAUCA BELT PROJECTS (Inferred Resource)

buritica continental (2.5 Moz) titiribí sunward (6.08 m oz)

marmato gran colombia (12 Moz) quinchía batero la colosa anglo (16.27 Moz)

With gold touching $1,900/oz in 2011 and Colombian forces making further progress in the struggle against the Farc, the gold sector remains a hive of activity, with new juniors entering the market every month. But serious challenges remain. The boom has exacerbated the backlog of title requests waiting for approval and has led to an overhaul of the titling process and the creation of a new National Minerals Agency. Illegal mining is endemic in some regions. This not only has a harmful impact on the environment – a UN report estimates that 67 tons of mercury are dumped into rivers in Antioquia – but it has also led to a negative perception of all forms of mining. President Santos acknowledged in early 2011 that Farc and paramilitary agents are running illegal gold mining operations in the departments of Antioquia and Chocó. The government has raided dozens of illegal mines as part of a new crack down.

Despite these challenges, the message from the government has been consistent. As part of the national development plan, Santos has identified mining as one of the five ‘locomotives’ of the Colombian economy. The administration has invested in the reform of the outdated institutions and shown a willingness to tackle the illegal mining problem head on. There is little doubt that the country has one of the greatest geological potentials for gold anywhere in the world, but with significant and resistant local level problems, high-level government support is crucial to the development of the gold sector in Colombia.

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colombia 2012

q&a

A Colossus

Awakes

Rafael Herz CEO, AngloGold Ashanti Colombia

How is AngloGold planning to develop La Colosa?

We currently have a limited permit to undertake exploration, which will continue for the next three years. We are focusing on pre-feasibility studies and in 2013 we’ll move to feasibility.

We are not only looking at technical feasibility but also social and environmental feasibility. La Colosa has very interesting possibilities for the company but, most importantly, for the country and the local community.

What is the source of confusion over environmental permits in Colombia generally and for La Colosa specifically?

Really, these concerns are more a product of misinformation and passionate discussions rather than technical arguments. It is important to clarify that the forest reserve area where La Colosa is located is not a protected area and the project will not impact the water supply or quality for either domestic or agricultural use. Some advances have been achieved but there is still work to be done. To solve confusion, we need to have a clear definition of where mining can and cannot take place. Exploration has a very low environmental impact and the knowledge that is acquired from it is extremely valuable. When companies are willing to invest risk capital in the exploration phase they are providing knowledge to the country, not just the company. The permitting process should be much faster, and some requirements should be reduced to a minimum.

What was the motivation behind the restructuring of the partnership with B2Gold in 2010?

It is the normal course of business with a partner. In any joint venture, there is a moment when critical decisions have to be made, depending on who is investing and for what purpose. As the project became more important and “real” AngloGold decided to reassume, in agreement with B2Gold, the operatorship. The Gramalote project is very interesting in terms of size, location and opportunities. It represents a major stepping-stone for both companies in the country. If everything goes as expected, production could start in the first quarter of 2016.

GOLD

AngloGold Ashanti produced 4.6Moz of gold in 2010. With 20 operations across four continents, the firm began greenfield operations in Colombia in the late 1990s in order to replenish its resource base. In 2005 the firm made one of the gold discoveries of the decade, the 12.9Moz La Colosa project in Tolima. Since 2003 the firm has invested over $300 million in Colombian projects, including the Gramalote project.

How does AngloGold plan to explore and develop the rest of its sizeable land package?

We have identified some core areas that are interesting from a geological and commercial point of view on which AngloGold will continue to work. On other properties, we will work in partnerships. Finally, it is likely that some of our areas will ultimately be either farmed out or returned to the Colombian government just because they are not interesting from a technical, geological, or size perspective.

What are your thoughts on the path Colombia has chosen to develop its mineral resources?

There is still a lot of work to be done to establish a set of rules which are clear, consistent and stable and we’re committed to working with the government to achieve that. Colombia has to decide what kind of mining it wants. I hope they choose the kind of mining that AngloGold represents. It’s a mining that mitigates the negative impact that any extractive industry has by creating a net positive impact, through fiscal income, technological development, health, education and infrastructure projects.

President Santos has defined the five “engines” to stimulate growth as agriculture, infrastructure, housing, innovation and extractive industries. The latter is the only one that can bring the financial resources that the four others require for investment.

What are the key points of AngloGold’s publication “Caminando por Cajamarca”?

Corporate responsibility should be incorporated from the exploration stage. It should always be complementary to what the state is doing, not a substitution for the state. Our geologists walk in areas where very few people from the government have actually been. So this publication, “Caminando por Cajamarca”, is a tribute to the people who live there. It’s about what they do and what their dreams are. To a certain extent the role of AngloGold is to share those dreams and to listen. We’re going to be there, working in the communities, for decades. We care because both we and our employees will be living there.

Mining Leaders

45

FEATURE INTERVIEW

The Early Birds GOLD

Arriving in Colombia ahead of the pack guaranteed Minatura 290,000 ha of concessions from which they have positioned themselves as one of the world’s most successful alluvial mining companies. And all this while keeping their social conscience intact.

Paul Dias Founder & CEO Minatura International

“Where there’s risk, there’s reward,” says Paul Dias, CEO of Minatura International. When he first came to Colombia in 2001, risk was the thing most investors associated with the country. This was pre-Uribe, before the new president’s ‘Democratic Security’ policy had retaken wide swathes of the country from under guerrilla control and when international media focused on the country’s violence and instability rather than its investment opportunities. By his own admission, Dias, a venture capitalist, was inexperienced in mining projects.

He learnt as he went, hiring Peruvian engineers to study the area around Frontino in western Antioquia before realizing the scale of opportunities available. Ten years later, the firm has used its first-mover advantage to acquire approximately 290,000 ha of concessions, including several regional plays. Minatura has 100% interest in

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17 gold projects, a majority interest in one copper project and one gold project, and the sale of an advanced gold project with a structured payout.

Remedios, the company’s first hardrock project, is a 9,000 ha property near the Frontino Gold mine, a historically productive area where over 5.5Moz of gold have been extracted. Following a tunneling program, Minatura established a 100ton-a-day processing plant and conducted pilot production for several years. A plan to begin a wide scale drill program in late 2011 has been established. The early establishment of the mine’s infrastructure has played an important role in building trust with

speculation but building a business and hiring local workers,” he said. The plant is able to recover 92% of the gold produced from the mine and plans are in place to increase the production from the San Pablo gold mine on the property from 100 to 300 tons per day. Remedios is expected to produce 80,000 oz over the next seven to eight years. Recently, Minatura entered into a structured sale of Remedios to Tolima Gold in which Minatura received cash up front, a $12 million exploration commitment from Tolima Gold and a back end payment based on the amount of resources determined in the exploration phase.

“I came to get rich, thinking that I just needed to invest capital and apply the right expertise, but after arriving I realized that I had to first serve the needs of the communities”

The firm’s other major projects are in the early stages. The Cordoba project, near BHP Billiton’s Cerro Matoso nickel mine, is a promising gold and copper project that has attracted investment from Simon Ridgway, the renowned financier and chairman of Fortuna Silver, through his current venture Wesgold Minerals. But it’s the company’s property in Sur de Bolivar that really gets Dias excited. “I think Sur de Bolivar is the undiscovered

communities in the area, “Being here early and establishing this plant showed it wasn’t about

paul Dias treasure of Colombia in terms of gold potential,” he said, “I think it will soon be noted as an area with some of the highest values of gold content in South America. You’ll hear a lot more about it in the future.” With a steady cash flow from the firm’s alluvial projects, anticipated cash payments from the structured payouts on the Remedios project and cash payments from Wesgold Resources, developing these new projects is the central focus of Minatura’s future growth strategy.

Things didn’t always look so rosy, however. Operating in a country experiencing huge unrest in the early 2000s, finding funds for Minatura’s projects was tough. “One of the things you learn when capital is tight is how to survive. The history of alluvial mining here made it the obvious choice” says Dias. The company would invest millions of dollars in technologies to efficiently identify these reserves and minimize the environmental impact. Using first-of-its-kind drilling equipment from Europe, Dias believes that he has increased the speed of drilling alluvial evaluation projects eight-fold. “One of the major challenges associated with alluvial projects is identifying a reserve. It’s usually done with outdated drills, and it takes time and money,” he said, “The technology we have allows you to drop the drill and literally punch holes. We did 160 30 meter holes in 10 weeks. We are able to develop a resource quickly, estimate its value and determine the costs.”

Watts, Griffis & McOuat, the Canadian geological consultants, are producing a NI 43-101 on the company’s alluvial project in El Bagre, Antioquia. The advantage of alluvial gold activities is the speed of their development: a project can be completed from exploration to production in around 14 months. Not only is the firm’s technology mercury free, but it can also recover up to 90% of mercury left behind by the country’s artisanal miners, making it possible to undertake future land reclamation and replant sites effectively and efficiently.

By 2013 the firm aims to produce 155,000 oz of gold from three of its alluvial properties, a figure that would

150,000OZ

mINATURA’S 2013 aLLUVIAL GOLD PRODUCTION AIM

Minatura aims to create micro-economies that offer employment alternatives outside of the mining industry

make the firm one of the leading alluvial gold producers worldwide.

As with all early-stage explorers, finding financing for the company’s hard-rock projects is a pressing priority for Dias, and he believes attitudes about Colombia are starting to change. “Being here early you see the changes that have happened in the country’s security situation.

President Uribe was fundamental to this process,” he said, “The stigma of Colombia is starting to change.” In 2011 Dias went to Europe and China to find new sources of capital.

Perhaps because he has been working in the country for ten years, Dias is cautious about the current Colombian mining boom. “The current excitement is generated by a gold price of over $1,600 per oz. That drives people to the market, but you can’t let the current price of gold drive long term investment,” he explains, “Those firms now entering the country need to understand its people and communities. Every region is different.

You can’t implement a strategy from another country in Colombia.” Working with local communities, Dias has come to focus on the creation of “microeconomies” that aim to offer alternative employment outside of mining operations. The company has established a number of bee farms near its properties and is working with an Icelandic company to establish fish farms. Dias says that building strong community relations is one of Minatura’s top priorities, “I came to get rich thinking that I just needed to invest capital and apply the right expertise. After arriving I saw that I had to first serve the needs of the communities,” he says, “We are building a company that puts Colombia first.”

In the short term the company will have its work cut out developing its huge regional plays in Sur De Bolivar, Cordoba. Looking back, Dias appreciates that he arrived at a special time. “We bought our properties pretty cheap. It would be difficult to reproduce this situation again. The only way to do it was to get here early.”

Mining Leaders

47

q&a

A New Exploration Brandon Rook President & CEO, Batero Gold

Paradigm

GOLD

In 2010, Batero Gold consisted of a handful of people. One year later the firm had over 280 employees and one of Colombia’s largest exploration drill programs. With the Batero-Quinchia project in the Middle Cauca Belt, the company is one of the most successful Colombia-based juniors on the TSX-V. Brandon Rook, President and CEO, explains that the company aims to provide a new model for junior explorers.

What are your reasons for coming to Colombia now?

Like other exploration companies we were drawn to Colombia for many reasons. There are enormous opportunities, the country is underexplored and there have been vast improvements in Colombia’s stability, security and investment climate over the past decade. This year, the World Bank ranked Colombia among Latin America’s top three business-friendly countries. Beyond these fundamentals, Colombia has huge mining potential. Our drill results are continuing to prove that potential and our location near established infrastructure will enable our project to develop rapidly. We began our first phase drill program by exploring one of the two previously defined gold-copper mineralized centers, La Cumbre and Dos Quebradas, and expanded that effort to seven key targets on our 100% owned property. We recently completed our 40,000 meter first and second phase drill programs on-time and onbudget. Based on the very positive results from 48 drill holes announced to date, as well as continued positive developments from our ongoing 15,000 meter third phase drill program, it appears that we may be looking at one integrated gold-copper mineralized zone spanning greater than two kilometers in length. Even with our work and results, Batero-Quinchia remains one of the least explored areas of Colombia’s Middle Cauca Belt. The project is within 100 kilometers of two worldclass deposits: Marmato, with 12.4Moz with 0.3 g/t au cut-off and AngloGold Ashanti’s La Colosa, with 16.27Moz gold at a 0.3 g/t au cut-off.

What are the latest developments at Batero-Quinchia?

In July 2011, we completed our first and second phase 40,000 meter drill program. We are very pleased with the efficiency and success of our drill campaigns to date. The day after we completed the second phase we announced a third phase, comprising 12,500 meters of drilling with five rigs. In mid2011 we announced a further 2,500 meters of drilling due to continued success at the project for a total of 15,000 meters for this phase of drilling. This program finished at the end

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of October 2011. Upon completion of the third phase of drilling the company will have completed 55,000 meters in 2011. We are completing in-fill drilling at La Cumbre, and systematically stepping out from La Cumbre porphyry to the northeast through the Central Zone (El Centro) up to Dos Quebradas in the north of the project with the goal to prove continuity of mineralization project-wide. We have La Cumbre in the South and Dos Quebradas in the North. In between, we discovered three new zones of mineralization at El Centro. This zone includes the Manzanillo, La Lenguita and El Cedral targets. In addition, new discoveries of high grade gold epithermal mineralization were intersected both near surface and at depth. This exploration drill program extends over a strike length of more than two kilometers and is open in both directions. In addition, a new drilling discovery at Matecana located approximately 800 meters southeast of the La Cumbre porphyry, may potentially extend the strike length of mineralization to greater than 2.8 kilometers. We are trying to connect the dots and prove that this could be a single system.

By the end of October we finished the third phase of drilling and we had completed approximately 120 drill holes projectwide. This includes the deepest mineralized intercept to date from a 928 meter vertical drill hole at La Cumbre porphyry that intersected substantial gold and copper mineralization over 751 meters. This hole increased the vertical extension of the porphyry’s mineralization significantly. We also found a newly discovered higher grade zone of mineralization at depth that may increase the overall grade of La Cumbre porphyry with further follow-up drilling.

Was it easy to finance the company given Colombia’s current image as an attractive, emerging market?

There have been some very successful projects which have brought attention and appetite for investing in the area, and there are also a lot of companies that have decent projects but just don’t have the capacity yet to operate to full potential.

By comparison, Batero is in an extremely strong position

q&a

Batero employees preparing core samples

because we are financially well supported with a favorable share structure and long-term shareholders, many of whom are Colombian.

term sustainability and to demonstrate that mining can be win-win for both shareholders and the community – that’s the Batero way and from day one we’ve been working to balance environmental, social and economic values as a core part of this project. We have just as many people today working in our social and environmental teams as we do in exploration and geology.

We started from the very beginning with environmental baseline studies and a social census of the area. At the project, instead of bringing in machinery we have chosen to use shovels and wheelbarrows to maximize employment opportunities.

Consequently we have 200 hundred people working locally for us through a cooperative. We are trying to take a broad view of doing things progressively, in the right way, in a timely manner and it’s paying dividends for us.

How has the firm dealt with the issue of surface rights?

There are coffee farmers on our project. Instead of just buying them out, we started a progressive land swap program. The neighboring valley is a little flatter and produces very good coffee. We made it a very inclusive process where we sit down with each household and offer them the opportunity to move to a farm of equal size but with better housing and more productive lands just one valley away, keeping families entrenched in their community. These new farms offer higher coffee yields and a greater chance to build local farmers’ businesses. One farmer is reporting an increase in yield of 500%.

“For me the Middle

Cauca Belt is the most attractive area for future gold projects. That’s where our footprint is and it makes sense to build out from where we are today.”

The Middle-Cauca belt has a long mining history. Does this have a negative or positive effect on Batero’s project?

It is beneficial because the local population is not new to mining and they have always supported the project, understanding that they too can benefit from it. Rafael Alfonso, Director of Colombia Operations, has worked in this area for many years and, as a result, Batero has inherited a lot of positive, on-theground social and environmental work that has been ongoing in this region for years. We are focused on working closely with locals on social and environmental programs, to keep this project advancing smoothly and, ultimately, to deliver a highvalue asset. Rafael is helping lead these efforts. He is widely respected and is an advisor to the government on its social and environmental policies surrounding the mining sector. When you look at the mining industry globally, you see that successful projects require the support of local communities. It’s extremely important for us to focus on the community and regions long-

Does the company have a clear exit strategy for the Batero-Quinchia project?

This project has the potential to become very large, and our goal is to continue to demonstrate that enormous potential.

Batero has inherited and continues to build an exceptional and dedicated team that has operated in the area for over 10 years.

We are doing things differently. We want to introduce a new paradigm for the way junior firms operate here, that is, a paradigm in which sustainability is top priority and where exploration benefits both shareholders and the local community. Batero intends to explore, discover, and develop numerous assets in Colombia for many years to come. In regards to mining this particular project, if the scale continues to grow Batero will look to alternatives once the full potential of the project is realized.

What particular regions of the country would be most attractive for future gold projects?

For me it’s the Middle Cauca belt. Certainly that’s where our footprint is and it only makes sense to build out from there.

Mining Leaders

49

underground overhaul

The amendments to the code were declared unconstitutional for having failed to consult indigenous and Afro-Colombian communities, but they have been implemented on a temporary two year basis while the consultation takes place. In August 2011 the reform of the royalty system for mining and oil and gas production successfully passed congress.

The new system will see a greater centralization of royalty payments when it comes into force in 2012.

However, a lack of institutional oversight and poor coordination between the Ministry of Mines & Energy and the Ministries of Environment and the Interior - which deals with community issues – is viewed by many in the industry as the main cause of delays and investor uncertainty. The newly created National Minerals Agency will take over the administration of mining titles and act to promote the industry. Meanwhile the Ministry of Mines & Energy will create a new position for a Vice-Minister of Mines and directorates responsible for liaising with other ministries on social and environmental issues.

The current reforms are the most comprehensive that the sector has ever experienced. On paper the plan looks promising, but it remains to be seen how it will be implemented.

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The increase in investor confidence in Colombian mining projects, combined with lax regulations regarding the awarding of mining titles led to a wave of speculation during the 2000s. Awarding land rights on a ‘first come, first served’ basis allowed individuals to sit on properties for years without undertaking exploration work, before selling the titles at a hefty profit. In February 2011 an amendment to the 2001 Mining Code was introduced to place greater restrictions on title applicants. The amendment also banned mining in páramo ecosystem and with over 100 instances of titles being awarded in protected areas, an online land registry is due to be introduced.

Areas of Colombia under mining titles

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The Colombian government’s habit of lumping together the mining and hydrocarbons sectors in its statistical reports obscures some hard truths. While the ‘mining-energy sector’ grew at a rate of 11% between 2009 and 2010, the vast majority of this growth came from oil and gas projects. Over the last six years the hydrocarbons sector has grown at nearly 12% annually, while mining has held steady at 3.2%.

Now the Ministry of Mines & Energy is betting that the introduction of a new mining code will have a similar effect on the coal and gold industries that the introduction of the National Hydrocarbons Agency had on the oil sector when it was introduced in 2003.

The explosion in mining title applications and awards is a relatively recent phenomenon. During the Uribe administration 7,397 mining titles were awarded compared to just 580 between 1990 and 2002. During Uribe’s second term 10% of the country’s area was awarded to mining projects. The avalanche of applications for titles has overwhelmed Ingeominas, the government body who awards titles. By April 2011, 19,900 titles were at the application stage. A moratorium on new applications is in place until February 2012.

royalty reform

The reform of the royalty system, which passed through Congress in June 2011, aims to spread the $3 billion of annual royalty payments more evenly across the country in an effort to minimize corruption, increase efficiency and build fiscal stability. According to the Ministry of Finance, the take of regional governments will drop to 25% of royalties, down from 70%. The new system will also divert 10% of payments to a science and innovation fund whilst maintaining 30% in a stabilization fund to mitigate the effects of the commodity cycle.

The Structure of the ANM

Under the new system, a separate Vice-Ministry of Mines will be created to oversee a Directorate of Mines, responsible for forming mining policy, and a Directorate of Environment and Communities, tasked with streamlining environmental permitting and coordinating relations with local communities. The National Mineral Agency will be an independent body, funded from royalty receipts, focused on the administration and promotion of the sector.

Effect of reform on growth US $BILLIONS

Between 2004 and 2010 the Colombian mining sector grew at a rate of 3.2%, well below national GDP growth of 4.5% and the 12% growth experienced by the hydrocarbons sector. The government expects the reform of the mining sector will have the same effect as the establishment of the ANH had for the oil industry. Under the reform the government expects to see 9.5% growth in the mining sector, providing a further $12 billion in royalties the next ten years.

César Díaz President Colombia Chamber of mines “What the mining sector needs is not promotion, but control and transparency.

The ANM needs to establish mechanisms capable of controlling the companies that do not follow the rules. We need judicial and technical instruments to monitor mining operations and close mines rapidly if need be. Currently there is a black market in trading mining titles. These titles are often sold in restricted zones. Companies need to know where they can mine.

There should be an online database of property.The entity needs to be strong, to protect the mining sector.”

Andy Rendle VP South America Cosigo Resources “The ANM might be able to select the companies with the right expertise but there is the risk of corruption because of the subjectivity involved. I believe the best systems are in Brazil and Canada where the first one in gets the title. Then the company has to start working right away because if you don’t present reports, you’re out after the first year. The move from Ingeominas to the ANM is motivated by fear of speculators which I think is overrated. The mining community knows how to deal with them so we don’t need government protection.”

Fabio Capponi CEO CB Gold “We feel positive about the creation of the National Minerals Agency (ANM). If you look at the National Hydrocarbons Agency it is obvious that it allowed the creation of a very well structured oil sector in Colombia with clear rules for all the operators. In short it provided everything investors would look for. It provides a great model for the mining industry.We expect the same results with the ANM. We hope it will also promote an acceleration in the licensing process, establish a clear legal framework and provide certainty for foreign investors.”

Brandon Rook President & CEO Batero Gold “In the first six months of 2011 we saw an explosion of exploration in the country.

Since then we have noticed an increase in the wait time for results from assay labs.

Also at Ingeominas, where applications are processed, delays have been noticeable. While these delays suggest Colombia needs to increase its capacity to process applications, it’s also a positive sign of increasing opportunities for Colombian communities to participate in the expanding mining sector.

Though challenges exist, overall, we’re pleased with the business environment in Colombia.”

Mining Leaders

PROJECT FOCUS

titiribí Colin Andrew CEO Sunward Resources

GOLD

“As a destination for mining, I think Colombia is one of the best in the world at the moment.

Someone once called it the last gold rush on the planet and it may, in fact, be true.”

Sunward Resources (TSX-V: SWD) 70km north of Medellin Indicated resource 2.20Moz Au1 Inferred Resource 6.08Moz Au As second attempts go, Sunward’s NI 43-101 report issued in September 2011 was a spectacular success. The firm nearly tripled its original estimate on the flagship Titiribí project, clocking up an indicated resource1 of 2.20 Moz gold and an additional inferred resource1 of 6.08 Moz gold. Adding in the copper this equated to 3.50 Moz of gold equivalent in the indicated resource category2 and a further 7.90 Moz of gold equivalent in the inferred resource category.

These results followed the appointment of Colin Andrew as the company’s CEO in May 2010. Hired to bring experience to the project, one of his first actions was to bring in AK Drilling as the main drilling contractor in an effort to increase the drilling productivity. By November 2011, there were 11 rigs on the Sunward property, drilling more than 7,000 metres per month. To date, Sunward has raised nearly $80 million on the TSX-V over the course of three financings. “Having in excess of $60 million in the bank at the moment,” Andrew explains, “allows us to focus on the project more like a major.

We are in a position to concentrate on defining the resource instead of focusing

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on future financings.” Concentration is exactly what is required on what could eventually develop into a huge project.

The resource estimate is based on the two primary targets Cerro Vetas - the main porphyry system - and Chisperos, which is a low-sulfidation epithermal system.

But with the other porphyry targets, Candela, Porvenir, Margarita and Rosa, all showing mineralization, Andrew says that he is optimistic that the eventual overall resource could be significantly greater than what is currently defined. The company plans to continue a total drilling program of 120,000 metres through 2012.

To date, Sunward has completed in excess of 64,000 metres of drilling on the project and completed over 98 holes in addition to the 36 holes drilled by previous operators at Titiribí. Titiribí is considered the most

accessible of all the Au-Cu porphyry projects currently being evaluated in the mid-Cauca mineral belt of Colombia.

The project benefits significantly from having established infrastructure, paved road access, power, water and workforce and Sunward has established modern facilities at its exploration base above the town.

The company currently employs over 200 locals, including service providers, from the town of Titiribí and operates “‘an open door policy” in respect to community relations. In addition to putting a new roof on the church and sponsoring local festivals, Sunward has constructed a community centre and mining museum that is staffed by locals and provides information to assist stakeholders in understanding the project.

SUNWARD RESOURCES ONE YEAR STOCK CHART (USD)

(Source: Bloomberg)

1·Within an Indicated Resource of 142.94 Mt @ 0.480 g/t Au and 0.148% Cu and, respectively, in an Inferred Resource of 372.7 Mt @ 0.507 g/t Au, 0.078% Cu at a cut-off of 0.3 g/t Au, as stated in 43-101 Resource Report published September 8, 2011 and published on SEDAR as stated in the company News Release dated September 22, 2011.

2· Gold equivalence taken at a copper price of US$3.07 per lb and a gold price of US$ 1,114 per troy ounce as stated in 43-101 Resource Report published 8th September 2011 and published on SEDAR as stated in the company News Release dated 22nd Sept 2011.

q&a

the eagle

has landed

Ian Slater CEO, Red Eagle Mining

Red Eagle went public in 2011. Can you tell us a bit about the history of the company?

Three years ago I went out on my own with the concept of building a group of companies. While we have also worked on projects in Kazakhstan and Alberta, Colombia has really been our focus in the past year. We originally went to Colombia in a joint venture on Pavo Real with Miranda Gold, a project generator company. I am on Miranda’s board and after seeing the enormous potential for the project, I put up my hand to joint venture it. We built our team, started negotiations and began to acquire properties, trying to avoid middlemen in the process. We now have 80 employees in Colombia, including 15 geologists.

Is there a comparison between the mining boom Kazakhstan experienced in the 1990s and that which Colombia is expereincing now?

It’s hard to compare. There was a boom in Kazakhstan in the 1990s, but it was hard to maintain due to the bureaucratic and political barriers to entry there. I lived in Kazakhstan for six years and Bob Bell, our VP of Projects, was there for a decade. In that time he built a mine there. So we know Kazakhstan extremely well. I think a better comparison for Colombia would be Ghana where we’ve seen wave after wave of foreign investment. Colombia has some of the best geological potential on the planet and has had almost no modern exploration. This first wave of projects is just the beginning. There will be major discoveries in Colombia for decades to come.

Given that Santa Rosa is a center of artisanal mining does that make it more likely to be a vein structure?

Yes. It’s a mesothermal project, with the veins typically occurring within shear zones, which can be up to 40 meters wide and provide significant tonnage. There are also porphyry targets, which we haven’t drilled yet. We started in one of the shear zones as it was more accessible and we had much more information on it. The top 50 meters of the shear zones are oxidized. These oxides have 63 enormous historic sluice mines along strike where 30 meters of rock was mined 400 years ago. There are also over 280 adits over 7km in

GOLD

Having raised $25 million at IPO on the TSX-V and with two gold projects in Colombia, Red Eagle Mining has been earmarked as one to watch by many industry analysts. Exploration is focused on large intercepts of multi-million ounce bulk tonnage. The Vancouver-based junior is headed by Ian Slater, a former managing partner of Arthur Andersen in the CIS and Ernst & Young’s mining business in Canada. the oxides, which we’ve mapped and sampled. The average grade in the oxides is over 1 g/t gold with clear potential for a heap leach project. More recently, the previous owners put down 50 meter shafts into the primary rock and were mining high grades pockets within the shear zone of up to 100 g/t gold.

How does the history of artisanal mining affect the project?

The historical records show that Santa Rosa has been mined for over 400 years. The Colombian vendor of the property acquired the property because of the artisanal mining. He acquired the concessions, employed the artisanal miners and provided the capital to build a professional, though limited scale, operation. So we were only dealing with the vendor, not individual miners.

Is the Pavo Real project situated in the Middle Cauca gold belt?

We believe that Pavo Real lies in the southern extent of the Middle Cauca gold belt. But we’ll let the theoretical geologists argue about its exact placement. What we do know is that there are relatively recent mineralized intrusions on the property that also occur in the other significant properties in this gold belt. Pavo Real is sedimentary hosted, highly fractured, with broad zones of veins and veinlets. The property also contains mineralized dykes and breccia zones. We took 1,040 surface rock samples of which 540 were mineralized with an average grade of 4.1g/t.

What are Red Eagle’s goals and what do you see as being the general trends for the sector in the coming years?

The most important thing for Red Eagle is the implementation of these drill programs. It’s also important to note that you have to go into these projects with the capability to build mines. We have that talent and experience available to us in-house. Regarding the sector in general, I think we will see some consolidation.

What other areas of the country are you interested in?

We are focused on Antioquia and Tolima. Antioquia is easy to work in because of the mining history. We are also looking in more remote and less secure regions, but with a longer term focus.

Mining Leaders

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leader insight Stephen Letwin President & CEO IAMGOLD

With projects in Africa, Canada and Suriname, IAMGOLD produced nearly 1Moz of gold in 2010, placing it in the top ten gold mining companies globally.

CEO Stephen Letwin, who has a decade of history working in the country with Enbridge, explains why Colombia is such an attractive investment destination.

GOLD

A BOLD NEW STEP

C

olombia is a tremendous country to invest in. Since the 2000s the government has adopted the right model with regards to inward investment, one that recognises that foreign dollars are attracted for two reasons. The first is a stable, predictable government and this has been achieved under Alvaro Uribe and now Juan Manuel Santos, not least through the strong improvement in the security situation. Secondly, foreign investment requires a fiscal regime that creates a win-win situation for the country and for shareholders. I firmly believe that the country has struck the right balance with its fiscal regimes and that foreign investment will play a key role in developing the nation, increasing incomes and improving standard of living for the 48% of people that still live under the poverty line. Today Colombia is presented with an excellent opportunity.

in production. Ideally we would like to enter the market with a project in production or nearing production. There are some very interesting projects out there. But at the moment in Colombia we see a lot of opportunities in the early stage of exploration, especially in the Cauca-Romeral belt. A two to three million ounce reserve with the possibility to produce 100-150,000 ounces a year over a 15 to 20 year time frame represents an attractive project for us. Naturally, given the high gold price, exploration companies are trading at very high multiples on the basis of their drilling results. But with the world economy faltering, I think we will see a move towards a stronger emphasis on companies’ cash-flow rather than their net asset valuations. Companies like ours can afford to build up cash and wait for the economic situation to improve before making acquisitions. Following the sale of two of our mines in Ghana we have a total of $1.4 billion in cash to deploy when the time is right.

The country has a huge resource of mineral wealth and projects that exploit these coal and gold resources have the potential to create thousands of jobs and boost the economy. But this is where the win-win fiscal regime is important. I’m religious about return on capital. The key metric is to get money and make a return greater than the cost of capital. It’s good for shareholders and promotes further investment in the country. Once you have “A two to three million ounce a good experience, you trust it and you reserve with the possibility to go back to it. This is perhaps the biggest produce 100-150,000 ounces a challenge facing the industry. The key for year over a 15 to 20 year time mining firms is to find deposits that can frame represents an attractive be brought on stream in a time-efficient fashion. For this to happen we need to project for us.” have a clear mining code with better environmental permitting. Firms need to Obviously, when making a move for any know the rules of the game before they project you have to look for the upside. If a put a shovel in the ground. If this is put project is estimated at 2Moz and you think you can get 3Moz, that’s a way in place Colombia has the opportunity to to win in this game. But you can also win by making sure the project matches show that its mining industry is profitable your core competencies. One of IAMGOLD’s core competencies is mine design and and beneficial for both the country and construction, so we can potentially build value by developing projects quickly and for companies involved. cost effectively. But another key competency is our ability to build strong community relations. Surrounding all projects in Colombia, and in many other countries for IAMGOLD has a high interest in that matter, are communities that have lived off artisanal mining, in some cases Colombia. We have established an office for hundreds of years. These communities need to be part of the equation. Their in Bogota and have a team of geologists involvement is hugely important. Through our projects elsewhere we have shown that on the ground assessing greenfield we have the ability to improve standard of living of communities around our mines projects. As a mid-sized gold firm, we without harming the environment. If you look at our Rosebel mine in Suriname, its have the option of entering either at one of our biggest successes. A key element is that development has to be sustainable. the exploration stage or through the Our expertise is in training and educating people in order to make sure that the acquisition of an ore body already community benefits well past the intial ten years of the mine.

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TSX: IMG | NYSE: IAG

Enriching the Lives of Our Stakeholders Through Accountable Mining.

401 Bay Street, Suite 3200 | Toronto, ON M5H 2Y4, Canada | T: 1 416 360 4710 | www.iamgold.com

major oversight For many analysts of the gold industry, the question remains: Who will be the next major to enter the country? While Colombia has become home to the world’s biggest coal companies, major gold firms are conspicuous in their absence. Of the top ten gold producers worldwide, only AngloGold Ashanti has staked a major land position in the country. But, according to Ruben Arismendy, Senior Mining Analyst at Celfin Capital, with junior exploration firms uncovering major discoveries in recent years, that situation could be about to change. “As in the rest of the world, the senior companies are waiting for the juniors to do the work and de-risk the properties,” he says, “we have already seen the purchase of the Ventana Gold project by EBX of Brazil and the entrance of Kinross into the market with a 9.9% participation with Solvista Gold. We expect to see several similar deals in the coming years.”

In truth many of the majors do have a presence in the country, albeit a limited and low profile one. Aside from Kinross’ stake in Solvista, Canada’s Yamana Gold has a 9.9% stake in Quia Resources and its own exploration concession, Solferino, in the district of Anorí in Antioquia. Paget Minerals have taken a strategic investment of 8.1% in private firm Trident Gold and several of the majors bid for the Ventana Gold property that was eventually awarded to AUX. The CEO of Goldcorp, Chuck Jeanne, has also affirmed that the firm is looking at early stage opportunities in

the country. Speaking at the Reuters Mining and Steel Summit, he told attendees that the positive recent experiences of oil and gas operating in the country was evidence of the improved investment environment and that the firm was “not necessarily waiting until somebody starts the first mine”. The most aggressive entrance of 2011, however, was that of IAMGOLD. The firm spent $13 million on minority stakes in three juniors in Colombia – Tolima Gold, Bellhaven Copper & Gold and Colombia Crest Gold - increasing the TSX-listed shares of both juniors by more than 10%. A 2010 production of nearly 1Moz puts IAMGOLD just inside the world’s top ten gold producers.

Its medium size may be an advantage in Colombia, according to Hans Rasmussen, CEO of Colombia Crest Gold, “The majors can’t decide what to do and they often have to go through four levels of signatures to approve anything. The way I see it is if the largest gold miners don’t reinvent themselves they will lose out to the smaller competition or they are going to burn out. The midtiers are the ones that are going to dominate in Colombia because they move faster and have the cash to make deals.”

Arismendy says that security risk is a factor of decreasing importance in the Colombian mining sector. “With the current price of gold it is possible to create ‘security bubbles’ even in the most dangerous and distant parts of the country,” he affirms, “more important factors are environmental issues, public opinion and the infrastructure deficit.”

With exploration teams working hard to find the next Marmato or La Bodega, the factor holding back gold major investment is more likely to be political than geological.

Mining Leaders

PROJECT FOCUS

ANZá Pablo Marcet President & CEO Waymar Resources

GOLD

“We are just starting to understand what now looks like a precious metals deposit,with potential base metal credits, when Anzá was thought, by previous evaluations, to be primarily a base metal target”

Waymar Resources (TSX-V: WYM) Western Cordillera, Antioquia 30,000ha surface area 3,000m first phase drill program A few years ago, a body of copper, lead, gold and zinc sulfides was found in an open-pit gypsum mine. The mine, located in the small town of Anzá in Antioquia, had been in operation for over 15 years, mining the valuable sulfides out as waste, before their worth was finally realized and the decision was taken to look for investors. Thus began three years of talks with different companies resulting in several offers, a 2008 deal, which was abandoned when the crisis hit, and the eventual entry of Waymar Resources, a Vancouver based junior exploration firm, who signed the final agreements in June 2010.

The lengthy process was definitely worth the wait for Waymar, a company composed of ex-executives from BHP Billiton, Glencore and AngloGold. The Anzá project appears to other junior companies operating in Colombia as a dream situation. The existence of the gypsum mine means that environmental licenses have already been granted, an area that often causes problematic delays for juniors. Accessibility is not an issue either with the regional capital Medellin being only two and a half hours drive

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away. Finally the area has a very small population density and no existing social conflicts. Nevertheless, communication is an important focus and Waymar intends to continue working to conserve already positive community relations.

After signing the final agreements, the company’s CEO Pablo Marcet set up an office in Medellin and formed a team.

Logan Drilling was called in and completed phase one drilling in September 2011.

Waymar also worked with Arce Geofisicos from Peru to do ground geophysics, and Geominas and Gemmi for consulting.

The company is now drilling the second phase, using services from another Canadian contractor Kluane Drilling.

“We hope that after this phase we’ll be able to design a geological resource for the core area of the property. The property is huge and we have identified several geological targets but right now we are concentrating

on the Anzá deposit,” says Pablo Marcet.

He adds, “we are currently using two models, the Volcanic Massive Sulfide and in parallel we are testing a different model, a structurally controlled precious metal zone.” Today there are two mines, la Pastorera and Aragon. The two mines are managed by a separate company that has an operating contract for the gypsum mine and pays royalties, while Waymar manages the titles. Pablo Marcet doesn’t hide his intentions,“We are not interested in the gypsum, we’re interested in the metals.” In the central part of the property, Waymar has a three-year option contract.

The rest of the property was purchased directly.

The Anzá project is just the start for Waymar. “We are continuously looking for opportunities, mainly in Colombia, but also in the rest of the world, and not just in early exploration but also further advanced projects through acquisitions.”

company focus José Ernesto Cárdenas Projects Director

Quimbaya

company focus Hans Rasmussen President & CEO

Colombia Crest Gold

PROFILE: Colombia’s only mining prospect generator, Quimbaya help international firms to obtain mining permits through its experience of the judiciary, administrative and technical requirements of the Colombian mining industry.

PROFILE: In February 2011, Eagle Crest Explorations, originally a Bolivia based junior, transformed into TSX-V listed, Colombia Crest Gold, through the restructuring of the board of directors, senior management and technical teams.

PROJECTS: Quimbaya has a number of mining titles awaiting approval but the most advanced are Remedios (Antioquia, 2270 ha), Anori (Antioquia, 361 ha), Supia/ Marmato (Caldas, 5000 ha) and Rovira (Tolima, 598 ha).

MAIN PROJECTS: Fredonia and La Venecia Projects, located in the Middle Cauca belt. A series of earn-in option agreements with Grupo de Bullet and Colombian Mines Corporation, respectively, has led to the establishment of the 34,000 ha of mineral title for both projects.

EXPLORATION: The main projects are proximate to large known deposits such as La Colosa and Marmato. The firm is searching for well-funded joint venture partners to assist in the drilling. Quimbaya are also developing future land titles.

EXPLORATION: Geophysics and soil sampling were completed from 2010 to 2011. The company began a two rig, 5000 meter drill program in June 2011, focusing on the La Colina, La Rueda and La Durmiente targets.

INNOVATION: Developing an independent online database which provides information on mining title ownership, road access, restrictions and local communities. The database will launch at the end of 2011 and will be free to access.

INVESTMENT: Rarely investing without drill holes, IAMGOLD took a 19.79% stake in Colombia Crest after seeing outcrops where anomalous gold from rock samples were collected, with the aim of future development.

MARKET ANALYSIS: “The mining industry in Colombia has been dogged by corruption. We expect the National Minerals Agency to provide better governance of the sector and attract new investors to Colombia.”

DRILL PROGRAM: Working with a porphyry system, Colombia Crest have a straightforward target and plan to drill 5000 meters in their initial program in early 2012.

Drilling will be extended pending results.

STRATEGY 2012: “Many investors fall into the hands of speculators. We aim to guide foreign investors through the administration procedures so that they can establish their company in accordance with all local regulations.”

STRATEGY 2012: Funding is in place for more than a year of aggressive drilling, so the focus is developing properties at Arabia and other targets in the massive Fredonia land package. Colombia Crest are looking at acquisitions in Middle Cauca belt.

q&a

tunnel

Mark Moseley-Williams President & COO, Continental Gold

VISION

GOLD

Continental Gold is a publicly listed company formed from some of Grupo de Bullet’s most attractive assets.

The company holds nine projects spread across the country’s five major gold belts. In late 2011 the maiden NI 43-101 on the flagship Buriticá project showed a measured and indicated resource of 630,000 oz of gold and 1.5 Moz of silver as well as an inferred gold resource of 2.5 Moz of gold and 9.5 Moz of silver What did Continental Gold learn about the geology of the Buriticá project in the preparation of the maiden NI 43-101?

We are excited about the results to date of our 50,000 meters drilling program. We’re facing a system that’s not the typical epithermal veins which usually extend 400-500 meters in depth.

We have identified Buriticá as a high-grade carbonate base metal gold vein deposit, where the mineralization can continue for 1 km or more. We drilled a deep hole and hit the same system of veins 400 meters below the previous lowest hit. Adding 400 vertical meters to a system gives you the possibility of significantly adding to the resources, especially when the continuity of the veins has been very consistent throughout the strike length and vertical extent. We have a strike length of 450 meters on the project. Both the widths and the gold contents are fairly regular so I think it will become one of the biggest underground mining projects in the country.

How does Continental Gold expect to undertake the huge volume of tunneling work foreseen at Buriticá?

A project of this size will require significant development. Our preliminary mine plans estimate that about 130 km of horizontal development will be required for the whole deposit. The first step will be the main access ramp, which will be 1 km in length. This will be followed by a 4.5 km spiral that will provide access to the different levels of the mine. Finally we’ll develop the production tunnels. We want to make it large enough to be used as our main access so it should be around 4.5 meters wide by 5 meters in height.

Our contractor is a consortium between Mincivil and Esstyma, two drilling construction companies well known in the industry.

What’s the timeline for the development of your projects?

The only specific timeline we have is for our Buriticá project.

We’d like to complete the preliminary economic assessment by the end of 2012. At Dominical we’re doing surface geology and surface mapping and so far the results have been very positive.

We’re hoping to start drilling next year. Right now the Berlin project is on standby given our work commitments at Buriticá but our plan is to be active in Berlin next year as well.

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In a market short of skilled human resources how else can firms bring local knowledge to mining projects?

I think mining companies can potentially find qualified professionals that don’t necessarily come from the mining sector but, for example, from the hydroelectric sector. If you have the right people who are willing to learn, you can bring staff from other industries and they will adapt. The key to success is to be able to hire and train a local work force. Of course engineers will usually come from the big cities or from abroad, but your operators, your welders, your mechanics, your electricians, should be locally sourced as far as possible.

What challenges does the Colombian mining sector face?

The country has been blessed with these huge mineral resources, however for the past 50 years there hasn’t been any major investment due to security issues. Only 5-10% of the country has been explored. Now we’re at a stage when suddenly Colombia has stabilised and a lot of companies are showing up. They come from Canada, the US, or elsewhere, with a wide knowledge of modern mining. Alignment between government and mining companies is necessary but this takes time. The key is to demonstrate that responsible mining is possible.

Have you seen a ground shift in international investor’s interest in Colombian mining projects?

Five or six years ago, finding money for Colombia would have been really tough. When I left Colombia in 1989 you couldn’t travel by road anywhere. But the administrations of Uribe and Santos have made the country much safer. Colombia is one of the most stable democracies in Latin America and it’s fiscally responsible. Once investors linked the improved security and the good investment climate, a lot of the fear simply went away. When we first listed on the TSX, we raised $25 million. Six months later we did another financing and received another $80 million. The $100 million we raised will pay for all our exploration and a lot of development work. When construction begins we will probably go for additional financing to cover the construction cost.

Company FOCUS

GRUPO DE BULLET Maria Paulina Perez COO Grupo de Bullet

When Bob Allen watched as most companies left Colombia in the late 1980s and 1990s, he saw an opportunity. While more riskaverse investors feared the country was on the brink of collapse, he remained confident that, sooner or later, Colombia would sort out its security issues. His commitment to the country and his foresight paid off and his conviction allowed him to stake multiple land claims in some of the most prolific mining regions of the country.

Over the past 20 years, his company, Grupo de Bullet, has acquired approximately 60 projects throughout the country. Impressively, early discoveries from this land package include Gramalote and parts of La Colossa. Grupo de Bullet continually looks for partners with whom it can

GOLD

“We are actively seeking joint venture partners who are well funded, committed to Colombia, and have an experienced management team. We aim to remain a significant stakeholder during the life cycle of the project” develop its portfolio of projects. “We are actively seeking joint venture partners who are well funded, committed to Colombia, and have an experienced management team”, says Maria Paulina Perez, Chief Operating Officer of the company.

More importantly, Perez explains, Grupo de Bullet’s business plan is not to buy and sell properties, but to remain part of the process for the full length of the project, “Our objective is to remain a significant stakeholder throughout the entire life cycle of the project. We believe in our projects and have a track record of investing alongside our partners during every stage of the fund-raising process.”

One of the firm’s strategic affiliates is Continental Gold, which continues to explore the multimillion ounce Buriticá project in Antioquia as

GRUPO DE BULLET´S AREAS OF OPERATION Atlántico Antioquia Cundinamarca Valle del Cauca (Source: GRUPO DE BULLET)

Grupo de Bullet Medellin 60 Colombian Projects Gold, iron, copper, rare earth exploration well as several other prospective targets. Other gold targets from the Grupo de Bullet portfolio include the Guadalupe and Caramanta projects, which are now under the umbrella of Solvista Gold and the Fredonia project which is currently majority controlled by Colombia Crest Gold. Grupo de Bullet most recently partnered with Trident Gold, a private company, which has an earn-in agreement for Bullet’s Batholith gold project, located near the Gramalote deposit.

Despite the current gold exploration boom in Colombia, Grupo de Bullet’s interests in the country are more diverse than just gold. The company has three exploration teams focusing respectively on iron, copper, and rare earth opportunities. And in 2012 the company hopes to start developing a manganese project. Despite the firm’s notable success going long on Colombia when other firms were leaving, Grupo de Bullet is also looking to spread its geographical footprint, extending its operation to other Latin American countries in 2012.

Mining Leaders

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PROJECT FOCUS

MARMATO Maria Consuelo Araujo President & CEO Gran Colombia Gold

Photo: Semana

GOLD

“Marmato has a traditional community with 400 years of mining history. To develop a huge project like this we need to integrate all the inhabitants of the region. Only if the community is part of the dream can they be active participants in realizing the project. ” Gran Colombia Gold (TSX: GCM) Western Cordillera 12Moz Au, 59Moz Ag Inf. Resource 150,000m drill program Through its June 2011 merger with Canada’s Medoro Resources, Gran Colombia Gold came into possession of one of the most exciting gold projects in Colombia. The Marmato Project is located in the Caldas Province, 120 km south from Medellin. Medoro Resources established itself in the area surrounding the ancient mining town of Marmato in 2009 after buying three smaller companies active in the region.

In October 2009, the firm bought the Zona Alta license through a share purchase of Colombia Goldfields Ltd. In February 2010, the company acquired the Echandia and La Maria licenses, properties of Colombia Gold plc. Finally, in late February 2010, the firm acquired the Zona Baja license through a share purchase of Mineros Nacionales S.A., a private Colombian company with an underground gold production of approximately 25,000 oz of gold per year.

By 2011 Medoro Resources had achieved 100% ownership of all the Marmato mountain. The site has excellent infrastructure, being readily accessible by the Pan American Highway and having access to the national grid.

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Gran Colombia inherit a project that has already seen extensive exploration work. Over 80,000 meters had already been drilled by previous operators. By the end of August 2011, Medoro and Gran Colombia had completed over 100,000 metres of drilling through 283 holes. A further 76 holes are scheduled to be drilled by April 2012, completing the 150,000 meters drilling program.

The Marmato porphyry stock is 4.6 - 5.8 km wide and is elongated north-south for about 18 km. The Marmato project is believed to host 12 Moz of gold (6,6 Moz indicated) and 59 Moz of silver (37 Moz indicated). An updated resources estimate was completed by British firm SRK Consulting. The prefeasibility study the company undertakes in 2011 will determine whether the operations will be underground or open pit, with the second being the most likely option.

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Due to the long history of mining on the site, the gold from the major veins has already been extracted. The gold grade, between 0.9 g/ton and 0.3 g/ton pushes towards an open pit mine option. Gran Colombia’s project could require the transfer of the town of Marmato and its whole population, an operation that Medoro previously estimated would have a total cost of around $40 million. A key challenge the firm has is winning the hearts and minds of the local residents. Gran Colombia’s President and Chief Executive Officer Maria Consuelo Araujo insists that close collaboration with the community will be an essential focus of its forthcoming operations. The company currently employs 1000 workers and produces 25,000 oz/year. In order to reach its production target of 250,000 oz/year the firm is expecting to increase the number of local jobs, doubling its payroll.

GRAN COLOMBIA GOLD PRODUCTION FORECAST (000s Oz)

400 300 200 100 0 (Source: Gran Colombia Gold)

LEAD ARTICLE

California dreaming With major discoveries along the length of the La Baja fault, the California district in Santander has emerged as a rival to the Middle Cauca belt as Colombia’s most prospective gold region. But in an almost totally unexplored country, new mountain and jungle areas are attracting major investment. In their bid to identify new plays, however, junior explorers need to be aware of the challenges regarding environmental permitting.

In the town of Segovia, 200 kilometers northeast of Medellin, stands a statue dedicated to the generations of miners who have worked the surrounding hills. This is Colombia’s gold mining heartland. The historic Frontino Gold Mine was founded in 1852 and has produced an estimated 5Moz of gold to date. Remarkably, the mine is still producing 6,000 oz/month following its 2010 purchase by Gran Colombia Gold. It lies on the Segovia gold belt, one of the country’s five principal gold mining regions. While much of the mining world’s attention in recent years has focused on the Middle Cauca belt, the other major gold formations are seeing increasing exploration

activities following a number of major discoveries. And there is so much still to explore. According to the Ministry of Mines & Energy, half of the country has been geologically mapped, while only 30% of the territory has been subjected to geochemical studies and a paltry 5% has been studied with geophysical tests.

One area that has seen intensive exploration is the California district in the department of Santander.

Following work by Canadian firm Greystar Resources in the mid 1990s the region has quickly established itself as a rival to the Middle Cauca valley as the location of major gold deposits.

In July 2006 the firm announced an

inferred gold resource of over 11Moz. The project was eventually scaled back and reformulated as an underground rather than open-pit mine following the refusal of an environmental permit.

The prospectivity of the valley where the project is located had already been established, however. A land grab has taken place along the La Baja fault line, with Canadian firms Calvista Gold and Galway Resources taking important stakes. The biggest gold acquisition of 2011 was AUX’s purchase of Ventana Gold, the owners of the 3.5Moz La Bodega project, 1 kilometer southwest of Angostura. The $1.5 billion deal marked a bold return to Colombia for AUX’s head, Eike Batista, who sold his Mining Leaders

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LEAD ARTICLE

$1.5

Billion AUX PAID FOR VENTANA’s 3.5Moz LA Bodega Project Colombia’s mining associations need to pull together to promote responsible mining

previous gold company with operations in Colombia, TVX, in 2001. La Bodega is slated to receive pre-production capital of around $300 million with an anticipated production of approximately 300,000 oz/ year gold over its first six years.

Another belt with projects in the advanced exploration stage is the Antioquia Batholith, a roughly circular intrusive body of granodiorite to quartz diorite composition measuring over 7,000 square kilometers in area. AngloGold Ashanti’s Gramalote project, which it operates in a 51/49 partnership with Vancouver based B2Gold, registered an inferred gold resource of 2.39Moz. Just northwest of the Gramalote project Antioquia Gold is exploring its Cisneros project. The firm drilled over 29,000 meters in less than two years on the title, announcing the discovery of five new gold veins on the property in September 2011. Lying just east of the Antioquia Batholith, with its southern most point still in the department of Antioquia is the Segovia gold belt. The belt is approximately 300 kilometers long and 15 kilometers wide, stretching along the Otú-Pericos fault. Despite having over 450 years of mining history the belt continues to yield new discoveries from its estimated 24Moz of total reserves.

In all of the aforementioned belts there is a history of traditional small scale mining.

Although community relations are always a primary challenge for firms operating in these regions, they can at least benefit from

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a culture of mining. Two other regions of the country show strong potential for gold projects but are made more difficult by local, environmental and social conditions. The Chocó region stretches from the Panamanian border south along the Pacific coast. It contains a rainforest larger than Costa Rica. It is also the poorest and most remote region of the country and its position on the Pacific coast drug routes has added to crime problems. The region was once the main source of platinum for the allied armies of the Second World War and it has traditionally been one of Colombia’s most important gold districts. However, its remoteness has meant that illegal mining has been a major problem. Large tracts of rainforest have been destroyed for mining activities and little of the proceeds from mining have been

returned to the communities. In April 2009 the government seized 24 illegal dredges being operated by a Brazilian group. Afro-Colombian communities and indigenous groups in the region are protected by the constitution, meaning that a process of ‘prior consultation’ must be carried out before mining activities commence.

Although in Chocó challenges to mounting a project are numerous, the potential rewards are also huge, with many of the gold and platinum deposits found at shallow depths. Ashmont Resources and Sunward Resources both have early stage projects in the Chocó and in October 2011 Vancouver based Samaranta Mining signed a letter of intent to explore for gold and platinum on a 117,000 ha property near the town of Novita. If the application is accepted the Novita project would be one of the largest single mining titles in the country.

JUNIORS BY MARKET CAP (Nov 2011, $millions) (Source: TSX-V)

Mining Leaders

LEAD ARTICLE A further gold belt lays practically virgin. Deep in the state of Vaupés and Amazonas on the ColombianBrazilian border a range of small sandstone-quartz ridges is currently being explored by Cosigo Resources. Since the 1980s, small scale artisanal activities have been carried out in the region, but the Canadian firm believes that the range could bear similarities to the famous Witwatersrand district in South Africa which has produced 40% of the world’s mined gold to date. The region is almost completely unexplored and infrastructure links to the belt are extremely limited.

As exploration firms move into the country’s more remote areas, however, they are confronting increasing legal opposition from social and environmental groups. Many of the problems stem from the weakness of the country’s mining institutions. Cosigo’s project in Vaupés is a case in point. Indigenous communities in the region are divided on the prospect of mining in the region. In October 2009 the one million ha Yaigoje Apoporis National Park was created. Two days later Cosigo was awarded a mining title to areas within the park. This is not an isolated case. A further 37 mining titles have been awarded in national parks and 400 more are pending approval. The lack of coordination between the Ministry of Mines & Energy and the

Only 30% of the country has been subjected to geochemical studies and only 5% has been studied with geophysical tests

Ministry of the Environment is one of the biggest complaints of mining companies operating here.

The Greystar and Cosigo cases combined with a dispute over water permits for AngloGold Ashanti’s La Colosa project in the Middle Cauca belt shed light on what is considered by many to be the single most important risk facing mining firms in Colombia. The country has yet to define where mining can and cannot take place. A further 122,000 ha of mining titles in páramos were awarded by Ingeominas prior to the Greystar case. The prospects for these projects now look bleak.

Eduardo Chaparro, President of Asomineros, also says the role of the autonomous regional corporations for environmental affairs could prove to be powerful opponents to mining projects. While it is true that green groups have a powerful presence in Colombian politics, the mining industry also has to face another painful home-truth. There is no single, unified voice that represents the industry. Mining firms are split between three associations that do not always operate in harmony. With organized mining still relatively new in the country, considered arguments that responsible mining provides environmental benefits by eliminating more harmful illegal processes have largely fallen on deaf ears. Until a major gold project is established which provides employment and economic benefits to the local communities and mitigates its environmental impact and until the industry learns to speak with a single voice, other victories may yet go to the green corner.

q&a

A Shared

Vision

Fabio Capponi CEO, CB Gold

CB Gold already has a greenfield exploration project in Norte Santander. Why did the company take the decision to focus on the Vetas region?

Aside from its great geological potential, one of the reasons CB Gold felt confident in investing in the Vetas region was its long history as a mining district, nearly completely absent of illegal mining. We bought nine small-scale mines, all contiguous with one another, and secured an option on another property. We purchased directly from the owners of the mines, offering them a package which included cash, shares and royalties based on the measured and indicated resources established by the forthcoming NI 43-101 resource study. Following the purchase, we took on the miners who wanted to carry on working with the exploration program, offering them social security and pension schemes. Two years of stable presence in the area and our daily social commitment have been the keys to CB Gold earning the trust of the local community. Moreover, through equity ownership, the miners feel part of the company - this is something which has been really important for us. They know that they will benefit as the project development proceeds.

What is the development strategy for the project?

For the first year and a half we did pure exploration. Using the 5 kilometers of tunnels available we collected over 2,000 samples from the surface and underground. We began drilling in December 2010, initially working with two rigs. We have increased our intended drilling program from 25,000 meters to 35,000 meters following our initial successes, adding a third drill rig to the site in July 2011. We plan to release our first NI 43-101 resource statement in the first quarter of 2012.

The project area includes three targets. The first are the highgrade veins, which are what the people of Vetas have been mining for 60 years. A second target is represented by up to 70Mt of stockwork mineralization which has been sampled at grades of up to 5.87g/ton of gold. Lastly there is a porphyry system, the dyke of which we hit on our very first hole. In

GOLD

While reviewing its Norte Santander project in June 2009, the CB Gold team was invited to visit the Vetas mining district in neighbouring Santander. Recognising its potential, the firm acquired nine operating mines in the district.

Backed by a board that includes Peter Barnes, the co-founder and former CEO of Silver Wheaton, and Hernan Martinez, the former Colombian Minister of Mines & Energy, the firm raised over $26m when it went public.

May 2011 we also completed a geophysical survey which will help with the potential identification of the main body of the porphyry and additional potential targets.

How is the firm financed? What level of market appetite is there for Colombian mining exploration firms?

First, three of us put our own money in. We negotiated the first property and, once we had something interesting to show, we went to investors and bankers that we knew well.

We raised three rounds privately, and then we raised $26.6m in November 2010 when we completed the reverse take over.

This shows the appetite from counter-parties based in the US and Canada, but I personally think China is opening up.

China has traditionally been averse to investing in junior companies, but I think there is a developing willingness to invest in high- quality projects with respected management teams. I therefore see Asia potentially becoming a big investor in junior exploration companies. Likewise the sale of Ventana for $1.6 billion shows the level of interest in the country.

What is the firmâ&#x20AC;&#x2122;s corporate strategy for the coming two years?

Following the release of the NI 43-101 resource estimate in the first quarter of 2012 we will be continuing to perform the work necessary for the completion of a scoping and prefeasibility study. We are looking at some fast-track production options to achieve first production in late 2013 or 2014 and are aiming to build the first mine with 80,000 to 100,000 oz of production per year. The high grade of the Vetas project means that this production can be reached with a small tonnage of mined ore - potentially about 1,000 tonnes per day or less. We are also looking at other exploration projects in Colombia. We are 10 kilometers south-east of the California district, where other well-known companies are operating. In the longer term, we envision that both the companies and the authorities will look for a consolidation of the projects in the area to maximize the environmental benefits and create much more value for the companyâ&#x20AC;&#x2122;s shareholders.

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FEATURE INTERVIEW

HYBRID POWER GOLD

In 2007 Clive Johnson sold Bema Gold to Kinross for $3 billion. Bema was a rare thing, an exploration company with the capacity to take mines to production. Now Johnson is looking to repeat the trick with B2Gold and Colombia is the focus.

It’s often said amongst the Colombian mining community that the country needs just one mine. One well-run, productive gold mine, providing employment to the community and mitigating its environmental effects, could become the showcase project that boosts the industry across the country.

The Gramalote project in the Antioquia batholith is a prime contender for this role. The project is a 51:49 joint venture between AngloGold Ashanti and B2Gold, a Vancouver based gold producer, headed by Clive Johnson, the founder of Bema Gold.

Bema Gold was one of Vancouver’s biggest success stories before it was acquired by Kinross in 2007 for over $3 billion. The junior developed a reputation for entering markets where others feared to tread. When Bema Gold entered Chile in 1988 it was one of the first foreign mining firms to do so. “We believed Pinochet was going to walk the talk,” says Johnson, “that he was going to turn it into a free market economy and then a democracy. Our timing there was perfect.” The first mover advantage paid-off with the discovery of two world

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class deposits, the Refugio and Serro Casale mines. The firm then survived the Russian financial collapse of 1998, building the Kupol mine in Siberia, when most people thought that mining in that country was next to impossible.

B2Gold, established by Johnson and the other Bema executives, shortly after the sale of Bema Gold, shares a number of things in common with its illustrious predecessor. For one, the firm continues to be that rare breed: an exploration firm with the ability to bring mines to production. The firm took advantage of the global financial crisis to conclude a friendly merger with Central Sun

“The objective is to build another million ounce producer over the coming years...We’re in a sweet spot” Mining, acquiring its two Nicaraguan assets. One mine was already in production and the second

was subsequently brought to production

by B2Gold. A second similarity is that, with B2Gold, Johnson – a keen political scientist since his university daysmaintains Bema’s strategy of focusing on countries undergoing political and economic transitions. In this respect Colombia fits the bill nicely. The country was already in Johnson’s scope when Bema’s shareholders decided to accept the Kinross bid in 2007. Bema Gold had a letter of intent for exploration work in partnership with AngloGold Ashanti and Kinross sold the new entity, B2Gold, this exploration opportunity in return for shares in the company.

The South African gold major was already amassing a huge land bank in the country. “Hats off to Chris Loader, he took AngloGold Ashanti into Colombia at a time when we wouldn’t have gone. It was a bold decision for such a big company” says Johnson.

The Gramalote project was the result of this joint venture and, despite success in Nicaragua, if the firm’s goal of 450,000 oz/year of production is to be met, the project will be central to this success. In January 2009 the firm’s first NI 43-101

CLIVE JOHNSON

produced an inferred gold resource of 2.39Moz. But the current target zone is only the most explored area of a much wider property. Unraveling a map of the property, Johnson points to other key areas, “You have all these areas around Gramalote. We’re looking at Trinidad West, where we’ve had a lot of good results. And its only about three kilometers away, so its very easy to truck it to a mill.” The firm’s exploration success is causing it to reconsider its mine development plan. “I think that both technical groups are now starting to say “what’s the right size mine to build?” It could well end up being more than 300,000 oz/year.”

A growing resource is not the only thing the property has going for it. “The other really exciting thing about Gramalote is the metallurgy,” explains Johnson, “this is a clean ore body and the facilities needed to process it appear to be very simple. It’s too early to get into specifics, but the guys feel that, economically, this is a very attractive project.” Finally, the mine site is excellently located near existing paved roads and with none of the environmentally sensitive terrain that has led to problems for other explorers. “If you flew over Colombia in a helicopter and had to choose the spot for the first gold mine in Colombia, Gramalote would be a great option.”

B2Gold and AngloGold spent over $38 million on the property in 2011 and the total capital investment could well top $500 million according to Johnson.

With $120 million in cash flow, no debt, no hedging and $100 million in the bank, the firm remains well placed to make future acquisitions. But with the most recent move being the $160 million purchase of Auryx Gold, a firm with assets in Namibia, in November 2011, does this mean that the firm’s interest in Colombia has waned?

Johnson insists that this is not the case, the Auryx deal was “just a really good project in a country we like.” B2Gold continues to look for new projects in Colombia and there is the possibility of a further acquisition in the first half of 2012, but he concedes that things have got tougher in the country. “For a while we looked at lots of projects

$160

million

b2gold´s purchase of auryx in october 2011

B2Gold’s La Libertad mine in Nicaragua produces 90,000 ounces of gold each year

and from our perspective some of it was overpriced and over-promoted. I think the perception was that oil and gas worked in Colombia so gold mining would be plain sailing. Now we see that there are good projects in the country but many firms find themselves facing opposition from local governments or environmental groups.” Part of the solution, he says, is continued support at federal government level combined with greater local government transparency.

But providing that one example is key.

paying wages three times the average.

When floods hit the country in 2010 the firm made a $750,000 donation to help the relief effort. With AngloGold developing the huge La Colosa project in Tolima, their JV with B2Gold could provide a similar showcase in Colombia. “We have the opportunity in Gramalote to show the community and the government what a wellrun, safe gold mine looks like. The local government support has been tremendous and they want the jobs.”

When B2Gold entered Nicaragua, Johnson met with President Daniel Ortega, who had grown up in La Libertad – the site of B2Gold’s second mine – a town that had experienced the worst effects of illegal mining. “A twenty minute meeting turned into two hours,” says Johnson, “we explained every aspect in detail and received great government support. The challenge then was to deliver.” Since then B2Gold has become Nicaragua’s largest capital investor and its third largest employer,

Until then the firm will continue its two pronged approach to growth, looking for acquisitions and exploration growth.

“The objective is to build another million ounce producer over the coming years” says Johnson. Through the Central Sun Mining merger the firm received a rerating without having to undertake an acquisition at inflated prices. “We’re in a sweet spot” says Johnson. The management’s intention to do it all again seems evident in the company’s name.

Will B2Gold be the second Bema?

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jurisdiction OVERVIEW

MID-CAUCA BELT

CALIFORNIA District

A belt of Miocene-age volcano-plutonic rocks known to contain porphyry and vein style mineralization in addition to the porphyryrelated carbonate base metal gold vein/breccia systems. It lies along the Cauca-Romeral fault system, the site of a collisional suture, and appears to have been subjected to dextral transpression during the Miocene, a prominent exception to the extensional or transtensional settings of the other major intermediate-sulfidation epithermal gold deposits. Numerous gold systems appear to be related to relatively small, high level intrusions of intermediate composition.

A belt of epithermal gold occurrences of the high sulfidation type and characterized by the association of gold with silver, copper, arsenic, bismuth, molybdenum and tellurium. Most of the gold is contained within several sets of anastomosing veins and tabular breccia zones. Alteration within the vein-like structures is dominated by silica, both in the form of free quartz and as silicification, and sericite, while the host rocks are strongly argillized. The Angostura gold-silver mineralization occurs in a swarm of veins and mineralized structures.

ANTIOQUIA BATHOLITH

SEGOVIA BELT

An intrusive body of granodiorite to quartz diorite composition covering 7,221 km2 with satellite bodies occupying a further 322 km2. Mineralization is controlled by structural trends. The batholith is cut by two fault systems -one trending northwest, the other trending east-northeast. It is characterized as having lithologic homogeneity with little variation from one place to another. The normal facies have a tonalite and granodiorite composition and there are subordinate facies, one felsic and the other gabbroic.

The belt is approximately 300km long and up to 15km wide and is characterized by a large north-south elongated granitic to granodioritic batholith of Jurassic-age, intruded into Palaeozoic metasediments and metavolcanites. This intrusion, the Segovia Batholith, is genetically related to the formation of a suite of auriferous mesothermal veins. The mining districts are all related to the major north-south Otú-Pericos fault. Gold normally occurs as free microscopic grains included within sulphides.

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CHOCÓ BELT

TARAIRA BELT

The Chocó has been worked since early times with batea and calabash pans. The placers are river and bench gravels that yield abundant Au/Pt in ratios from 100:1 to 1:3. The country rocks are tertiary conglomerates, sandstones, shales and various types of volcanics and serpentinized basic intrusives. Quartz veins with gold, silver, lead and zinc are widespread at the contact zones between tertiary granite intrusives and andesites, greenstones and metasediments.

The Taraira Gold Belt is made up of a series of resistant quartz-sandstone ridges.

Deposits within this basin were derived from the Trans-Amazonian mountain range and inferred northern sources and are dominantly mature deltaic and shallowmarine sandstones. In-situ primary gold mineralization in the belt occurs along the folded ridges, which are comprised predominantly of quartz-arenite with minor mudstone/siltstone intercalations and metaconglomerate beds. The belt is a coarse gold environment.

colombia 2012

Mining Leaders

COMPANY FOCUS

norvista RESOURCES Norvista Resources Corporation Toronto Solvista (TSX-V: SVV) Caramanta & Guadalupe, Antioquia 16,300 ha under contract 80,000 ha under application Drilling to commence Q4 2011

GOLD

Calvista (TSX: CVZ) 8 titles in California belt 180 ha 4,787m completed October 2010 10,000m completed September 2011 NI 43-101 due Q1 2012

Norvista is not the sort of company to flip projects for a quick buck. Six years ago, the company’s principals financed an iron ore property in Quebec valued at approximately $2 million. In early 2011 they sold it for $4.9 billion. Given Norvista’s history of going long on key projects, its interest in Colombian gold exploration should be taken as a sign of the long-term potential of the sector.

and together they contain over 40,000 acres under title, though Solvista has applications for another combined 200,000 acres. The company’s IPO in May 2011 raised $18 million, enough money to fund the exploration program, which started in the second half of 2011. In May 2011, Kinross Gold took a 9.9% stake in the company, underscoring the potential the majors envision for Colombia.

The Toronto based firm owns a number of publicly traded mining companies operating in Canada, Mexico and Colombia.

The improving security situation and the country’s complex geology made it ripe for gold exploration and inspired the company’s 2008 entry.

Norvista approached Bob Allen, who controls the Bullet Holding Corporation, and has been in Colombia for over 20 years, over which time he had acquired a huge land bank of prospective property.

Norvista executives partnered with Allen to begin development of promising regions. “We combed through 5 million hectares and pulled out what we felt were the best projects for Solvista,” says Gerald McCarvill, chairmen and CEO of Norvista.

The resulting company, Solvista Gold Corporation, is still in the early stages of developing its two projects in Antioquia.

Its Caramanta property is 120km south of Medellin, while its Guadalupe property is 110km north of the city. Both projects were acquired from Bullet in June 2010,

At the same time Norvista snapped up 100% interest in eight non-contiguous mining titles in the California district in Santander, under the exploration company Calvista Gold Corporation. The California property has become Norvista’s most advanced project in the country.

The total gold resources contained in the California Valley are still being proven

by Calvista, Eco Oro Minerals and AUX through on-going drilling programs, but the valley is emerging to be a potentially

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significant one, with estimates by various companies ranging in excess of 12.5 million aggregate ounces of gold. Calvista has an approximate 600 meter strike length contiguous to AUX’s La Mascota project and Galway Resources’ California project. Initial drilling has shown gold mineralization and grades similar to that of the neighboring properties where, for example, Galway’s California property has shown significant gold deposits. Calvista’s second drilling phase, a 10,000 meter project, finished in September increasing the company’s understanding of the mineralization control and the potential ore body’s structure. The firm is targeting a resource calculation in early 2012.

While the prospectivity of the land package will come as little surprise to those familiar with the Colombian gold sector, the method by which Calvista has organized its California operations has been ground-

Gerald McCarvill Chairman and CEO, Norvista

“When you can take a $2 million company and turn it into a $5 billion company, you don’t have to do it too often to make money. Norvista is not a company that goes for quick flips. In four years we’ve done only four transactions and I’ve never sold a share in any of my companies.”

COMPANY FOCUS breaking. The company faced an early negotiation challenge when many of the artisanal miners who had been working the land for centuries refused to sell to either Ventana or Galway. They saw their neighbors properties had been sold for a few hundred thousand dollars to Ventana and were now assets of public companies with shares worth billions.

McCarvill acknowledges that they were understandably frustrated, “A lot of the miners held out with other companies.

So we played a fair game, went person by person, about 200 people, and helped them form an association. The association will get 30% of founding stock, plus cash, employment, rental income from surface access and two seats on the board of directors.” This unique partnership means that the miners are ambitious and involved, helping the project move forward incredibly quickly. The company says that this deal, in addition to helping their exploration, has an ancillary benefit: it is also great for them politically, since the community and other local forces are now fully engaged in the success of the project.

Calvista owns a second property, mostly undeveloped, on the south side of the valley where difficult access has limited exploration. The company believes this property is similar to that on the opposite bank and could be of a higher grade. The company envisions that all the valley properties will be consolidated under just one or two firms. AUX, the largest company operating in the region, is sure to stay, but McCarvill says that Calvista wants to be alongside them, as a long term player. Following the inclusion of the local miners, the company is looking to build its local investor base and is considering listing on the Colombian Stock Exchange.

The challenge facing the company now is the same one that faces the entire gold industry in Colombia in general, according to McCarvill, “Colombia has to start producing gold. With modern mining technology the country could regain its position as the largest producer of gold in South America.”

The local miner’s association will receive 30% of founding stock, cash, employment, rental income and two seats on the board of directors

LOCATION OF CALVISTA PROPERTIES Projects Calvista Gold Galway Resources AUX Eco Oro (Source: TSX-V)

Mining Leaders

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q&a

Cruz Mario Escobar, President Ashmont Resources Corp

Control

GOLD

From its inception the Colombian-Canadian owned enterprise, Ashmont Resources, has used its local knowledge to win options on five projects in the country. These include the Santa Cruz gold mine in Bolivar, a major copper gold project named El Alacrán in Cordoba and a platinum and gold play in Chocó. The firm is set to release its first NI 43-101 in 2012.

El Alacrán is an iron ore-copper-gold deposit. What is the potential to put such a project into production?

El Alacrán is a major copper deposit that was drilled in the 1980s.

The 15 holes of around 150 meters in depth showed an average copper content of 1.5% copper, rising up to 7% in some areas. There are several theories as to the nature of the deposit, some think it is a Volcanogenic-assisted Massive Sulfide (VMS) project, others consider it to be porphyry deposit. While the genesis of the resource is not clear, what is clear is its richness. The drilling program started in September 2011 with very promising results validating some of the historical drilling campaign as well as new potential. We think the mine will be open-pit up to 300 meters and from there we will go to an underground mine. The proximity to the Cerro Matoso nickel mine means people in the region are familiar with open pit exploration.

How would you plan to commercialize the copper?

Colombia doesn’t export large quantities of copper because there hasn’t been much long-term investment in the mineral industry. In the past, the political and security situations meant that investing five years in the future was deemed too risky. However, with current copper prices, the Colombian cost of labor and renewed confidence in the country, new projects will increase the value of the copper industry here. It would be great to have a copper smelter. It would create a lot of jobs. But at the moment that is too far down the track to consider.

Are there plans to develop the iron ore from El Alacrán?

We don’t know at this point whether the iron ore will be profitable. It is dependent on how much we find in the deposit and if we can acquire the large land package needed to develop an iron project. Our model’s focus is currently copper and gold. The next thing we will analyze is the economic viability of silver, which was discovered in the 1980s.

What about Santacruz?

Santacruz is a gold project located in Bolivar department with great potential not only because of its geological richness but also because Ashmont has an official partnership with the community, which make us very proud. We consolidated community relations and

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now we are on the middle of our geophysics campaign and are finishing the sampling campaign with great lab results. We plan to start drilling the property by first quarter 2012 What particular challenges do mining firms encounter when working in the Chocó region?

The Chocó has been isolated for years. It is an 18-hour drive from Medellin and hard to access by air. Moreover, it is a drug traffic route.

For many reasons Chocó remained behind. The few mining initiatives that have taken place in the region have made a lot of mistakes.

There are 13 Afro-Colombian communities in the region and you have to undertake a ‘prior consultation’ process to gauge whether the community is ready for your project. A good idea is to hire local Afro-Colombian leaders for your team. We have hired a prominent former government advisor to help this process, as well as the Swiss development consultancy firm BSD because they have experience in Chocó. So it’s a long process but you have to face it with a medium term mentality and understand that it takes time to build trust.

What makes the region attractive for exploration?

The advantage is that the time that you invest in this networking and social development you will gain in the mine development, because the resources are often located at shallow depths of around 40 meters.

The area is very rich geologically. Depending on the area, you have 80% platinum and 20% gold or up to 80% gold and 20% platinum.

There are no other platinum deposits in Colombia outside Chocó.

Platinum is more profitable than gold because the price is at least $200 above gold and in the Chocó the mining technique is the same.

In the clay you have free platinum and free gold. In Chocó you also have black sands – a rare earth - and you have chromite. With old and platinum productions you don’t need to connect with infrastructure.

The value per kilo allows you to use air transportation.

What can be done to improve the image of mining in remote regions of the country?

I think one important thing is to make people understand what real mining means. Most Colombians don’t distinguish it from illegal

q&a

Ashmont are constructing sewage systems in the town of Santa Cruz, close to the El Alacrán mine

or informal mining. Gold mining can provide economic activity and employment, security, roads, water and electricity to remote areas. The environmental impact of informal miners is much bigger than that of a big company that complies with international standards and undertakes reforestation projects. The government also needs to get tough on money laundering through illegal gold producing and accept that the paramilitary are involved. We need to convey the message that mining is crucial for the development of some regions. In the Chocó there weren’t mosquitoes so the land isn’t even fit for agriculture. It’s a big advantage when you have a government that understands that mining is a key way to develop this country.

What advice would you give to companies entering the country with regards to managing social issues?

In my view, many mining organizations only begin to worry about the community at the end. Mining and social development should be seen as one force working together in one direction. We made the Santa Cruz community near the El Alacrán mine a much lower cash offer than some of our competitors. But we also a partnership that provides short-term, mid-term and long-term solutions to the problems the community faces. If you spend money in the right way the impact you can have is great. People are celebrating the arrival of Ashmont.

What are your main focuses on a corporate level over the next two years?

I think we will go public, but the date has not been decided.

We are looking for partners who have the same ideas as us, meaning they want to develop the mines, put them to work and start producing gold. We are going to rely a lot on institutional investors, because the markets right now are very dynamic. We need people who view an investment over five years.

Mining Leaders

PROJECT FOCUS

RIO PESCADO David Wiley CEO Touchstone Gold

GOLD

“The Rio Pescado project has the potential to be more substantial than originally thought. We now believe that it is a multi-million ounce property. We are approaching the project in a wider, holistic manner. We continue to look for suitable properties and look forward to releasing our assay results.”

Touchstone Gold (AIM:TGL) Segovia Gold Belt 6,800m Phase 1 drill program 1,000m per month in 2012 When Bob Buchan, founder of Kinross and Allied Nevada Gold Corp, visited Touchstone Gold’s Rio Pescado project in the Segovia Gold belt, he saw potential for a larger operation. Touchstone’s founders, Ilyas Khan and Colin Andrew, who is now CEO of Sunward Resources, had begun with the intention of finding a small ore body capable of producing 15-20,000 oz/year. The company focused its drilling on the Las Pepas and Filodehambre targets, defining an in-house resource of 150-200,000 oz, through 118 shallow holes of between 60-80 meters. Khan and Andrew then turned to Canada to find a partner to help develop the project.

On viewing the project, Buchan took note of the huge quartz boulders that were strewn across the company’s 39km² property. These boulders all contained gold and he took that as a sign that the Las Pepas target was part of a larger plumbing system. The project’s scope was quickly adjusted and now Touchstone is targeting a

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multi-million ounce resource. Buchan hired Dave Wiley as CEO and John Nicholson as Chief Geologist. The new management team set about laying grid lines across large tracts of the property, collecting soil samples and initiating geophysical surveys along the grid. When the IP Chargeability study was undertaken, new regions of the property showed great potential, giving the impression of multiple highgrade parallel structures at shallow depths. The firm has since increased the drilling program on the property.

In the first two years of the project 6,000 meters were drilled. In August 2011 the firm hired Energold to drill an additional 1,000 meters per month to a depth of 150 meters, interspersed with regular deeper holes. As drill results begin to come in, the firm will be conducting surveys on the remaining Pepas main drilling zone

areas of the property. There will be infill drilling at Las Pepas, with holes of up to 400 meters. According to Wiley, the company’s approach is to “strategically drill our property to prove the multimillion-ounce potential that we think is there.”

As the firm continues to develop across the Segovia Gold Belt it is also open to new acquisition opportunities. In June 2011 the firm raised £10 million through an IPO on London’s AIM. There is a strong possibility that the firm will make a dual listing with the TSX-V. With cash in the bank and an experienced management team, Touchstone Gold is establishing itself as a key member of the growing body of junior exploration companies making the big plays to identify resources in this under-explored country. filodehambre drilling zone

Grade (g/t Au)

Length (meters)

Depth (meters)

Grade (g/t Au)

Length (meters)

Depth (meters)

9.51

11.8

From Surface

2.33

10.2

From Surface

9.05

6.0

From 1.5

2.21

11.5

From 3.5

5.97

18.0

From 11.0

7.34

8.3

From 7.6

5.03

12.0

From 13.7

3.73

8.7

From 9.5

24.08

24.08

From 14.8

9.08

3.1

From 15.0

OF PARAMO IMPORTANCE In February 2011 a new word entered the Colombian political lexicon. The catalyst was a protest in the streets of Bucaramanga, petitioning the government to deny Greystar Resources a mining license in Santurbán, less than 50km away from the city. The protest achieved its goals, in the same month Colombia’s new Mining Code was approved, forbidding open pit mining in páramo regions. The question for many observing the situation in Colombia and Canada, was ‘what exactly is a páramo?’

Simply put, these unique Andean highland ecosystems are defined by their flaura and fauna and also by elevation. They are a source of many of the country’s rivers and account for 70% of its drinking water. Greystar were refused permission to mine above 3,200 meters. The firm were forced to abandon their proposed open-pit mine at the 11.5Moz gold deposit. Following the decision the firm replaced its board and renamed itself Eco Oro. The redesigned underground operation is set to produce around 1.9Moz of gold and 7.7Moz of silver over its 14 year mine life. The controversy of the Greystar case resulted not only from a lack of understanding of páramos but also from conflicting paragraphs of the Mining Code. Article 34 of the Mining Code establishes that páramos are excluded from any type of mining exploitation. However, the article also says, that these zones should be geographically demarcated by the environmental authority based on technical, social and environmental studies. Santurbán is a páramo, but it had not been demarked as one.

Assessments of the case have been mixed. Some have sympathy for Greystar given that the rules of the game were changed late in their exploration stage and have questioned the thinking behind banning projects based on elevation.

Others think the firm was naïve for believing that the project would be ‘grandfathered’ by the Colombian government and be allowed to operate despite the Mining Code. Most importantly, the case tested President Santos’ stance on mining and the environment. Santos has stressed the importance of maintaining the country’s fabled biodiversity but has also placed mining industries as one of the key cornerstones of the country’s development. While the two are not mutually exclusive, the weight of public opinion made ruling in favor of the mining firms politically impossible.

Mining Leaders

q&a

Batholith

Rick Thibault, President, CEO Antioquia Gold Inc

Bound

GOLD

With its Cisneros project, located in the Antioquia Batholith, Antioquia Gold has an advanced gold exploration project in Colombia. Following the acquisition of local firm Ingeniería y Gestión del Territorio in October 2009, the company has six additional projects in the Middle Cauca belt with a total area of over 32,000 ha. As of November 2011, Antioquia has a market capital of over $20 million.

Exploration at Cisneros has focused on 10% of the project’s 5,600ha. When will the property go to production stage?

In early 2012, depending on equipment availability and government permits, we will begin mining two exploration tunnels. This will give us grade control and an understanding of the rock mechanics. It will bring us all the information we need to go towards production. The environmental impact assessment for this 10% has been done and the social studies are being done, so we’re hoping to go to production within a year or 18 months. We will start modestly with a 350-500 tons/ day plant, depending what the grade is. We could be looking at production of 25,000-35,000 oz/year. The geology team is now working on getting a resource number that is large enough to justify the tunnels and the next steps forward.

What are the latest exploration developments for the remaining 90% of the property?

We have had a team working on the rest of the property since April 2011. It represents nearly 5,000 ha that we had never looked at before. So we hired an airborne geophysics company and, from their work, we were able to define six new targets. We have investigated two of them that are now ready for drilling and the program should be implemented by the end of 2011.

The Cisneros region has a long history of artisanal mining.

What are the advantages and disadvantages of the area?

The community’s experience and the infrastructure are the advantages. There is a highway to the Atlantic ports, a major power line, and an oil and gas pipeline so we have access to all the energy we need. We’re just over an hour from Medellin, the mining capital of the country. I don’t see any major disadvantage.

We do an annual report about the socioeconomic situation and a census to know how the community perceives our presence.

In 2010, 92% of the people accepted us. The workforce has never seen modern mining but they are hardworking people.

From our statistics, 50% of the population is under 30 so we are focused on education issues because it’s our future workforce.

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What benefits does Antioquia Gold receive from its partnership with Peruvian firm Desafio?

Desafio is the exploration arm of Consorcio Minero Horizonte, the second largest underground gold mine in Peru with a production of 200,000 oz/year. They approached us through a Canadian bank. We have never wanted Cisneros to be a joint venture, so they decided to invest in the company instead. They entered the capital into the company in 2010 and after our second financing round, their ownership rose to 35.5%. They now have two board members out of seven and they supply us with technical expertise.

We signed an agreement on technology transfer. Desafio has 30 years of experience with this type of deposit, meaning we will reach production faster.

Do you have plans to develop projects in the Middle Cauca belt?

There are six projects. We have sent geological teams to each one.

Two we are exploring ourselves and in the four others we are in talks with other companies to maybe do a joint venture. I don’t think the markets have given us value for those extra 32,000 ha we have in the Cauca belt so we signed a letter of intent to form a joint venture on two of the projects with a private firm to bring attention to those assets. In a JV partner, we’re looking for a company that is well funded, has a good management team and an understanding of the country, who are ready to work now. We have found that with the private company Trident Gold Corp.

There are companies that are just listed on the TSX, buy a property and try to make their stock go up with announcements, and others that are here for the long term. We are here to stay.

In recent months the security situation has worsened. What precautions should a junior firm take?

Anyone working in Colombia should have a security chief. That’s fundamental. If you hire a security person they will know where the trouble spots are. In the Cauca belt we’ve been proactive rather than reactive, we sent our security people to check that they were no problems. If the military tell you not to go, you shouldn’t go, but I know companies that will still go.

company focus Mark Lawson President & CEO

Auro Resources

company focus Yannis Banks CEO

Quia Resources

PROFILE: Vancouver based junior explorer building a large property portfolio in the Antioquia department and the California district. They have a land package of 69,000 ha and are listed on TSX-V under the symbol ARU.

PROFILE: Canadian exploration company founded in 2007 focusing on the San Lucas region in the Bolívar department. San Lucas is amongst the most underexplored and prospective gold regions in the country.

PROJECT: The El Tesoro project is located 20km from B2Gold’s Gramalote gold deposit. The 828 ha property was acquired from Minerales del Puerto in early 2011. The firm has other targets in Tolima and Norte Santander.

PROJECT: 100% owned 7000ha San Lucas Project. 150 people live locally, 30 of whom are employed with Quia.

The firm provides support to the community in the areas of health and education.

EXPLORATION: Auro hired local exploration firm GeoXplore. An initial drilling program at El Tesoro will begin in Q4 of 2011. GeoXplore have previously worked in discoveries at La Colosa and Gramalote.

EXPLORATION: Geophysics and soil sampling were completed from 2010 to 2011.The company began a two rig, 5000 meter drill program in June 2011, focusing on the La Colina, La Rueda and La Durmiente targets.

INFRASTRUCTURE: El Tesoro is adjacent to Highway 62, there are power lines running through the property and the project benefits from the work already done in the area

by B2Gold and Anglogold Ashanti.

INFRASTRUCTURE: Very poor infrastructure. The closest city, El Bagre, is 35 km away. All exploration is currently being completed with helicopter support.

M&A: In July 2011 Auro acquired White Gold Corporation, a firm with 35,000 ha of titles in Norte Santander near AUX’s La Bodega project and 30,000 ha in Tolima , a gold-copper porphyry district.

MARKET: “Colombia has become the place to be, however there has been an inflation of property prices. But for the companies that have gained experience, have strong operating teams on the ground, and good properties, there is still a ton of opportunities.We’re just starting.”

MARKET: “Currently there’s a land grab in Colombia and we see a correlation between company valuations and the size of land package. We’ve moved from an area code to a land package strategy. We have diversified geographically.”

STRATEGY 2012: “Our objective is to make a discovery and define a multi-million ounce resource. That’s what we think we have at San Lucas in the south of Bolivar; it could be another major gold district.”

Mining Leaders

q&a

Searching Timothy Russell, President & CEO, Trident Gold Corp

Segovia

GOLD

Trident Gold Corp was incorporated in June 2010 after more than two years of investigative work by the company’s founders. The company has made an aggressive entrance into the Colombian gold mining sector, rapidly acquiring a very large and highly prospective portfolio of properties in the department of Antioquia.

The company has a permanent presence in Medellin. A listing on the TSX-V is anticipated in Q1 2012.

What sparked Trident’s interest in the Colombian gold sector?

Our team, a highly experienced multi-national group, has had extensive involvement in Colombia over many years. Colombia is an extremely underexplored country with significant prospectivity for gold. Over the last ten years the country has emerged from social disorder and conflict making it possible for industries such as the gold sector to develop. The expansion of the oil sector provides a great example to the industry.

What properties do the firm own?

Trident has a portfolio of close to 200,000ha of claims in northeastern and eastern Antioquia, and in the Middle Cauca porphyry gold-copper belt. Marquesa is a joint venture with Grupo de Bullet consisting of over 139,000has of semicontiguous claims divided into four projects on the eastern margin of the Antioquia Batholith, straddling the Palestina fault and the contact zone with the Cajamarca Metamorphic Complex. After carrying out reconnaissance on less than 5% of the area in November 2011, multiple targets have been identified. Sampling and field work show bonanza grade results of up to 434g/t Au and extensive disseminated gold in Gramalote style sheet vein and stockwork mineralization. The AngloGold B2Gold Gramalote project is located 3km south of Marquesa. The Segovia Project is a 36,000ha collection of claims in northeastern Antioquia distributed around the historically prolific Frontino Gold Mines. First phase regional exploration, which includes stream sediment sampling and airborne geophysics has been completed on Segovia, providing many anomalies for follow-up in early 2012. Concordia is a joint venture with Antioquia Gold consisting of the Concordia and Caicedo properties, totaling 17,500ha, in the discovery rich Middle Cauca belt. Multiple targets have previously been defined by Antioquia Gold. These targets lie in very close proximity to Sunward’s 8Moz Au Titiribi project and Continental’s bonanza grade Buritica project. It must be noted that proceeding with this project is dependent upon a

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renegotiation by Antioquia Gold of a back-in right held by the former claim owner, a mining major, currently underway.

What is the exploration program on each of your titles?

At Marquesa detailed mapping, soil geochemistry and ground geophysics will be utilized on the Mangala and Floresta targets to further define discovery drill programs. We aim to have a diamond drill turning on these targets in the middle of 2012.

We have commenced a regional stream sediment sampling program and 3,500 line kilometers of airborne geophysics to continue building a pipeline of additional targets. It is a huge land position, with potential for yielding multiple discoveries.

In Segovia, the last weeks of 2011 are being used to rank anomalies generated from the 2011 regional exploration program. Exploration phase two, commencing January 2012, will be to follow up with detailed ground exploration work including soil geochemistry sampling grids, and ground geophysics to test these anomalies and define drill targets. We aim to be drilling in Segovia at the end of 2012.

Trident raised $5.25 million in December 2010. What further financing does the company plan to carry out?

We are planning an IPO on the TSX-V in early 2012, to fund an aggressive drill program on multiple targets.

How have investor attitudes to Colombia changed?

Over recent years Canadian investor participation in the Colombian gold sector has been strong. However I think that we are in the early stages of this boom and there is room for stakeholders to further promote the Colombian mining sector, especially now that Colombia is such a stand out Latin American country in terms of business and many other areas.

What are the key challenges facing Colombia if the country is to achieve its maximum potential in gold production?

To tell you the truth, the key challenge facing the industry is the first mine. Someone has to get that first mine permitted

and get it from development into production. Letâ&#x20AC;&#x2122;s hope that whoever does it first does it right because it will have an impact on the rest of us.

are pretty basic - be transparent and treat people with dignity and respect. It is a pleasure for Trident to be an early stage participant in the development of the modern Colombian gold mining sector. We have huge respect and great appreciation for the people of Colombia who are building a bright future for themselves and their country, especially that immense majority that toils day in day out, in often-difficult conditions, but always with dignity. We hope that we can play a significant part in that endeavor.

To what extent do you think administrative changes in the Colombian mining sector can ease recent problems with the licensing process for titles and environmental permits?

Whilst details are yet to be defined, we believe that the changes that the Ministry of Mines & Energy have outlined will prove â&#x20AC;&#x153;Colombia is extremely to be very positive for the sector. We fully underexplored and there are support their intentions and look forward to their implementation. many good value opportunities

Do you think the mining sector in Colombia is ready to meet the growing demand of junior explorers?

To date we have been able to source still available in country. We You are operating in an area with a the services we need. We have worked history of traditional mining. What is are extremely excited about our with MPX Geophysics for our airborne future here.â&#x20AC;? your approach to local communities? geophysics and KTTM Geophysics to Colombia is famous as a gold producer, provide technicians for stream sediment and communities across the nation depend surveys. For laboratory analysis we are upon small-scale artisanal mining. Colombia is also a country using ACME. At this stage the technology providers tend to with a proud history of environmental awareness and protection. be the internationals who can mobilize quickly for a project.

We recognize that people everywhere have their own unique needs and wants and concerns and anxieties about change and Are you looking for more acquisition opportunities and the unknown. Our challenge is to ensure that the change that which areas in Colombia are you looking at? Would you we bring is aligned with the needs and wants of the community consider projects for other minerals? and we clearly address the concerns. When entering a new area We have a substantial portfolio that will keep us very busy and engaging and participating in a new community, we hold a over the next 12 months, however we will consider high lot of community meetings and carry out extensive door-knock value accretive acquisitions if they are identified. Colombia and information programs. We speak to community leaders, is extremely underexplored and there are many good value both elected and those natural leaders and opinion makers opportunities still available in country. We are extremely that are found in communities everywhere. The fundamentals excited about our future here.

Mining Leaders

79

leader insight Andy Rendle VP South American Operations Cosigo Resources

Having grown up in Colombia, Cosigo’s Vice President of South American operations, Andy Rendle, is familiar with the issues facing the mining industry operating in the country.

Operating in Vaupés with the Taraira gold project, Rendle’s experience has become essential in establishing good community relations and sustainable mining practices.

Cosigo is listed on the TSX-V as CSG.

GOLD

It’s a Jungle out there

B

etween 1998 and 2003, when the Colombian war was at its most difficult, the government began to promote three mining projects of national interest. One of these projects, Taraira, was in Vaupés.

At the time the Colombian government was deeply concerned about the integrity of its borders both due to illegal activity and out of the fear that remote areas might secede to other countries. Developing the border areas became a key strand of Plan Colombia and Comcel began erecting cell phone towers to connect towns with only 100 inhabitants. It was clear that any project that could bring development and security to the region would receive state backing. In 2007 Cosigo Resources beat other bidders to take a 100% stake in the Taraira project.

Yet the situation in Colombia means that even with good practices, mining firms can still face significant challenges from government bodies and NGOs. The rules are often subject to change. Previously, when working in the 58% of the country that is forestry reserve, environmental permitting was necessary for advancing projects from feasibility. Now temporary licenses are necessary for exploration activities. It took us three years to do our own forestry The Taraira Gold Belt is made up of a series of resistant quartz-sandstone ridges reserve study. Additionally, after we were straddling the Colombian-Brazilian border. These ridges, many of which stretch for awarded our licenses, a major park was tens of kilometers, stand just 100 meters above the surrounding lowlands. The area we set up surrounding our properties with won for the Taraira project is 9,900ha and we took an additional 35,000ha around the one of our titles actually falling within the project, giving us a strike length of around 20km. The ridges themselves have a potential boundaries of the park. Our Taraira South hematite outcrop about 100 meters wide in most of the area. Every 3-5 km it expands to title, located in the southern most corner, about 600 meters in width as the north-south takes up just 0.3 % of the park’s area. If not ridge is intercepted by an east-west one. mined formally, there will be an increase In these areas the Colombian government in the illegal mining in some of the areas. indicates multiple gold occurrences. In the “It needs to be remembered that We’d prefer it to be mined formally and if late 1990s Ingeominas drilled 12 holes in that mine can help finance the park, all the one of the best ways to fight the area and six turned up signs of visible better. It needs to be remembered too that environmental degradation is gold. They recorded 43 tons of gold in the one of the best ways to fight environmental employment.” area, but they believed the figure could be up degradation is employment. In the region to ten times that amount in the whole range. there are around 20 native communities.

In an extremely poor area, there are few When operating in an area like the options for formal employment and many Amazon limiting your environmental of the young people end up working in impact is crucial. We’ve been undertaking Colombia’s drug trade. All the communities on the north side of the River our geochemical studies using Mobile Apaporis support our project, but opposition from the three groups on the south Metal Ions (MMI). More than 5,000 MMI side of the river has led to delays for our Taraira South project. samples have been completed on the Machado block with this system which has One of the industry’s biggest problems is the disconnect between government a very low environmental impact. Likewise institutions. When we approached the Ministry of Mines for help in the permitting we use reverse circulation drilling which process it became apparent that they had no connections with the Ministry of removes the need for platforms and water Environment. I believe that it is important for junior firms like Cosigo to disclose supply. In addition, our area may not even the issues we face when working in Colombia, regardless of their affect on stock require any chemicals to separate the gold price. Only by acting together and forming a coherent dialogue can we explain to the from the quartzsand, perhaps 87-95% Ministry of Environment and to a wider audience that small scale, targeted resource can be separated by gravity alone. For our projects can help develop isolated regions. In addition to providing jobs, they can help workers we provide one of the most generous fund environmental protection or regeneration projects in other areas and bring state employee purchase program on the TSX. presence to areas previously prone to drug activities.

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company focus Volkmar Hable President & CEO

Samaranta Mining

company focus Simon Noon Director

West Rock

PROFILE: Vancouver based Saramanta Mining owns a number of early stage exploration projects in the Segovia gold belt, near Frontino Gold Mines, the largest underground producer in Colombia.

PROFILE: Australian junior exploration company founded by a team with experience working for major gold firms.

Interested in early-stage Greenfields projects, with a focus on rapid development. Colombia is the company’s priority.

FLAGSHIP PROJECT: Guadalupe is located 140 km northeast of Medellin in a well developed area with good road access. The concessions cover a total area of 785ha and are immediately north of Frontino Gold Mines.

PROJECT: Current priority is to secure high potential land with gold and particularly copper porphyry systems, ideally with a 100% ownership stake. 12 projects under review, focusing on but not restricted to Santander.

OTHER PROJECTS: Near to the Guadalupe project the firm holds the 5,600 ha Manila property. It also has applications for the Santa Lucia and San Carlos properties. The latter has been identified as a copper-gold prospect.

FINANCE: Strong investment base in Australia. The company is currently private but following the successful acquisition of a project will look to raise several million at seed and then $810 million at IPO on the Australian stock market.

CHOCÓ: In October 2011 Saramanta signed a letter of intent with local authorities to acquire a 200,000 ha Novita mining title in the unexplored Chocó region. If approved it will be the largest mining contract in the country.

MARKET: “Although the TSX is very liquid for Colombia at the moment, we expect to see more interest for Colombia on the Australia stock market over the next year. First investors need to see changes with the licensing progress, increased efficiency and an end to speculation. The economic stability of Colombia is attractive and that needs to be maintained.”

CHALLENGES: Chocó is very poor and remote.

Infrastructure is practically nonexistent, and the region is one of the last strongholds of the FARC. Companies need a strong security framework and close cooperation with the army.

MARKET: “Most companies are focused on the Middle Cauca and California gold belts, trying to emulate Ventana and AngloGold Ashanti. Colombia has never granted an open pit license so our model is hard rock underground mining.”

AUSTRALIAN PRESENCE: “Traditionally Australians are conservative when it comes to investment but Austrade are opening doors here. While there is still a lot of potential in Australia, all the ground has been bought up. In contrast, Colombia is underdeveloped. Australian mining techniques and practices will benefit the country immensely. If Australia establishes a presence here, other countries will follow.”

Mining Leaders

COMPANY FOCUS

mineros Beatriz Uribe President Mineros S.A.

GOLD

“Mineros has great technology both in alluvial gold production and environmental restoration, an area that is indispensable in modern mining. We are entering a new phase of growth, expanding to Latin America.”

Mineros (BVC) Antioquia, Caldas, Tolima , Bolívar $65m 2010 Profits 120,000 oz 2 011 Estimated Production Local firm Mineros S.A. is Colombia’s leading producer of gold and the only mining firm listed on the Colombian Stock Exchange (BVC). The company made its name, and its money, through the development of large scale alluvial projects in El Bagre, in northeast Antioquia. The firm owns five production units, each consisting of a suction dredge to disturb alluvial deposits and a bucket wheel dredge that processes the material.

Alluvial deposits have a low gold content of approximately 130 mg/m³. As such, efficiency is crucial and the firm processes up to 22 million cubic metres of material per year. Following the revamping of some of the production units, the firm posted a 49% growth in gold production in the first quarter of 2011 compared of the previous year.

insecure and the main challenge, according to Beatriz Uribe, the firm’s president, was simply survival. In recent years, however, Mineros has flourished, becoming the second highest valued stock on the BVC. With an anticipated 25,000 oz to come from the Zaragoza project, the firm aims to hit 120,000 oz/ year production in 2011.

The firm has a further ten hard rock projects in the exploration stage across the country. These include Nechí, a project located 70km to the north of El Bagre with an expected production of 30,000 oz/year. A feasibility study on the project will be completed in mid 2012. Using international operations standards, the firm has positioned itself as a mid-sized gold miner, with a niche in alluvial projects. Mineros has invested large sums recuperating the

rivers and adjacent lands they operate in, giving them to local communities for agriculture and fisheries. The move into hard rock projects has opened new doors. The firm announced a target of 500,000 oz/year production by 2020, of which around 35% will come from alluvial operations. The firm is improving a hydroelectric plant near El Bagre to 18MW capacity, to meet its own power demands and sell surplus energy to the national grid.

The company also wants to expand to new Latin America countries, targeting projects with the potential to produce over 30,000 oz/year over a period of ten years. Acquisitions are a possibility, but the firm will also look to establish partnerships with junior and medium firms, providing the capital and expertise they need to develop their projects.

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The Q1 figure was also boosted by a significant new project. Production from Mineros’ first hard rock mine, in the Zaragoza region, south of El Bagre, marked a milestone for the company.

For much of the 1990s and early 2000s the region around El Bagre was highly

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LEAD ARTICLE

BASICALLY IGNORED While investors have flocked to explore gold in the country, the base metals sector has remained unexplored, undeveloped but highly prospective. Colombia produces 4% of the world’s nickel but is almost totally absent of copper production, due largely to the decline of the El Roble mine. However, as new resources are developed and Colombia’s excellent geographical position is being recognised, it could be the start of a new rush in the base metals market.

The ‘Ring of Fire’, which links the Pacific Islands and Asia with the Pacific coast of the Americas along tectonic plate boundaries, is home to nearly 500 volcanos and is the site of 90% of the world’s earthquakes. The same geological conditions have also led to the creation of the world’s largest porphyry systems and attracted its biggest mining projects such as Freeport-McMoRan’s Grasberg gold mine in Indonesia. Colombia finds itself positioned within the Ring of Fire just north of the world’s two largest producers of copper, Chile and Peru, but its production of base metals is still tiny.

The one world-class base metal project that the country has developed is BHP

Billiton’s Cerro Matoso mine in the department of Cordoba. The enormous project, which has been in operation since 1982, boosted ferronickel production by 80% in the decade leading up to 2009 and now produces an average of 50,000 tons/year, equal to 4% of international supply. Nickel is used in a variety of different products, including magnets and coins, but mostly in the production of stainless steel. With BHP reporting 23Mt of proven ore reserves at 0.2% nickel, the Cerro Matoso mine has many years of life left ahead of it.

BHP’s contract to operate Cerro Matoso is likely to be renewed when it expires in 2012 after the firm agreed to pay $19.6 million of unpaid royalties in August

2011. Although other nickel deposits have been identified in Cordoba and Antioquia, there have yet to be any other proposals to develop them. Nevertheless nickel production was responsible for the vast majority of the estimated $1.5 billion of total revenues in the Colombian base metals sector in 2010.

Perhaps the most notable absence from Colombia’s base metal production, given its illustrious Andean neighbours, is that of copper. With prices jumping from $2,000/ton in the early 2000s to $10,000/ ton in 2011, the red metal has been a major source of import revenue for Chile and Peru. But copper production in Colombia is falling in tandem with Mining Leaders

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LEAD ARTICLE

$1.5

BILLiON Total Revenues Of the base metals sector in 2010 Companies are just starting to see the value of base metal exploration

the decline of its only major established mine, that of El Roble in Chocó. Originally a JV with Japanese firms Nittetsu and Itochu, the mine began production of copper concentrates averaging 4.4% Cu at a rate of 14,000tons/year with exports heading to Japan. Following the departure of both Japanese partners in 1998 production dropped. However, in January 2011, Atico Mining Corporation signed an option agreement to acquire a 90% interest for staged payments of $2.25 million over 24 months with an additional final payment of $14 million.

However, with most of the current gold exploration in Colombia focusing on the Au-Cu porphyry deposits of the Middle Cauca valley, the country’s copper reserves have been increasing. DANE, the government statistics agency, reported that 103,000 tons of the metal were discovered in 2008 and a further 50,000 tons brought to book in 2009. In September 2011 Sunward Resources’ NI 43-101 on their Titiribí gold project reported an inferred copper content of over 290,000 tons. Bellhaven Copper & Gold’s La Mina property, just south of Titiribí, contained nearly 127,000 tons of copper at an average grade of 0.31%. In the California district too, major projects such as La Bodega owned by AUX show strong copper contents. But while copper looks set to become an important by-product of some of the country’s major gold projects, other firms are developing projects which have copper as a primary target. Many of these efforts are focused around the same region of the Chocó that hosts the El Roble mine.

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In the mid 1970s soil and rock sample studies undertaken by Ingeominas identified a number of anomalous copper zones in the Chocó. Sunward Resources gained 100% rights to the nine concessions that make up the Mande Norte project and straddle the departments of Antioquia and Chocó.

Other projects in the region include Rugby Mining’s La Comita project and Colombia Mines Corp’s El Dovio project. Most of these projects are still in the early stages of development.

In Antioquia, CuOro Resources are developing the Santa Elena Project with a targeted copper resource of one billion pounds.

As with other natural resources, the two greatest challenges that have inhibited the production of base metals in Colombia are security and

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infrastructure. While improvements in the former have been well documented, transportation options for large volumes of base metals remain a problem.

Additionally, there are no smelters for copper and it remains to be seen whether there will be sufficient volumes of by-product copper from gold projects to make one economically viable.

Finally, the royalty rate of 5% gross, or “boca del mina” in local parlance, has been an impediment to the growth of the industry. “Most base metal mines have a hard time sustaining more than about 3%,” says Bob Carrington, President of Colombian Mines Corp.

However, in the southern department of Putumayo, B2Gold’s Mocoa CopperMolybdenum project has a recorded 306Mt of 0.37%Cu. The firm’s CEO Clive Johnson told Mining Leaders that the firm was considering forming a separate company, potentially named BMetals, to identify new base metals opportunities in Colombia with Mocoa as the first asset. It could be the start of a new rush.

NICKEL PRODUCTION BY COUNTRY IN 2010 (000s Tons) (Source: CRU)

Mining Leaders

q&a

FROM CERRO Robert Carrington President, Colombian Mines Corp.

TO HERO

BASE METALS

Robert Carrington spent much of the 1990s jumping from helicopters to undertake geological studies, often in FARC-held territory. Colombian Mines Corporation is the exploration company that leverages his in-country experience. Since 2005 the firm has acquired 300,000 hectares of titles with around 75 potential project areas. The company’s flagship projects are Yarumalito, El Dovio and Cerro de Cobre.

In your 20 years in Colombia, have you ever seen a boom like this?

No. Other sectors, such as the oil industry have had booms, but this is the only time there’s been a boom like this in the mining sector.

Colombia is a tremendously rich country. Its mineral endowment would probably rank it in the top 10 -15% in the world. Prior to the big mines in South Africa, Colombia had produced 35% of all the gold that mankind had ever produced. It’s truly one of the world’s great gold-producing regions. But despite this history, there’s still a lot of low-hanging fruit for gold companies. Colombia is like Nevada was around 1950. With the onset of violence, much of the mining expertise in the country left. When Alvaro Uribe was elected president, he set the country on course to change the entire security profile, which was very successful. He was the one man who helped lay the groundwork and put Colombia on the course to attracting the interest the world has in it today.

projects which have a good mix of metals. They have three to five grams of gold on average, 2-3% copper, 2-3% zinc, and maybe an ounce of silver. The big advantage is that if the gold goes down, the copper certainly goes up. You’ve got a nice mix of elements that makes for a very long-term, stable mine life.

Can you tell us about your Cerro de Cobre copper project?

Cerro de Cobre is located in the Chivor-Gachala Mining District, about three hours by car from Bogota. The area is covered by 283 ha of contiguous mineral contracts. Although no copper production has been recorded there is a tradition of emerald production.

Why is the company focusing on the Yarumalito and El Dovio projects?

Those were both projects I had worked on in the 1990s. Right now, Yarumalito is our flagship property. It is a very large gold porphyry system, which has tremendous potential to develop many millions of ounces. It is also a high-grade deposit with an almost vein-like structure. We’re drilling 24 hours a day, with four drills, and we quite possibly will have a fifth drill by the end of 2011. That’s where we’re spending the bulk of our money right now. However, with the grades and the metal endowment we see at El Dovio it could easily surpass Yarumalito very fast. It’s high grade, it looks like a fairly large system, and we’re seeing mineralization over a very long strike length. We just started where we knew there was mineralization and we keep stepping out and finding more and more. We hope to obtain our environmental permit and begin drilling the property at the end of the year.

Why is copper production so low in Colombia? And what is your opinion of the base metals sector in general?

There are a couple of reasons for low copper production. The first is that there are no smelters. If you produce copper in Colombia, you have to send it offshore. We need to come up with a method of producing electrolytic copper in Colombia that could go into some kind of copper fabrication facility. The second issue is that royalties are very high on copper, at 5% gross. Most base metal mines have a hard time sustaining more than about 3%. The government should take action on this, because many of the big deposits on the Middle Cauca belt are also going to have substantial by-product copper. Colombia could actually become a very substantial copper producer in the near future if it takes the necessary steps to modify this royalty schedule and if we can get a smelter established. Around our El Dovio project there are existing

What challenges has this increase in investment interest brought to the mining industry?

The government told the world that Colombia was open for business, but I don’t think they realised that the world believed them. There have been major problems in the application process for mining titles, and they are currently about 19,000 cases behind.

There is also a problem with the ability of the authorities to execute drilling permits in a timely fashion—it routinely takes me three months to permit a drilling program in Colombia that I can permit in Nevada in two weeks. These are the kind of slow-downs that kill you in a public marketplace, because your investors don’t understand the bureaucratic obstacles. Colombia is a great country to work in; it has unbelievable potential, but the administrative bureaucracy has to be streamlined and really focused so it’s all in black and white and that everything’s transparent.

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COPPER NICKEL IRON

Mining Leaders

CUORO

company FOCUS

RESOURCES

Robert Sedgemore President & CEO CuOro Resources

BASE METALS

“Barranco de Loba for most other explorers would be a flagship project in itself. For CuOro, this is just the sweetener. Santa Elena has the potential to be a world class copper project. Hudbay Minerals’ investment is a recognition of the value and the potential of the property.”

Cuoro Resources (TSX-V:CUA) Antioquia Batholith 1287.5ha gold and copper project 27Mt of 1.88% Cu historical resource “It’s basically a wall of metal all the way down,” explains Bob Sedgemore, flicking through a slideshow of a large mineralized outcrop on the Santa Elena project. Formerly a mining specialist at the International Finance Corp and a chief engineer at BHP Billiton’s Minera Escondida, the world’s largest copper mine, he knows a thing or two about the red metal. Having formed a capital pool company, Sedgemore found a project in one of the lesser explored countries in the ‘ring of fire’ that links the porphyry copper deposits in Chile and Peru to those in western Canada.

The Santa Elena property lies 140km northeast of Medellin. Working with an historical resource of 27Mt of 1.88% Cu established by Noranda Mining, CuOro are working on a high grade VMS system with a potentially huge porphyry located at depth. The firm’s geologists believe that the massive sulfide bodies were formed when a late magmatic emanation forced the sulfides up through existing faults. CuOro’s exploration program got off to an

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exciting start. The first channel sample results were promising, containing an average weighted grade of 2.53% Cu over 41.66 meters. The discovery of these grades led the firm to upgrade its drilling program, commissioning a more aggressive diamond drilling program on the property. CuOro decided to add an additional two rigs and stepped up the budget from $9 million to $14 million.

From the first six drill holes the firm recorded 40 meters of 2.28% Cu and 10 meters of 5.32% Cu. The 170 meter long Knapp tunnel, constructed by local artisanal miners, shows strong sulfide mineralization over 50 meters below the surface. In October 2011 an airborne magnetic survey covered 352 line kilometres, identifying new anomalies.

Given the promising evidence of the high grades continuing at depth, CuOro is aiming to book over a billion

pounds of copper before conducting a feasibility study in early 2012.

With strong surface copper mineralization, it seems possible to bring the project to production relatively quickly. With a 15% stake in CuOro, Hudbay Minerals, the established experts in VMS deposits, will provide vital knowhow to the project. CuOro has also begun its social and environmental baseline studies in the region and has created jobs for 40 local residents. In August 2011 the firm also used its option to acquire 100% of the Barranco de Loba gold project in the Segovia gold belt. Located in an area with five centuries of continuous production, the preliminary mapping has highlighted 26 vein structures on the property with a mineralization suitable for a bulk-tonnage low-grade target.

SANTA ELENA MINERALIZATION

(Source: CuOro)

PIG-HEADED The Colombian pig iron and steel industry has never been a major part of the economy and in recent years production has been in decline. According to government statistics iron production in 2002 was a modest 688,000tons, dropping to just 77,000tons in 2010 as major projects underwent renovations.

However, following strong investment in the hydrocarbons and infrastructure sectors, demand for ferrous metals inside Colombia is growing fast. In 2011 an estimated 2.9Mt of ferrous metal products were imported, compared to 1.6Mt in 2009. As demand increases, interest in the domestic ferrous metals sector has been rekindled.

The countryâ&#x20AC;&#x2122;s heritage player in iron and steel is AcerĂ­as Paz del Rio, a former government enterprise that was purchased by Brazilian firm Votorantim in 2008. The firm invested $40 million to upgrade the plant in 2010 but despite initial plans to produce 700,000 tons of steel by 2014 the firm found itself heavily in the red in 2011 due to a rise in raw material costs and a slowdown in infrastructure projects due to the winter

rains. Nevertheless, there were rumors in June 2011 that the firm had begun studies with a South Korean firm to construct a new pig iron facility in Colombia.

However, the biggest news came from a predictable source. Following the success of oil firm Pacific Rubiales and the establishment of Pacific Coal, the development firm Blue Pacific announced that its new iron company would begin producing pig iron from

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a plant in Cundinamarca in 2012. With an initial production scheduled to be around 120,000tons/year, Pacific Iron executives have stated a targeted production of 1Mt/ year by 2017. The $44 million project is financed in part by a $15 million participation of Standard Bank. With access to iron ore deposits and excellent metallurgical coal and the backing of a group that has seen so much success in Colombia, the iron sector could be set for a new wave of investment.

COLOMBIAN IRON PRODUCTION (TONS)

(Source: UPME)

Mining Leaders

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q&a

BREAKING

Alexey Duarte President & CEO, Brexia Resources

GOOD

BASE METALS

Brexia Resources gets its name from the word Breccia, meaning a rock composed of broken fragments of valuable minerals cemented together by a fine-grained matrix. Brexia, a subordinate of the private equity fund TRIBECA, aims to turn assets of hidden value into large scale, profitable and, most importantly, sustainable operations. Brexia has projects in Colombia, Peru and Brazil.

Why did Tribeca diversify into the mining sector?

Tribeca is a Colombian private equity fund that invests in companies with high growth potential, converting local players into great international companies. They have investments in medical services, fashion and natural resources among other things. The idea of getting into resources came after successfully developing the oil portfolio, and later understanding the dynamics of the mining sector through the hiring of a recognized Canadian consultancy firm. Early in 2009 Tribeca started looking at some gold assets in Colombia and in November 2010, Luc Gerard, Founder and CEO, offered me the opportunity to lead the new venture. After working with BHP Billiton for 17 years I perceived the offer as a unique opportunity to help the Colombian mining sector improve its development standards by using the lessons learned with BHP Billiton and other majors. This is an amazing experience as we build a talent pool with the highest standards to ensure the sustainability of the business. Today, our core team is comprised of 17 professionals with a further 130 employees in two countries and the expectation of reaching 300 employees by the end of 2012.

What are your key projects at the moment?

Brexia is in negotiations in Brazil for the development of a 43,000ha package with a defined 300,000oz of gold at the inferred resource level and a large exploration potential. We are starting operations on a gold-silver-copper-zinc porphyry deposit and a gold-silver vein type deposit in the south of Peru.

More specifically for our Colombian operations, the team is developing a project called El Bagre, a gold vein deposit in the northwest of Antioquia which is expected to start production by the end of 2012. Furthermore, we are closing a deal on a very attractive gold-copper porphyry resource with about 12,000m of drilling, in the Cauca state in Colombia.

What minerals is Brexia exploring for in Colombia?

Gold, silver and copper are our main targets in Colombia. Coal and other energy minerals are also of interest. But infrastructure

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constraints have limited project development in certain areas.

We have to be careful with what projects we select, preferring areas with good access to roads and energy.

Aside from infrastructure, what issues need to be addressed in order for the sector to reach its potential?

Perception. Thatâ&#x20AC;&#x2122;s one of the biggest issues. The most common perception is that miners are polluters and that they do not contribute to the wellbeing of the communities. The fact is that legal mining activities bring significant wealth to the people in their areas of influence, by providing safe jobs, education, training and sustainable activities to benefit all stakeholders. Brexia respect the communities and work with them towards achieving the social license to operate. Doing the right thing pays off. Colombia and its governmental institutions are making significant efforts in providing the right conditions for investors to conduct operations here. Changing the perception that miners are a nuisance is a priority, we all need to use best practices for the good of the people, the environment and the industry. Organizations and systems like ICMM (International Council on Mining and Metals), E-3 Plus (Education, Environment, Employment) and the GRI Initiative are good practices for sustainable mining operations.

What is your strategy for 2012?

We have great ambitions. We are currently implementing the Integrated Management System and hope to be certified by July 2012. We want to become a leading example of sustainability, by helping the communities we work in to develop through economic, educational and environmental initiatives. By 2016, Brexia will be among the top mining companies, with the highest standards. Brexiaâ&#x20AC;&#x2122;s team has significant experience in the industry working with companies like BHP Billiton and Rio Tinto. We want to develop gold in Colombia, gold, silver, copper, zinc and lead in Peru and gold and silver in Brazil providing a healthy net cash flow and strong returns to our shareholders. Looking past 2012, we would like to expand into two more regions and will not discount partnering with good companies to expand.

MARKET FOCUS 10

COLOMBIAN COPPER PRODUCTION (TONS)

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the next big thing?

BASE METALS

With so much exploration focus on the country’s gold deposits, there are still bargains to be had in the base metals sector. Canny investors have started to take note, particularly in the area of copper investments.

Companies like B2Gold, Colombian Mines Corp, and Ashmont Resources are looking at potential projects.

According to The Economist, global demand for copper is expected to rise by more than 40% to 27Mt by 2020.

Clive Johnson President & CEO B2 Gold Cu Project: Mocoa, Putumayo

Bob Carrington President Colombian Mines Corporation Cu Project: El Dovio, Valle de Cauca

Mario Escobar Ashmont Resources President & CEO Cu Project: El Alacrán, Cordoba

“We’re definitely intrigued by the base metals potential of Colombia.

Obviously there are significant terrain and infrastructure issues to be overcome when building copper or zinc projects, but these can be managed. At B2Gold we have previously developed projects in the Arctic Circle in Russia. Our Macoa copper project in Putumayo doesn’t really fit B2Gold’s model, so we’re planning to establish a new base-metals focused company in early 2012 with Macoa as the first asset. We’ll be drilling the property again in early 2012 and we think it has very good upside potential.”

“There are two main challenges to copper production in Colombia.

Firstly, there are no smelters so all copper produced has to be sent overseas. I’d like to see a method to produce electrolytic copper in Colombia that could be used in a copper fabrication facility. Secondly, royalties are very high on copper at 5% gross. Most base metal mines have a hard time producing at rates of over 3%. Colombia has the potential to become a very substantial copper producer in very near future if we can modify this royalty system and establish a smelter.”

“Colombia doesn’t export large quantities of copper because there hasn’t been much longterm investment in the mineral industry. In the past, the political and security situations meant that investing five years in the future was deemed too risky.

However, with current copper prices, the Colombian cost of labor and renewed confidence in the country, new projects will increase the value of the copper industry here. It would be great to have a copper smelter. It would create a lot of jobs. But at the moment that is too far down the track to consider.”

Mining Leaders

91

PROJECT FOCUS

BERLIN Richard Spencer CEO U308 Corp

BASE METALS

“Our focus is to make Berlin a world-class, multi-commodity project that leads to the first uranium producing mine in the country. If we achieve the 50 million pound-plus potential of the project, uranium will become a strategic resource for Colombia.”

U3O8 Corp. (TSX-V: UWE) Caldas Province Uranium, potash, rare earths 50,000m Drill Plan 2012 In 1978, the French firm Minatom began exploration on the Berlin property, excavating 20 trenches and drilling 11 exploratory bore holes, through which they defined a historic resource of 12.9Mt of 0.13% uranium in sedimentary hosted rocks.

Minatom was nationalized by the French government in 1981 and the company withdrew from the project.

After a spell under the ownership of Mega Uranium Ltd., U3O8 Corp. acquired the project in May 2010.

Using Minatom’s written reports as a guide, U3O8 Corp. began drilling at the Berlin Project in September 2010, adding a second rig in March 2011. Over 70 bore holes have already been drilled in the southernmost 4.4 km stretch of the property where the historic resource was estimated. In addition, trenching in the northern part of the project confirms that mineralisation extends beyond the historic resource area and that the whole of the 10.5km trend is prospective. A maiden NI 43-101 uranium resource of 20-25

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million pounds is targeted for the end of 2011 and will be based on results of a 19,000 meter drilling program.

Thereafter, a further 50,000 meters of exploratory drilling is scheduled for 2012. In addition to uranium, drilling has confirmed phosphate, vanadium and rare earth elements. Given the proximity of the project to a highly productive agricultural belt, the potential of the phosphate could be significant. “Most farmers in the region are applying crushed phosphatebearing rock to their fields,” explains CEO Richard Spencer, “The Berlin Project could produce phosphoric acid to combine with nitrogen and potash to make clean fertilizer for the local market.” The firm may form a separate company to focus on rare earths, a model that they successfully used in similar circumstances in Argentina.

U3O8 Corp’s intention to extract multiple commodities from the ore at Berlin involves a fairly complex process. Metallurgical testwork is being done in Canada and Australia to determine the efficiency with which each commodity can be extracted.

U3O8 Corp. aims to release initial metallurgical test results at the end of 2011 and begin a scoping study in 2012. The firm is focused on building its uranium resource to potentially 60-75 million pounds across its three projects in Colombia, Guyana and Argentina but it is looking to identify new exploration opportunities as well.

“We would eventually like to enter into a joint venture partnership with a major uranium company to develop the Berlin Project. U3O8 Corp. will focus on exploration and more discoveries in Colombia,” said Spencer.

SIMILARITIES OF AFRICAN AND SOUTH AMERICAN GEOLOGY

(Source: U3O8)

Latin Power For a while before the disaster in Fukushima, nuclear energy appeared to have successfully rebranded itself as the safe, green energy source of the future. Then the tusnami hit, market prices of uranium fell by 20% and Germany, one of the biggest industrial powers in the world, announced it would be phasing out all of its reactors. Ever since, discussions have intensified about the future of this controversial energy source and the metal which fuels it.

On both the demand side and the supply side, the answer to the nuclear conundrum lies in the developing world. Western countries, with slower economic and demographic growth rates have begun to phase out nuclear power. However, over 500 reactors are in the planning or proposal stages in other parts of the world, more than half are in China, India and Russia. China plans to build 60 new reactors in the next nine years and India wants to construct 55 by 2032. While global uranium supply is expected to outstrip demand until 2013, by 2017 a supply gap is expected to develop. By 2020, the demand is expected to increase to 270Mlb, whilst production will stagnate at just 200Mlb. New uranium discoveries will be key to filling this gap and again, the search for new deposits is taking place in the developing world. In 2009 63% of the world’s uranium was produced from just three countries: Canada, Kazakhstan and Australia. But Africa – and in particular Niger and Namibia – have come to represent a growing proportion of global production. At present South American production is minimal but the similarities with African geology mean that it is a highly prospective market. It has been described as being like Africa a decade ago, primed for uranium exploration and development. Juniors such as U308 Corp, UrAmerica and Blue Sky Uranium have started entering Colombia, seeing huge potential in the highly prospective and underexplored terrain. Latin American countries such as Argentina and Guyana are equally prospective. According to Richard Spencer, CEO of U3O8 Corp, the country needs one successful project that could “highlight the uranium potential of the rest of the country. We could well see a boom in uranium exploration similar to that with which we have seen in the gold sector in recent years.”

Mining Leaders

CERRO

PROJECT FOCUS

MATOSO

BASE METALS

Colombia has 6 nickel deposits with measured reserves of 37.8Mt and 46.48Mt in indicated reserves.It is the third largest producer of ferronickel in Latin America after Cuba and the Dominican Republic.

Cerro Matoso Nickel Nickel and Ferronickel Production 940 Direct Employees 50 Mt nickel/year The municipality of Montelíbano, located in the northwestern Caribbean lowlands, 850km from Colombia’s capital Bogota and 378km from the northern coastal port of Cartagena, is the biggest consumer of electricity in Colombia.

It is not so much the inhabitants of the largely agricultural area who account for this consumption as the presence of the second largest nickel producer in the world. The central oven of the BHP Billiton owned Cerro Matoso mine, uses approximately the same amount of electricity as Pereira, a city of 600,000 inhabitants, in the production of more than 50,000 tons of nickel a year.

Colombia has six nickel deposits with measured reserves of 37.8Mt and 46.48Mt in indicated reserves. It is the third largest producer of ferronickel in Latin America after Cuba and the Dominican Republic. BHP Billiton ranks among Norilsk Nickel, Xstrata, Jinchuan and Vale as the largest producers of nickel in the world. The metal is used mainly as a raw material in the production of steel. Cerro Matoso,

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along with another mine in Australia supplies BHP’s subsidiary, Stainless Steel Materials, one of the largest global suppliers of nickel to the stainless steel industry. The Cerro Matoso mine has the highest-grade lateritic nickel deposits in the world, and produces 4% of the world’s nickel and 10% of the world’s ferronickel.

Mining began on the site in 1980 and nickel production started in 1982 under the Colombian Government, BHP Billiton and Hanna Mining ownership.

BHP gradually raised its ownership from 53% in 1989 to 99.94% in 2007, with mine employees holding a 0.06% share. BHP currently hold mining concession rights until 2012, from which time they have the possibility of renewal for another 30 year period until 2042. Cerro Matoso has an estimated

reserve life of 40 years based on current production levels. The site consists of a ferronickel smelter and refinery, which are integrated with an open-cut mine.

The beneficiation plant for the mine consists of a primary and secondary crusher, which is sent to a stacker for stockpiling and blending.

Despite a series of strikes in 2008, as well as a royalty dispute in 2011, the mine enjoys good community relations, thanks to the long-term presence in the area. From 1990 to 2007, Cordoba’s economy grew faster than the Colombian economy. According to a Banco de la Republica report regarding the economic contribution of the mine, the municipality received over COP$197 billion in royalties from 1989 to 2008. BHP is also the largest tax payer in Colombia.

CERRO MATOSO’S PROJECTED NICKEL PRODUCTION (000s TONS)

(Source: MME)

LEAD ARTICLE

mining technology & services

INTO THE UNKNOWN With dozens of junior explorers looking to undertake exploration programs across Colombiaâ&#x20AC;&#x2122;s gold districts, 2012 looks likely to be a year of record demand for mining technology and services (MTS) providers. Major drilling contracts are luring international diamond drilling firms to the country and a cluster of companies looking to provide supplies and auxiliary services to gold juniors is growing in Medellin. The really big contracts, however, can be found in the coal sector.

Flying low over the Andes, with its sensor mounted on a pole protruding several feet in front of the aircraft, a helicoptermounted electromagnetic (HEM) survey is an unusual sight for many local farmers. For their cattle it can be fatal.

In 2010 one junior explorer operating in the Middle Cauca belt found it necessary to send representatives door-to-door to advise residents of the timings of their flights after the sight of the HEM survey had caused several cows in the region to keel over. Mineral exploration is still very new to the Colombian countryside.

The huge potential wealth of the country creates opportunities for companies, but the lack of equipment, expertise,

infrastructure and local understanding of the mining industry also presents numerous challenges. As firms intensify their operations on established projects and push into new frontier zones, demand is growing for high-quality equipment and skilled service providers who can minimize the social and environmental impact of these activities.

A new wave of foreign investment in Colombian mining technology and services (MTS) has been quick to follow junior explorers into this exciting new market. The MTS market is worth an estimated $50 billion globally. The sector covers drillers, surveyors, engineering and construction firms. It also includes

technical and research services such as metallurgical laboratory analysis and technologies that allow for improved recovery rates from precious metals or the mitigation of environmental impacts. At a global level, the industry is highly fragmented, with a plethora of firms undertaking a variety of different activities. A lack of statistical data on the sector as a whole remains a problem.

Mineral exploration activities were heavily hit by the 2008 global financial crisis, with total exploration budgets falling by 42% in 2009 from their peak of $14.4 billion the previous year, according to the Metals Economics Group (MEG).

Having rebounded strongly in 2010, Mining Leaders

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LEAD ARTICLE

$50

billion

Estimated Value of the Global Mining technology and services Market

Major drilling contracts on Colombia’s gold prospects are attracting international firms to the country, including Peru´s AK Drilling

the MEG expects that over $16 billion will be spent on exploration over the course of 2011. Approximately half of global exploration budgets are spent in search of gold and in Colombia the proportion is even higher. The country does not feature in the top ten destinations for combined explorations budgets for all metals, but in 2010 it was the eighth largest market for gold exploration worldwide. At the moment base metal projects lag some way behind gold, but a number of significant copper products run by Atico Mining, CuOro Resources and B2Gold suggest that demand for exploration and engineering services focused on base metal production could potentially rise in the coming years. While the price of gold allows it to be transported by helicopter, the development of infrastructure from mine to port will be important for base metal projects.

Until recently there were few international MTS firms with a permanent presence in Colombia. However, the global recession, which hit Canadian exploration activities hard, proved the impetus for many firms to search for new developing markets.

Logan Drilling entered the Colombian market in 2010 and expects to have 12 drills operational in 2012. The firm’s country manager, José Alzate says that many of the junior explorers, who had entered the country a few years earlier, were struggling to find reliable drillers. “They ran into a dead end, they had the money but no drills.

A lot of them ended up picking up no-name drilling firms that would break down for a period of days. There was a real demand for

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firms with a focus on quality.” The junior explorers are now looking to reliable providers for major contracts of over 20,000 meters. With rocketing demand for professional drilling firms, Alzate estimates that day rates rose 30% over the course of 2010 and 2011. However, the increased arrival of new foreign firms is likely to narrow the supply gap in the coming years, meaning prices may drop slightly.

With so much of the country unexplored, it could be ten years before Colombia is fully immersed in the development stage. The country’s poor infrastructure is opening interesting avenues for service companies that have already penetrated the hydrocarbons sector.

Sebastian Schrimpff of Foto Rudolf, an aerial photography firm, says that COLOMBIA’S UNEXPLORED REGIONS

Explored

Unexplored

demand from mining companies is starting to pick up, especially for projects in the Middle Cauca valley and the Chocó region. Furthermore, the country’s position as a ‘frontier’ territory – due to both its lack of recent exploration work and the complexity of its topography – necessitates the use of lightweight drilling equipment.

With little local diamond drilling expertise available foreign firms that specialize in lightweight, portable rigs, such as Vancouver based Energold, have been quick to enter the market.

Other firms including AK Drilling, have specialized in customizing their existing drills to meet Colombian requirements. However, when companies need to go deep, drilling holes of over 1000 meters, the required rigs can take a team of 30 staff a week to move four or five kilometers. With few options for helicopter lifting, logistics continue to be a major challenge for drillers and explorers.

Mining Leaders

LEAD ARTICLE The job of drilling firms and explorers is made easier by the increasing entrance of major mining equipment suppliers into Colombia. Atlas Copco, the Swedish manufacturer of compressors and mining tools has an office in Bogota as do Sandvik, the tool suppliers and Komatsu. Orica, the leading supplier of explosives also have an office in the capital and operations in the main coal mines of the north of the country. There were also unconfirmed reports in 2011 that one of the global leaders in drilling services and products was in the process of establishing an office in Medellin.

Having long maintained a presence in Bogota and in Barranquilla, Swiss inspection and verification firm SGS is expecting to have its $5 million assay laboratory operational in Medellin during the course of 2012, providing a vital resource to local exploration firms.

Although still in its early days, the development of the service and support sector for the country’s exploration firms looks likely to have a major positive impact on the industry. Currently drilling firms complain that spare parts and machinery can get stuck for days or weeks in customs processes. High-end service providers with well stocked itineraries should be able to provide efficient mining solutions and cut waiting times.

The signing of the free trade agreement with the US could also help Colombia based firms import mining

Siemens provide support to the mining industry in the extraction, conversion and distribution of resources.

equipment at lower costs and with fewer delays.

The source of international MTS providers is also beginning to diversify. By some accounts, Australian companies hold almost 60% of the worldwide MTS market and they are beginning to make their presence felt in Colombia. Austrade has recently opened an office in Bogota and big Aussie players such as Ausenco and SRK Consulting have recently won important tenders, with the latter signing a $1 billion contract to build the Puerto Nuevo coal export terminal in Ciénaga.

While the entrance of new companies in the precious metals exploration sector is one of the most noticeable trends in the current Colombian MTS market, the biggest contracts still come from the country’s huge coal projects. Demand for construction equipment, heavy machinery and vehicles around the mines of La Guajira and Cesar is likely to hit new highs with the expansion of Cerrejón and the development of major new projects under MPX and Prodeco.

Multinationals like ABB, Siemens and Schneider Electric all have a strong long-term presence in the country and have been involved in many of the country’s major infrastructure projects. Now these firms are looking to the mining sector as the next potential source of growth. Ramón Monrás, ABB’s President for Colombia said “We see important activity and dynamics in this sector. This boom is not going to be short-term market behavior.”

q&a

PERUVIAN PRECISION

Steve Petrovich Managing Director, AK Drilling

What key differences do you see between the Colombian and the Peruvian drilling markets?

Since coming to the country in 2007 we have never lost sight of the fact that Colombia is going to be the next big expansion market in Latin America. The market currently lacks professional and qualified drilling service providers. Unlike in Peru, many clients in Colombia are not familiar with a lot of the new technology and the quality of service that can be provided. It’s the perfect time for high-end drilling firms such as AK Drilling to establish international standards here. In terms of geology, Peru is a lot more diverse, but topographically it is more difficult to work in Colombia. Also, I believe the mineralization here will be deeper and more consistent than in Peru.

What new drilling technologies can be applied in Colombia?

We have a sister company called Downhole Geo Solutions. It is a wire-line logging company dedicated to adding value to drilling results through the use of the most modern oil and gas logging technology applied to the mining industry. That has never been done before in Latin America. We are also one of the few companies in the region that is licensed and certified to use north seeking gyroscope which is very important for mining in Colombia. Another key factor is the ability to make bespoke solutions for the particular market. Directional Drilling services are also being introduced to Colombia by AK Drilling International which will greatly simplify exploration activities in topographically challenging areas. Our machines have been modified for the unique geographical and topographical conditions found in Colombia, and in order to produce the highest safety standards possible. That gives us the advantage of being able to produce more than the average contractor, reducing the clients fixed and variable costs over a period of time.

What type of drilling activities will be subject to strongest growth in the coming years?

Exploration services are going to be a huge driver here for the next five years. It is going to take another ten years before

MTS

AK drilling International S.A originally served the Peruvian market. Having started with one machine and nine employees, today the firm has approximately 40 machines and over 800 employees. With a renewed focus on the Colombian market the firm offers specialized services including deep-hole diamond drilling, directional drilling reverse-circulation drilling, geotechnical and stratigraphic drilling and coal bed methane projects.

Colombia gets fully immersed in the development stage. I also think we will see a significant growth in down-hole solutions services in Colombia. It’s a very simple and cost effective way to add value and model the geological deposit. Geographically, Antioquia is where most exploration for precious metals will be concentrated at least for the next five years. But I would also hope to see a greater quantity of exploration activities across the entire country.

How has the increase in competition affected day rates for drilling rigs?

We strive for margins rather than day, hourly-rates or meterage rates, so we benchmark the margins that we require and set our own prices independently from market prices. Those margins are not driven solely by price, but by safety, quality, productivity and reliability. When the rates start to decrease, due to the strength of our services we are usually the company of choice.

What are the principal challenges that mining services firms face when operating in Colombia?

The only potential problem I see is the lack of good financial services. Colombia needs a local financial system that can allow local based companies to expand using internal resources.

Another challenge is finding good administration consultants to help you get through the fiscal regulations.

Is it a challenge to find trained drilling personnel?

At AK Drilling International we only have six employees who aren’t from Latin America. In Colombia, our goal is to hire 60% of our staff locally in our first year, increasing that figure to 70% or 80% and eventually 100% within three years. We have established a three year program to train drillers, project supervisors and other key positions. We’ve already implemented it within Colombia. We’ve taken some experienced employees, but also many community based personnel and we have sent them to Peru for a three week induction course as well as time based progressive training courses.

Mining Leaders

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FEATURE INTERVIEW

happy Heritage MTS

With a Colombian presence for over 57 years, 2,300 employees, a Bogota head office and a new $100 million plant, Daniel Fernández, CEO of Siemens Austral-Andina, believes the Colombian mining industry is set to play an important part in the future growth of the business

“Bogota has all the right resources and is perfectly placed to make a connection to the outside world. It is a hub between all the Latin American cities and the United States and Europe,” explains Daniel Fernández, CEO of Siemens Austral-Andina region. The city, for the last two years, has been home to the headquarters of Siemens for all of South America, excluding Brazil. For Fernández the choice was an easy one.

With an enviable geographical location, neutral Spanish and an educated work force, who value a strong work ethic and loyalty, the decision of the international conglomerate to call the Colombia capital home was obvious.

Though Siemens $100 million plant in Tenjo, outside Bogota, is just two years old, Siemens presence in Colombia is anything but new. In fact the array of infrastructural projects which Siemens have been involved in is somewhat staggering. Beginning life in Colombia with the construction of a small power plant for Leo Kopp, the founder of Bavaria brewing, Siemens have worked on traffic light systems for Bogota and Cartagena, the Medellin metro

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and even the first telephone systems for Pereira. Fernández is well aware that the diversity of Siemens projects means that the company is not always the most immediate thought for those looking to invest in the mining sector, but he contests, “We have experience in the mining sector, not only in Colombia, but also in the region, where we have contributed to the success of many companies.” Fernández has a strong belief in the growth potential of Colombian mining and elaborates on Siemens proven experience, “Siemens is able to provide not only the required electrical systems, but also the complete mining solution for automation

“Bogota has all the right resources and is perfectly placed to make a connection to the outside world.” and control either for the mine area or for the port.” One of their most successful projects

was in conjunction with Hitachi in the Cerrejón coal mine. When the coal company decided to upgrade its fleet of trucks from diesel motors to diesel-electrical motors it chose Siemens to provide the motors and electrical control systems. The mine has improved efficiency, capacity and lessened environmental damage. Today the fleet consists of 120 trucks, each with a capacity of 320tns, amounting to the largest installed fleet of HitachiSiemens electrical trucks in the world.

Siemens has worked with Prodeco in the expansion of the existing port and mining infrastructure in Santa Marta.

Fernández doesn’t consider Siemens to be a mining EPC, rather he sees the company as an invaluable sub supplier in generation, transmission and distribution of power, and the extraction, conversion and distribution of resources.

Growing awareness of environmentally friendly technologies has been a huge opportunity for Siemens and they have made large investments in research. Fernández is enthusiastic about their growing environmental

DANIEL FERNÁNDEZ

portfolio, which seeks to minimize damage caused by some mining technologies and increase overall efficiency. “We ranked first in the Dow Jones Sustainability Index for the 4th consecutive year in 2011 and we are aiming for the same in 2012. The implementation of these products and solutions helps our customers save 300Mts of CO2 or CO2 equivalent”.

Projects include renewable energy, water treatment plants, wind turbines, high efficiency motors for conveyers which consume a lower amount of energy and electrical shovels and trucks. Siemens hopes that by 2014 50% of sales in the region will come from environmentally friendly products and solutions. One of Fernández’s favorite projects is in Chile, where mining is a strength for Siemens. Here, the company has implemented a conveyor route which permits the regeneration of electrical energy. “In Los Pelambres copper mine in Chile, more than 30% of the required energy for the conveyor is regenerated by itself.”

Siemens has a strong presence in Chilean mining and some innovative technologies there. Mining makes up 40% of Siemen’s project volume in the country, compared to just 10% in Colombia, which makes it a strong growth area. The plant in Tenjo is being expanded to meet this expected demand and policies are being put in place to attract future talent. The third phase of the plant’s development plan, which includes a high voltage test center for transformers, will be delivered in February 2012.

About 1,200 people work there, manufacturing various products for all of Siemens’ sectors. These products include the assembly of transformers and electronics for power transmission networks and electric motors. Very few of the workers in the plant are foreign, roughly 50 out of the 2,300 employees.

“If the country continues to develop, as we all expect, the big companies will start competing for new talent, so we are working on making ourselves as attractive as possible for young people. I am convinced mining will be one of our key business areas here in Colombia as it is already in Chile, Peru

$100 MILLION

investment in new, state of the art plant in Tenjo

Siemens provides support to the mining industry in the extraction, conversion and distribution of resources.

and Bolivia. Our expectation is that by 2020 coal and nickel production will have increased by 100% and we want the best people working for us.”

Fernández is basing his prediction on the approval of environmental licences that will give the green light to an increase in the exploitation of metallic minerals. “Siemens directly provides mining solutions for automation and control in the mine area and ports. In future projects we hope to bring our experience from our work in the most important mines in Chile, Peru and Bolivia, providing solutions for mining through flotation cells and SAG Mills based on gearless drives technology.”

While Fernández embraces the potential of Colombia and sees huge prospective growth in the future, he is not slow to point out that there are still problems. Though security has improved, Fernández insists that the government does not become slack on this topic. “The government cannot relax. Security levels must

be maintained or further improved because in Latin America, security is a key differentiation criteria.”

Fernández also concedes that there is work to be done on the infrastructure of the country. “The floods that hit in early 2011 were some of the worst the country has seen for over 100 years and this had a strong impact on our activity because the suppliers didn’t supply, we couldn’t manufacture and so we couldn’t supply. Logistics were a nightmare, most especially in the case of power transformers. More than 50% of our products are exports, and need ground transportation from Bogota to the nearest harbors.” Infrastructure is a key point of development for the country. “The government through the National Department of Planning is well aware of it, so I am trying to remain patient.” Nevertheless, at times patience is not the easiest virtue, he admits he still gets frustrated, “If these infrastructural challenges are not solved, it will slow down the growth of the country and of the mining sector.”

Mining Leaders

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MARKET FOCUS Drilling is the single largest expense mining firms incur during the exploration stage. Colombia has its own local drilling firms, but major contracts of over 100,000 meters and demand for specific technical services is luring international players from Peru and Canada. The executives of three such companies discuss some of the key features of the Colombian diamond drilling market.

GLOBAL MINERAL EXPLORATION SPENDING (U$ BILLIONS)

(Source: Jennings Capital, Metals Economics Group)

DRILLING:

DIAMONDS ARE FOREVER

Frederick W. Davidson CEO Energold Drilling Corp 7 Rigs in Colombia

Steve Petrovich Managing Director AK Drilling International 5 rigs currently, 14 rigs by 2012

John A. Versfelt CEO Cabo Drilling 4 rigs in Colombia

“Environmental legislation has become a major issue in the Colombian exploration sector. It’s important for drilling firms to focus on minimizing their footprint. We operate in frontier exploration regions, such as Choco, Nariño, Cauca. These areas have significant social, environmental and infrastructural issues which make it difficult for traditional drill rigs to explore. We typically use hydraulic rigs which come in modules or individual pieces to be assembled on site. We have a department dedicated to environment and health and safety. This is hugely important for serious exploration firms.”

“We came here because it was clear there was a lack of professional services. Colombia has a unique topography so technology is imperative. The geology can be very difficult at times but our machines have been modified specifically to deal with the landscape. Also, we are one of the only drilling companies in Latin America certified to use a north seek gyroscope and we change our drills every five years. There will be lots of deeper deposits here; I think mineralization could go to 1,200 meters and that’s when the value of investment in technology becomes obvious.”

“52% of all exploration dollars go into drilling. So it is the biggest cash flow area in terms of mining services. In Colombia supply hasn’t met demand yet. I don´t think it will ever be like Canada, where there is a huge oversupply, but eventually demand will meet supply. However, it is important to remain selective about who you work with. Going into any country is a significant investment in equipment. There are a lot of juniors looking for drillers in Colombia but it is the drilling companies themselves who have to pay VAT of 30% upon entry, which is taken from cash flow, so you have to be careful.”

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company focus company focus Guillermo León Hoyos General Manager

Mines & Business Consultancy

Cryogas

PROFILE: Created in May 2011 by professionals with experience working in the administrative division of gold mining companies. Specialized in providing advisory, consulting and accompaniment services.

PROFILE: Founded in Barranquilla in 1945 to produce oxygen. Bought in 2008 by Chilean group, Indura. 900 employees, half directly employed, half indirectly through logistics and distribution.

SERVICES: M&NC offers a range of administrative and outsourcing services with a focus on legal advice. M&NC helps companies comply to Colombian legal norms at the different stages of mining and exploration projects. Other areas of expertise include financial and accounting, business and negotiation, technical and social and community relations.

MAIN PROJECT: Steel manufacturing group Paz del Rio commissioned a new plant in 2008. After delays due to the international financial crisis, the factory will open in 2012.

The project is a $20 million investment and will produce 200 tons of oxygen per day. The factory is owned and managed by Cryogas and leased by Paz del Rio.

CLIENTS: The firm has mainly worked with operating contractors in Antioquia including Antakya Mineros (operating for Continental Gold), Minera Four Points, Operaciones Mineras de Antioquia, (operating a mine for Gran Colombia).

Other clients include Carla Resources and Nugget and Ecovias.

MINING SECTOR: Provision of a wide range of services, including gas for welding, personal protection devices, nitrogen for inflation of equipment tires in mines, which reduces the risk of explosion, and pure oxygen, used in gold cyanidation in order to increase the recovery of metal.

TEAM: M&NC consists of eight consultants, including four lawyers that have a wide range of knowledge and experience in the mining sector. The team provides management consulting for the organization and formalization of processes within mining and exploration companies.

PRODUCTION: Oxygen, carbon dioxide and nitrogen.400 tons of gas per day, including 130 tons of nitrogen. $88 million turnover in 2011, which represents a 15% growth from 2010.

TARGET: The firm’s primary prospective clients are national and foreign investors, junior and medium scale formal mining sector. The companies need to find well trained administrative staff that know about the mining sector.

STRATEGY: “We have just created a dedicated business line for mining. We are looking at the applications for our products and services in the mining industry. When more gold mines come to production phase, there will be more opportunities. If the coal gasification projects that they have been talking about for years come to light the potential for us would be huge.”

Mining Leaders

q&a

knowledge Gonzalo Escobar García President, Geominas Ingenieros

vendor

MTS

Local engineering firm, Geominas, have over 40 years experience in Colombia, specializing in geological surveys, drilling and engineering services to underground mining projects. It is the local leader in constructing tunnel based projects. The firm drilled over 65,000 meters in 2010 with a focus in high mountain and tunnel drilling. Geominas owns rights to a number of mining properties.

In what specific areas of the engineering sector has Colombia’s mining boom created most demand?

Colombia’s mining engineering sector has been through good and bad periods. Initially we had a very good period, when the mining companies operating here were relatively small and didn’t have their own engineering or geology departments.

Engineering firms such as Geominas helped these companies develop these departments but then the client turned into competition. This led us to focus on consulting for very specific technical projects, for example at Drummond’s El Descanso mine. Now we are seeing an upturn in demand as international firms enter the market. Three years ago there were many requests for geological services but now we are seeing growth in drilling.

Since 2008 we have doubled our total drilling programs and expanded our rig fleet from eight to 24 machines.

With the growing demand for drilling services, have day rates for rigs increased?

No. While we have seen a stronger demand for rigs and have drilled more meters, prices have remained stable or even dropped a little. I put this down to the arrival of foreign drilling firms, many of them from Chile. Work has gone up but supply has also increased meaning there has been little effect on rates.

How can local firms compete with the increased competition from international providers?

Local firms will always be able to provide local knowledge, which is our greatest strength. We also need to specialize in certain sectors that international firms don’t cover. At Geominas we have focused on high-mountain drilling and have provided this service to Greystar Resources. As underground specialists we have also focused on drilling inside of tunnels. In a two meter high tunnel you can’t drill with standard tubing. We have developed machines capable of doing this. We have also created a school for drill operators in the Medellin region because the most important aspects of drilling is the professional running the machine, not the specifications of the machine being used.

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What are the main technical challenges faced by service firms in Colombia?

It is clear that the country was not prepared for the current mining boom. It’s almost impossible to find a geologist and the wage demands are high. Many international firms have sought to address this problem by bringing their own experts from abroad but Colombia is in a tropical zone and this presents its own unique geological problems. The government needs to address this issue, by promoting education of engineers and geologists. But seeing as an engineering degree takes five years to complete, there will be a shortage for the foreseeable future.

The other challenge is obviously security. We have seen many international firms arrive here and then stall due to this issue.

Will the establishment of the National Minerals Agency help Colombian mining services firms?

Perhaps the main problem facing the sector is that areas of environmental protection have never been clearly defined. It has become crucial to establish a clear division and hopefully the ANM will be able to provide clarity on this issue. Another key issue the agency needs to tackle is that of coal bed methane that is produced as a byproduct of mining. At the moment this energy source is covered by the National Hydrocarbons Agency, but it makes little sense given that it comes from coal mining projects. If a mining firm can degasify its coal project it not only provides a new business line, it also makes the mine safer to work in. This is an important and overlooked issue.

How does Geominas intend to grow in the coming years?

In addition to focusing on specialized services we are looking to develop the group in new directions and we are open to partnerships with foreign firms. In the past we have received offers for some of our businesses but we are not looking to split up our cluster, which is the source of our strength. We aim to keep growing ahead of the rate of GDP. We will continue to try to stay ahead of the competition by identifying new areas and services, leveraging our strength which is our local knowledge.

company focus Carlos Caicedo General Manager

Atlas Copco

company focus Jose David Alzate Country Manager

Logan Drilling

PROFILE: Global industrial group of companies providing mining technology services to Colombia for over 25 years.

Placed 276 in the 2011 Financial Times Global 500 ranking of companies by market capitalization.

PROFILE: Canadian drilling firm that moved into emerging markets after the global financial crisis and a fall in domestic exploration work. Logan has worked in Chile and Yemen previously. Average annual drilling is 90,000m.

INTERNATIONAL PRESENCE: Headquarters in Stockholm, Sweden. Sales in 170 markets worldwide. 68 manufacturing facilities in 20 different countries. 33,000 global workforce and $10.4 billion 2010 global turnover.

CLIENTS AND FLEET: Clients include Sunward Resources, Antioquia Gold, Mercer Gold, Waymar Resources, CuOro Resources. Logan Drilling works with a fleet of eight drills and has 90 employees.

PRODUCTS: Atlas Copco’s products include power tools, compressors, construction and mining equipment, hand tools, generators and assembly systems. The company’s products are sold and rented under different brands globally.

DRILL SPEC: Logan uses lightweight aluminium drills with good depth capacity for Colombia’s mountainous terrain. A Logan drill with 1,500 meter depth capacity weighs just 7,000 pounds, compared to an LF-70 which weighs 14,000 pounds.

COLOMBIAN MARKET: The mining division provides 30% of the overall revenue for Atlas Copco’s Colombian operations. Clients include Cerrejón mine, Cerro Matoso mine and Continental Gold.

CHALLENGES: “Logistics, supply chain management, security and culture differences. If there is any advice I could give to companies starting up here, it would be to hire a local manager that knows exactly the cultural rules.”

GROWTH 2012: Continuation of growth, which has been over 20% for the past two years. Expansion of the mining sector through development of automation device for open-pit mining and increased investment in sustainable technologies.

MARKET ANALYSIS: In recent years demand for rigs has increased exponentially. Originally this was due to the lack of suppliers and now because of increased mining activity.

STRATEGY: “Our capability stems from our comprehensive customer support. I also want to point out we are committed to mitigating the environmental impact of mining activities, by reducing CO2 emissions to a minimum”.

STRATEGY 2012: With the backing of Logan Drilling Limited in Canada, investment is not neccessary. The firm hopes to double gross revenues within the next two years. The company is opening offices in the Santander zone and looking towards possible entry into Panama and Costa Rica.

Mining Leaders

PROJECT FOCUS

SGS ASSAY LAB Enrique Chavez Montes Managing Director SGS Assay Labs

MTS

“SGS has always worked closely with mining companies in the exploration phase. With our new assay lab we will be able to do it here in Colombia, with the same quality as in the other countries where we operate” Medellin $38 million dollars revenue $5 million Colombian investment 700 Colombian employees SGS, the world leader in inspection, verification and testing services is already an established presence in the bodegas, or warehouses, surrounding Medellin. Boxes marked with the firm’s logo pile high, containing samples fresh from analysis and testing at the company’s Peruvian facilities. But as gold exploration projects increase in number and intensity across the surrounding countryside, the Swiss firm is planning a $5 million investment in an assay laboratory that will enable a significant drop in the time it takes local firms to process their drill cores.

At the moment, Colombia does not have a dedicated assay laboratory, most samples are simply shipped to Peru or the US. The turnaround time in this instance is around two or three weeks according to Enrique Chavez Montes, Managing Director of SGS Colombia. The new assay lab, which will be based in Medellin and is scheduled to open business in January 2012, is expected to be half this wait. The quicker turnaround time and local presence looks set to ensure a steady flow of clients.

According to Chavez, the new facility will be able to meet 99% of all demands from the Colombian exploration sector.

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When fully operational the lab will be able to treat between 25,000 and 30,000 coring samples per month. To begin with, however, SGS is expecting to receive some 20,000 samples per month with the expectation of a 50% growth in demand over the next three years.

The biggest challenge the project currently faces is the development of the human resources necessary to staff the lab. To build the necessary experience, each employee will be sent on a three month training course at SGS’s Peruvian facilities, the company’s biggest laboratory processing 50,000 samples a month. “Forming our analysts is the top priority for SGS,” said Chavez, “Colombia lacks experience in this field and as a global company we have to make sure that the analysis made here is of equal quality to that of our other laboratories.” Although there are similar projects for an assay lab at the design stage,

SGS’s project is the most developed, with construction well underway. The firm has extensive experience in another important area of the Colombian mining sector, it operates the country’s largest laboratory for coal and coke testing in coastal city of Barranquilla. That facility was recently completely renovated and the firm has two similar, smaller laboratories located in the coal mining centres of Cucuta and Boyacá.

The decision to open the Medellin assay lab is a sign that the firm holds the same high hopes for the gold sector as they do for the Colombian coal industry. The services provided to the mining industry go far beyond geochemistry and exploration analysis. SGS offers a range of services including geological reserve evaluation and certification, metallurgical studies and testing, environmental services and impact assessment and monitoring among others, project management during construction and on site laboratories.

GEOCHEMISTRY SAMPLE, ANALYSIS AND PREPARATION OF ROCKS, SOILS, SEDIMENTS AND CORE SAMPLES SGS IS THE WORLD´S LEADING INSPECTION, VERIFICATION, TESTING AND CERTIFICATION COMPANY AND PROVIDES A FULL RANGE OF SERVICES FOR GEOCHEMICAL ANALYSIS. - Quantity and Quality Certification of minerals.

- Design, programming, management and execution of exploration.

- Independent management of mining projects, supervision of drilling and logging programs.

- NI 43-101 and JORC Technical Reports, resources audits and Certification.

- Geochemical Services: Sample Analysis and preparation of Rocks, Soils, Sediments, Pulps and Core Samples.

- AAS Atomic Absorption Test, FA Fire Assays on gold samples, ICP, MMI, etc.

- Sample Analysis and sampling of Thermal Coal, Cooking Coal and Coke) Laboratory On site build and design.

- Design, manufacture, installation and operation of Mechanical Sampling System and OLA (On-Line Analyzers).

SGS Colombia S.A. Autopista Aeropuerto Km 8 Barranquilla, Colombia PBX: +5 376.9500 sgs.colombia@sgs.com william.joleane@sgs.com

It’s a Blast!

weakening of a firm’s competitive edge.

In Colombia it is estimated that 9% to 15% of mining companies’ costs are tied up in the purchasing of explosives and detonators.

As the mining industry and the demand for explosive material grow so too do the costs and bureaucracy involved in acquiring this essential substance. In 2008 the industry used 3.7Mt of explosives, up from 2.1Mt in 2004, representing a near doubling in usage in just four years. Simultaneous to this, there was a rise in the demand for detonators and for indugel, one of the most popular types of explosives, which increased from 119,650kilos in 2004 to 683,900kilos in 2008.

Certain Colombian mining firms, such as Drummond and Cerrejón, have been lucky enough to sign contracts allowing them to import and produce their own explosives, under licence of Indumil. However this is a rare situation and other big companies, such as Prodeco and Vale, simply find that their applications get lost in the system. Another major annoyance for mining companies is that despite the lack of explosives here Indumil continue to export their products. The safety of these explosives is a huge issue for the industry also. It is widely felt that the materials used should be swapped for safer materials. Indumil are currently testing new materials, but these costs will once again fall on the shoulders of the industry.

Ammonium nitrate fuel oil (ANFO), the main explosive used in Colombia is essential not only to the extraction of coal, nickel, limestone, salt and other minerals but also in the construction of highway and hydroelectric projects. The price per ton of explosives varies between $730 and $1,100. On top of this, mining companies are subject to the recently introduced Social Firearms Tax, which adds 5% to 20% to the cost.

The Industria Militar (Indumil) holds a monoploy in Colombia over the production of explosive material. According to Dinero, Indumil blame the rising cost of ANFO for the increases in the price of dynamite. These unexpected increases present a real headache for mining companies. It is common to sign long term contracts with Indumil and as such companies must absorb these raises which results in an increase in differential costs and

Mining Leaders

company FOCUS

TOPEN Luis Polanco General Manager Topen O & G

MTS

“We can help the mining industry improve safety. All our activities apply to international standards.

We can apply our experience from the oil and gas sector to mining.

We have always maintained high standards and we won’t change this philosophy as we enter new sectors.”

Topen Hydrocarbons & Mining EPC Firm Topen Struktur (Mining Division) Bogota Local access to mine sites is a crucial challenge for most junior mining firms, particularly in Colombia. Roads to exploration sites need to be built quickly, safely and cost effectively. One firm with a proven track record in this field is local engineering, procurement and construction firm Topen. Having cut its teeth on Colombia’s fast growing oil and gas industry, providing road and piping solutions to important firms, Topen is now looking to build its presence in the mining sector through its division TopenStruktur.

Struktur focuses its activities on civil projects and infrastructure. It has made agreements with international companies to provide unique solutions to the Colombian market. The first, introduced in partnership with an Israeli firm, is a geo-cell product that allows for the rapid construction of stable roads in rugged terrain. The geo-cells can also be used to stabilise slopes and encourage re-vegetation of mining sites. In addition the firm has a an agreement with a British firm to supply modular bridges to help exploration and production

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companies traverse topographical obstacles. Struktur also offers a highly durable polyethylene panel that can be laid across a variety of terrain to provide quick and temporary roads and platforms, allowing exploration and production firms to transport heavy machinery to the site without damaging the terrain. The company also has experience in mounting heavy equipment and establishing transportation routes from remote areas to ports. Topen Struktur is using new and innovative technologies to solve geotechnical problems and control water and flooding risk to allow the projects execution.

Topen’s participation in the sector, as a company born in the highly regulated oil and gas industry, means they bring extensive experience in infrastructure projects, capitalizing on their policies

and embedding a high commitment to safety, environment and community.

Although the mining sector has historically seen less investment in these areas, Luis Polanco, Topen’s General Manager, said he believed that this situation could soon change. “The mining sector is undergoing a major reform and the government is placing a greater emphasis on responsible, legal mining,” he said “higher environmental and safety standards will provide opportunities for Topen.” The firm is eyeing the fast growing group of midsized and junior coal and gold mining companies as potential clients. “Many of the international firms have established themselves, we see a huge market from new players in the country,” said Polanco, “mining is a dynamic and growing new industry in Colombia and there are huge opportunities for EPC firms operating in the sector.”

company focus Carlos Alberto Marin Arias CEO

PME

company focus Nora Luz Berrio Managing Director

INMA

PROFILE: Proyectos Mineros Estratégicos de Colombia was established in 2008 in Medellin. PME started with a contract of 58ha and now manages projects covering over 80,000 ha of land, all in the Antioquia department.

PROFILE: Headquartered in Medellin and family run, Ingenieros Mecanicos Asociados has over forty years experience in the provision of engineering services to the mining industry. INMA have approximately 180 employees.

SERVICES: PME offers the structure of a company already established in Colombia with existing mining projects for foreign investors.

MINING CLIENTS: 20% of the company’s revenue comes from mining. Including automation projects for factories of Argos, former owner of the El Hatillo open-pit coal mine and engine maintenance contracts for Cerrejón.

CLIENT PORTFOLIO: The firm now works with foreign companies such as Samaranta Mining and Cordillera Gold with whom they have a 20,000 ha exploration project. Both firms are listed on the TSX. STRATEGY: “We help foreign investors to find the best mining project with the minimal financial risk, taking into account their specific needs and demands. My job is to obtain mining permits in the areas that have been defined as highly prospective by my teams of geologists. The demand has been so high that we have never had to search for clients, they come straight to our office.”

MARKET ANALYSIS: “Colombia is just awaking to the mining sector, therefore there is major shortage of professionals. It is not a sector that students think of when about to choose a specialization or a career. In Medellin, which has three million habitants, I don’t know more than ten lawyers specialized in mining.”

PRODUCTS: Authorised distributor of Honeywell Notifiers, Reliable and SPP Pumps. Specializing in design, installation and maintenance of environmentally friendly technologies and occupational health services.

CHALLENGES: INMA is a medium sized company and has never had a contract of more than $2 million therefore the firm is often ignored when clients tender projects of $10 million and upwards.

INVESTMENT: “INMA is a reliable business partner for foreign companies. Our job is accident prevention and lifesaving and this has to be an issue at the top of everyone’s agenda in the Colombian mining industry.”

MARKET ANALYSIS: Growing concern for safety in the mining industry mean INMA’s products are likely to be more in demand. Gas and smoke detection systems could represent up to 40% of the companies acitivty in the future.

Mining Leaders

company FOCUS

axesat Mauricio Segovia President Axesat

MTS

“We are kings where there is no terrestrial infrastructure. Our clients are those companies that work outside of major cities. The recent reforms of the mining institutions, which promote new investment, will allow us to attract more clients from the sector.”

Axesat (2003) VSAT Service Provider Over 200MHz Bandwidth 4 Intelsat satellites As increasing numbers of mining companies venture to the most remote parts of Colombia in search of precious metals, communication becomes a crucial issue. With wide parts of the country not covered by terrestrial communication networks, satellite connection is often the only option for mining companies during their exploration phase. Fortunately, in recent years the country has developed a strong VSAT (very small aperture terminal) satellite infrastructure that can keep exploration teams in touch with head office and the internet. Axesat, established in 2003, formed a partnership with Intelsat and Gilat to provide telecommunication services via satellite in Colombia and the region. Axesat offers a wide range of integrated communication solutions, from internet connection to data transmission, voice transmission and video solutions all through satellite.

Axesat has become the largest VSAT operator in Colombia with key clients in government and in the corporate sectors.

Axesat President Mauricio Segovia estimates that around 50% of the firm’s current end-to-end clients come from the oil and gas sector and 10% from the mining

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sector. Segovia expects growth as more mining firms enter the market and as regulatory changes to the sector stimulate foreign investment. While major oil and mining projects often develop their own terrestrial communications networks when they enter the production phase, Segovia said that the increasing number of exploration projects more than compensated for the loss of these clients.

“We lose some customers because they gain access to terrestrial infrastructure, but we gain more than we lose” he said, “we expect that this trend will continue and there will always be areas of the country where it is not possible to bring terrestrial infrastructure.

Additionally, when our customers get access to terrestrial infrastructure we usually continue to provide them services as a backup.”

The company also has to deal with another potential challenge to its customer base in 8000 7000

the form of the rapidly developing mobile telephonic infrastructure in the country.

Despite the growth of EDGE and 3G technology on mobile handsets,, Segovia said that the existing technology was not yet at a stage where it could replace satellite communications: “While mobile phone companies have pushed into data services, they are still very much focused on individuals. They may expand their coverage, but they are focused on voice and individuals and do not provide high priority data transmission services for corporate customers.” As the leader in VSAT communications in Colombia, Axesat aims to build its client base in the coming years, especially with junior oil and mining firms and contractors in the growing road infrastructure sector.

Its long term ambitions are regional, however, and the firm continues to grow its operations in other countries such as Venezuela, Ecuador, Peru and Chile.

AXESAT’S INSTALLED BASE (VSAT Stations)

6000 5000 4000 3000 2000 1000 0 (Source:AXESAT)

3G COVERAGE

CURRENT STATUS: Electromagnetic spectrum saturation in main cities.

Mobile internet supply is restricted due spectrum availability.

INITIATIVES: Promote the development of 3G and 4G. 2010: Initiate the allocation of the 1.9 Ghz IMT spectrum.

2011: Allocate IMT spectrum e.g. 2.5 GHz and 1.7 - 2.1 GHz.

Mining Leaders

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q&a

GOLDEN Ramón Monrás, ABB President & Country Manager Colombia, Venezuela & Ecuador

JUBILEE

MTS

FINANCIAL & LEGAL SERVICES

In 2011 ABB, the global leader in power and automation devices, celebrated its 50th birthday in Colombia. The firm has been a key player in establishing the country’s power generation sector and built Colombia’s largest thermoelectric plant, a 750-MW plant in Barranquilla. The firm has a number of important clients in both the oil and gas and mining sectors, including Ecopetrol and BHP Billiton.

What does ABB offer to mining companies?

We provide products and services for the complete production chain in the mining sector. In Colombia, we provide the key transformers for the mining sector, the VSD—viable speed driver—transformers, which are special transformers for the mining and oil and gas sectors. For mining plant performance, we produce gearless mill drives (GMDs), which allow plants to eliminate the typical mechanical components of the drive. This year we will provide a 28-MV GMD for a 40-engine mill plant.

What benefits do GMDs provide to mining operations?

Traditionally, the motor is linked to the machinery with gears, which wastes a lot of energy. But with gearless drives, a drive moves the motor directly, using electrical energy, without any mechanical transmission. This technology is a very important contribution of ABB to the mining sector. GMD technology is more expensive than the technology it is replacing, but the payback is short, because of the money saved in energy. As a result it has almost entirely replaced the old technology. We focus on products that reduce energy consumption and optimize the production process through control and information systems.

What is ABB doing to prepare for the coming boom in the Colombian mining sector?

We believe the mining sector will see important development in the next eight to ten years and a number of important investments have already been announced. For example, Cerrejón intends to increase its production to 40Mt/year by 2014. With more activity and dynamics in the sector, we have decided to increase the number of employees in this field, and introduce intensive training programs. This boom is not going to be short-term, so we have to make investments now for the future. Another important issue is sustainability. ABB is very careful about this subject. It is a crucial mandate for us that our technology and services think about all areas of sustainability. We are currently doing consultancy studies about technologies to be used in the coal and copper projects.

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For which of your mining-related products or services do you anticipate growth in demand over the next few years?

We supply the entire Latin American mining market with our distribution and power transformers. The mining boom that Colombia is enjoying means it is catching up to Chile and Peru, which are at the peaks of their markets. Three years ago we expanded capacity, making the factory three times larger. Now we can make 4,000 MBAs, which means up to 140 big units per year or 14,000 small units per year. But we are increasing capacity there again, to meet even more demand in the mining and oil sectors.

What services can the firm provide to the infrastructure sector?

The project most representative of the work we do for mining companies is a $24 million project we’re working on this year with Prodeco. Prodeco is building a new coal port called Puerto Nuevo, and ABB is supplying the whole identification, electrification and automation equipment for the port operation.We also do identification and automation of tunnels. We provided electrification for the Buenavista tunnel, a 5.5 km tunnel between Bogota and Villavicencio. Long tunnels are very complex but we have solutions.

The government has announced investment in infrastructure of around $7 billion in 2011, so we expect to see a lot of work in roads, two lane highways, tunnels and eventually rail links.

As Colombia grows as an investment destination, are tender processes becoming more competitive?

Eight years ago, foreign direct investment was about $2 billion per year, and now it’s in the range of $10 billion per year. That means everyone wants to be here. We have seen competitors coming from countries that we hadn’t seen previously. Before Asian firms used to offer very good prices but the quality was questionable. Now, for instance, in transformers, all the Asian competitors offer very low prices, and the quality has improved. We have to adapt to that. ABB has worldwide quality and presence, in more than 100 countries.

But we also have a local presence that many Asian firms don’t and that can be a key advantage. There are more competitors but there are also more opportunities. The country is in a good moment.

LEAD ARTICLE

Banking on Colombia For most junior explorers in Colombia the Toronto Stock Exchange represents a one-stop-shop for raising capital.

However, as the mining industry gains prominence in the economy, local and international banks and law firms are developing specialized services to attract new clients from the sector. With a strong local investor base, mining firms could soon follow petroleum firms in listing on the Colombian Stock Exchange.

In July 2011, David Bojanini, president of Grupo de Inversiones Suramericana, signed the biggest business deal in Colombia’s history. With a bid of nearly $3.8 billion, the Medellin based financial group beat off competition from US and Latin American firms to take possession of ING’s Latin America operations. The Dutch group had been forced to sell off its pensions and insurance businesses in Colombia, Mexico, Peru, Chile and Uruguay – which together had total revenues of over $1 billion in 2011 – as a condition of their bailout deal with the Dutch government.

The fact that a Colombian firm had picked up the reins was welcomed

by President Juan Manuel Santos as

“great news not just economically, but geopolitically.” Although the purchase was opportunistic, it marked the entry of the Colombian financial sector as a regional player.

In early 2012 Grupo de Inversiones Suramericana is expected to raise over $4 billion on the stock market. The firm will join a growing list of Colombian companies that have turned to the markets to raise capital for ambitious expansion plans. Even in the face of a worsening global economy, Colombian firms, including state oil giant Ecopetrol, the financial group Grupo Aval and national carrier Avianca, issued over $10 billion in shares in 2011, more than the

combined value of shares issued in the previous five years. As Colombian firms increasingly look overseas to expand their operations, a growing number of foreign investors are eyeing Colombia as a member of a new wave of rapid growth emerging markets. Following in the footsteps of the BRICs – Brazil, Russia, India and China – Colombia heads a group named CIVETS by HSBC. What a difference a couple of decades can make. In the late 1980s the country’s macroeconomic fundamentals were as chaotic as its politics. Following a period of consolidation of the country’s major financial groups in the late 1980s, the equity market ran dry. With annual Mining Leaders

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LEAD ARTICLE

$28

Billion Foreign-Exchange and gold reserves 2010 Government and independent agencies predict a GDP growth rate of over 5% in 2012

inflation surpassing 30% in 1990, one of the key economic goals of the 1991 Constitution involved redefining the purpose of the central bank as one of inflation targeting.

Like many other countries in Latin America, the results were impressive. Following a steady fall in the 1990s and 2000s, Colombia’s annual inflation was just over 3% in 2010. The government had amassed foreign exchange and gold reserves of over $28 billion by the end of 2010. In August 2011 the country bought 2.3 tons of gold, its first purchase of gold in 13 years, although the event was rather overshadowed by Hugo Chavez’s decision to repatriate 211 tons of physical gold held overseas back to Venezuela.

Throughout 2010 and the early months of 2011, the government’s principal macroeconomic fear has been that of ‘Dutch disease’, the phenomenon whereby strong investment in and exports of one commodity, such as oil, leads to currency appreciation. Given the high proportion of FDI directed to the mining and hydrocarbons sector – almost $8 billion from the total $9.48 billion FDI in 2010 – and the rapid rise in the value of the peso, which gained 9% against the dollar between June 2010 and June 2011, other sectors of the economy struggle to remain competitive.

Since September 2010 the central bank has been buying $20 million a day to slow the rate of peso appreciation.

the Greek debt crisis worsening, the Colombian peso lost 10% of its value against the dollar by mid October 2011. The drop had echoes of the economic crisis of 2008 when, despite government insistences that the economy was ‘bulletproof ’, foreign investment in the country tanked and the peso dropped from 1,678 to 2,575 in the space of nine months. Despite the worsening economic situation on both sides of the Atlantic, government and independent agencies continue to predict a GDP growth rate of over 5% in 2012. The government is also confident that it can provide more jobs. The Minister of Social Protection Mauricio Santamaria has offered to resign his post if unemployment does not drop below 10% by the start of 2012, having hovered between 11-13% for much of 2011. The Finance Minister, Juan Carlos

Echeverry, has said that the government plans to spend its way out of any slowdown brought about by the world economy. Over $18 billion is earmarked for infrastructure spending, a 50% increase on the 2011 figure. But to do so would require the government to get serious about tackling the bureaucratic delays and corruption that have stalled such public works programs in recent years. Ultimately, however, Echeverry concedes that Colombian banks are the key to seeing the country through any coming crisis.

Having suffered a crisis in the 1990s the Colombian banking sector has developed conservatively over the last two decades. Today the $120 billion of assets held by the country’s 18 banks is equal to 58% of GDP, significantly below the level in Brazil, Mexico and Chile. In recent years international banks including JP Morgan Chase and Scotiabank, which bought RBS’s

TOTAL ASSETS OF MAJOR COLOMBIAN BANKS (Sept. 2011) (US $ millions)

But outside events have made Dutch disease take a back seat. With fears over

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(Source: Securities.com)

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operations, have entered the Colombian market. The Canadian Scotiabank brings a wealth of experience to the Colombian market, particularly in the area of financial products and services for the oil and gas and mining sectors.

With most mining projects currently in the exploration stage and operated by firms listed on the Toronto Stock Exchange-Venture (TSX-V), demand for project finance is currently low.

But a number of banks, including local giants Bancolombia and French bank BNP Paribas, have already started to position themselves in the market, building their mining teams and looking to grow a reputation for M&A and eventually project finance in the sector.

In the meantime, mining firms have been eyeing the success of junior oil and gas firms listed on the Colombian Stock Exchange (BVC). Three TSX listed exploration and production companies - Pacific Rubiales, Canacol and Petrominerales – have issued IPOs on the BVC and local appetite for hydrocarbon stocks has not been lacking. The ‘dual listing’ has also

boosted liquidity of the shares listed in Canada and by providing Colombians with a way to share in the oil bonanza it also has significant political benefits.

The general belief is that exploration companies from both the mining and hydrocarbons sector will find themselves with greater local support in the event of legal issues if they have a strong local investor base. The loosening of regulations governing the country’s six major pension funds, which together manage over $50 billion, has also allowed clients to choose investment portfolios of varying risk, opening the way for future investment in oil and mining stocks.

At present only one mining firm, Mineros S.A. is listed on the BVC but many of the junior companies interviewed by Mining Leaders claimed to have researched the possibility of a future listing. Some obstacles remain. Quarterly reports need to be returned 45 days from the end of the quarter in Colombia compared to 90 days in Canada. In addition the lack of trained mining analysts and economic geologists combined with a well reported conservatism amongst

Colombian investors means that a local listing is best suited to companies with producing assets and existing revenues. Nevertheless, with a number of major mining projects approaching the production stage, the mining sector looks set to provide Colombians with dynamic investment options in the coming years.

Many of the top international law firms are already established in Colombia.

Baker McKenzie has a long history in the country and as of 2012, Norton Rose will have Bogota offices following the take-over of McLeod Dixon. These international firms have represented clients in some of the country’s biggest M&A deals, such as the acquisitions of Ventana Gold and Medoro Resources

by AUX and Gran Colombia Gold respectively. However, Colombia also has a rich legal history, with an abundance of well qualified local lawyers. As the mining sector has taken off, many local law firms with prior experience in the complex sphere of negotiating mining permits have developed specialized services designed to cater to the needs of junior explorers.

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leader insight Alexandra Correa Partner Beltrán & Correa Lawyers

Beltran & Correa Abogados is a local multiservice law firm focused on oil and gas and mining clients. The firm can assist with incorporation, labor matters, litigation, risk analysis and contract negotiation. Alexandra Correa has built her career in energy and environmental law and has previously worked at the Ministry of Finance and the Ministry of Mines & Energy.

FINANCIAL & LEGAL SERVICES

The word on the street Mining is on everyone’s lips. First, there was talk of the environmental impact of mining, then the need to formalize and standardize the codes and practices of the industry. More recently we saw the introduction of full-scale reform of mining legislation in order to achieve sustainable development in line with the best interests of communities and the environment. The statistics demonstrate the important growth in the sector: in 2010 mining activities accounted for 24% of exports, 30.9% of foreign investment.

It also contributed $860 million in taxes and more than $666 million in royalties. Colombia is the world’s fourth largest exporter of coal and is recognised for its significant gold potential. These are among the reasons why mining has been such a talked about topic of late. Perhaps as a result of all the talk that surrounds the industry, the topic of sustainable mining has, dangerously, been converted into a cliché. The statistics and numbers show the importance of the sector and the dependence the economy has on it. Without a doubt, Colombia needs the economic boost that a thriving mining industry can bring but it also needs to preserve a delicate balance with the country’s lungs and water supplies. How is the current government going to face this challenge? The question is vital at a time when Colombia is preparing for a new mining sector and when important resources are being invested to achieve this goal.

The current government has earmarked the mining industry as an important protagonist in the future growth of the Colombian economy. To take full advantage of Colombia’s enviable position, the government are seeking to create a National Minerals Agency, similar to the National Hydrocarbons Agency, which was established eight years ago and proved a milestone for the petroleum industry. The agency will develop mineral exploration, encourage new business prospects, both domestic and foreign, and will hopefully break the bottleneck in applications for mining titles. Without a doubt this effort would be meaningless without concurrent improvements in the efficiency of the Ministry of Environment in the licensing of environmental permits. The two entities must be in constant communication. The possibility of the creation of an independent entity to deal with environmental licenses has been discussed, though as yet, not fully developed conceptually.

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“In 2010 mining activities accounted for 24% of exports, 30.9% of foreign investment. It also contributed $860 million in taxes and more than $666 million in royalties.”

Likewise, the introduction of an ongoing dialogue between the mining sector and environmental agencies is essential. The establishment of an inter-institutional agenda which addresses the sustainability of the industry is indispensable for future growth and development. It is only through cooperation and dialogue that both sides will find solutions for sustainable exploration and exploitation. Essentially, it is of the utmost importance that the country has a clear idea of what geographical points are off limits to mining. However, it is often at this point that the mining industry and environmentalists take diverging paths.

The final aspect of this process is the sanctioning of the reform of the Mining Code, which should regulate, in detail, all aspects of the industry. If all goes according to plan this final phase should be ready by 2012. This reform, among other things, looks to end illegal mining and to determine areas of the country excluded from mining. On this subject we will see the true interest of the government in protecting the environmental wellbeing of the country.

So what is lacking in the quest for sustainability? We lack environmentally responsible infrastructure, especially with regards to ports. A few years ago the deadline for the investment in infrastructure to allow the direct loading of coal in the ports was passed. The consequences of the lack of planning and the poor execution of this plan are still being felt. There is also a general lack of trustworthy information in Colombia, both about the environment and about mining. The land registry of mining permits is out of date and there is no clear basis of environmental information that will allow us to define the geographical limits of mining in the country. Lastly, we need to draw attention to the importance of the implementation and the continuing commitment to these regulations. Sustainability isn’t just environmental; it has a huge social component. As a country we have to measure the risk and reward of the mining industry. In entrusting our environment to third parties we must make sure that we get the balance right. If we don’t get the balance right, we have a lot to lose. This process is just starting. The results will have long term consequences.

q&a

An Eiffel of opportunities

Gregorio Toulemonde, BNP Paribas Representative: Colombia, Venezuela, Central America and the Caribbean BNP Paribas FINANCIAL & LEGAL SERVICES

BNP has had operations in Colombia for 50 years, but its business has really taken off since their merger with Paribas in 2000. BNP Paribas is now one of the largest energy financiers in the country and is also looking to be involved in the development of Colombia’s mining sector. The firm has financed some of the most important energy projects in the country and has nearly 200 staff based in Colombia.

What’s the current state of the Colombian mining industry?

The mining sector in Colombia was a forgotten sector for many years, but we believe that we are at the onset of an explosion of investment. President Santos has said that mining should be one of five “locomotives” that should drive the growth of Colombia over the next few years. We see a lot of companies investing, looking for resources and deposits, mostly in the gold sector initially, but everyone is or will be looking for copper and base metals as well. The reality of the market is that we first have to find those deposits, evaluate them, and determine their size—before developing them. The question is when Colombia will move from the exploration phase to the development phase. This is the big test going forward.

things that banks, national and international, need to develop if they want to be at the forefront of mining opportunities.

Is there a lot of demand for project finance or corporate finance right now?

At this point, the exploration risk cannot be borne by banks.

So companies are all listing themselves, mostly on the Toronto Stock Exchange. But moving forward, what they need is more corporate finance or M&A activities. This deal flow will include both the acquisition of some firms by others and the consolidation of some firms’ activities. There’s a lot of talk about deals, acquisitions, joint ventures, title trading and consolidating assets right now. So we see that corporate finance and M&A is what will take off first. In the next stage we’ll see mine development coming from project finance.

The idea of the Integrated Latin American Market (MILA) excited a lot of people, but its results have been underwhelming so far. Is that a short-term issue or a long-term problem?

MILA is not a seamless market. There are a lot of issues— taxes and exchange rates, to name two—that make it far from perfect. That said, it has allowed some investors to invest across countries. And it is still very young, with only a few months of operation. Political uncertainty in some countries over these months has slowed it down. It has to be looked at as a longer-term project. It is a very exciting thing.

Does the Colombia Stock Exchange have adequate technical knowledge of the mining industry?

I think there’s currently only one mining company currently traded on the Colombian stock exchange. So it doesn’t make much sense to have specialized analysts to cover a single stock. The Colombian financial sector—including international banks, who better understand the rules, regulations, environmental issues and types of deposits being found here—needs to build knowledge. There are a lot of

Why are there so few companies currently listed?

First, some of the listing requirements are difficult for the mining companies to meet. You have to have three years of records and at least one year of gross profit. So it’s not adapted to all start-up companies. I understand, however, that the BVC may want to allow some dual listings for companies that don’t meet those requirements. And second, the lack of listed companies is a vicious circle: since there aren’t many companies, other companies don’t think they should list.

This circle has to be broken—and it certainly can be, because there’s an amazing amount of liquidity in the stock market.

What are BNP Paribas’ plans for its business development in Colombia?

Our strategy going forward is to bring additional value into the country in the form of things that do not exist or are underdeveloped here. We’re focusing first on developing our very strong M&A sector into junior mining companies, and on making deals. And we hope to use the reputation we continue to build here to move over to the project side in the future. We do not intend to be direct competitors to local banks. We intend to bring additional profits and ideas to a new clientele.

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leader insight Iván Zuluaga General Manager ARP SURA

SURA is the professional risk insurer of Suramericana. The firm is divided into strategic business units including a local mining division and counts Prodeco, Vale, Independence Drilling, Carbones de la Jagua, Saxon Services de Panama and Wood Group Colombia amongst its clients. Iván Zuluaga, General Manager of ARP SURA, explains how the Colombian professional risk insurance system operates and describes what clients should look for in a provider.

FINANCIAL & LEGAL SERVICES

The difference is service

T

he Colombian system for administrating professional risks is unusual but it is one that every foreign investor should be familiar with when entering the country. All firms operating in Colombia need to be affiliated to a professional risk administrator (ARP). Under Law 100, introduced in 1993, private investors were permitted to enter the professional risk market and there are currently ten companies operating in the field. Under Colombian law there are five classes of risk. The mining industry is classified in the highest of these, group five. While in other countries the tariff that ARPs charge their clients is determined by the ARP itself, in Colombia it is regulated by law. Currently all companies pay the average rate, but there are studies being undertaken by government with the aim of determining the parameters by which companies can move inside of their risk class. The variables under which companies will be assessed include accident track records, commitment to developing an occupational health and security program and the index of incapacitating injuries. It is envisioned that in the future companies which maintain a strong health and safety record will earn the right to pay lower tariffs, but these plans have yet to be finalized.

Social security is a public service that needs a degree of solidarity between operating companies and insurers. The aim is to reduce accidents across the board. The spirit of the ARP system is to promote solidarity, so that all companies are covered independent of their size and economic activity. These financial resources need to be pooled so that accident prevention activities can be distributed to all companies and so that victims of accidents receive compensation regardless of who they work for. There is also the issue of the long term sustainability of the system.

A market based system could lead to aggressive competition on price at the expense of quality of service.

Of course, if the only motive for companies to improve their health and safety standards was an economical one, then the current system would provide little incentive to do so. However, firms understand that high standards have

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“The Colombian system for administrating professional risks is unusual but it is one that every foreign investor should be familiar with when entering the country.”

other, more important benefits. Firstly, the overall quality of life of workers and their families and the impact of lost man hours as a result of injury have a direct impact on a company’s production figures. Repeated studies have shown that for every peso a company spends on insurance, it saves many times this amount in the form of reduced costs from accidents. Secondly, the importance of corporate image is a major factor driving improving standards. Today it is common for consumers to ask whether the products they buy have been produced using environmentally clean processes.

I am sure that in only a few years Colombian consumers will want to know if these products have been developed by a company with a clean track record on employee safety and wellbeing.

With fixed fees for professional risk insurance, how should companies choose a Colombian ARP? The key, of course, is service. Mining companies entering the market today should consider not just the payouts that an ARP offers, but the plan of action that they propose to achieve zero risks and accidents. They need to ask what practical measures can be put in place to mitigate risk at the mine site and what the response plan is if there is an accident. Central to this is specialization. For example, at ARP SURA we have identified the mining sector as a strong future growth area and have established a team of professionals dedicated to the sector with offices near the key coal mining sites. We also work with a network of risk professionals from Chile and Argentina in a knowledge-share agreement that will allow us to leverage the vast experience these countries’ have in the mining sector. Finally, we have put particular emphasis on developing emergency attention services in the case of an accident. Obviously most mining operations take place in rural areas, many of them isolated from medical services and infrastructure, so we have built a strong network of services in these areas and are working to educate local communities as to how they can prevent accidents. As the industry develops in Colombia, mining firms operating in the country can expect to see professional risk insurers adapting to their specific needs.

company Focus Alejandro Mesa Partner

Baker McKenzie

PROFILE: One of the largest law firms in the world, with 3,750 lawyers in 69 global offices, Baker McKenzie entered the Colombian market in 1979 through the acquisition of a local firm.

CLIENTS: The firm works in M&A and joint ventures between foreign entities and local firms. They represented Frontino Gold Mines in the $207 million sale of assets to Medoro Resources, which involved the issue of pensions for 1500 employees.

MARKET SHARE: Significant growth in the past three years, finishing with a billing of $14million in 2010. The fastest growing area of the business in Colombia is the mining sector.

DISPUTE RESOLUTION: Local arbitration is the best way to guarantee a reasonable resolution. Domesticating an international resolution can take three years and in that time there are no preliminary procedures in place.

CHALLENGES: BMcK recommends companies conduct a substantial diligence process. Mineral titles cover only 4% or 5% of the country’s surface and as such the biggest challenges of the sector is the informality of titling.

STRATEGY: Mining and oil and gas is the fastest growing business sector for Baker McKenzie’s Colombia office. With an international culture that is user friendly for foreigners the firm is looking to position itself as the partner of choice.

company Focus Luis Martinez Chief Business Development Officer

ME Investments

PROFILE: M.E. Investment is a Colombian boutique investment firm offering financial advice and business promotion services. The firm specialize in infrastructure, steel, oil, mining, energy, agriculture, renewable energy and technology. Mining projects range from $5 million to over $200 million in coal and between $10 and $70 million for gold.

CHALLENGES: Infrastructure and legislation. Today, freight costs from Colombian ports to Asia are lower that internal logistic costs. The National Government is taking steps in order to modernize the mining titles expedition process and to upgrade infrastructure.

INVESTMENT CLIMATE: FTAs with USA, Canada and Europe, closer ties with Asia and improving internal political stability are generating more FDI. Mining legislation has to develop at the same pace in order to have successful mining ventures.

SECTOR DEVELOPMENT: There will be more consolidation of small and medium sized companies. New financial vehicles will be developed for these kinds of growth companies. This year more and more hedge funds are investing in Colombian oil and gas companies. This will soon start to happen in the mining industry.

STRATEGY 2012: “This is the right moment to invest in Colombia. To succeed in an emerging market you need a local partner that understands your needs and that can leverage cultural, legal and business etiquette gaps. We specialize in Asian and European investors, developing tailored-made solutions.”

Mining Leaders

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q&a

Worth Enrique Acevedo Schwabe General Manager Correcol

the Risk

FINANCIAL & LEGAL SERVICES

Correcol was founded in 1952 as Adams and Porter. In the 1960s, its operations were sold to the managers in each country. It merged with four other brokers in 1996, and bought them out by 2000. For the past decade it has been the largest independent insurance broker in Colombia, with $8.5 million in commissions and a little more than $70 million in premiums last year. The firm is pursuing clients in the mining industry.

Which services are your mining sector clients interested in?

Firstly, firms need the necessary bonds which guarantee that they will comply with the contracts that they are committed to developing. They also have to import machinery, so they have to comply with the customs bonds and the legal requirements. Other requirements are property, casualty, and directors and officers insurance. Finally, their employees must be protected against work accidents. Companies operating in Colombia have to have very strict employee safety requirements, which is why we’re experts in workers’ compensation. Life and health insurance are also important. Although Colombia has an excellent health care system, health is always a concern, especially for multinationals.

How do you assess risk for mining projects?

There are different ways to mine and the risks involved vary between projects. The risk of mining in open-pit projects is much smaller than the risk involved with underground projects. When a firm undertakes underground hard rock projects, risk depends on what sort of terrain you’re on, the depth of the tunnel that you’re opening and the characteristics of the tunnel. Also relevant are whether employees will be exposed to dark environments or those with a high level of particles in the air, or whether they’re going to be in natural light, breathing relatively clean air. Lastly the mineral that is being produced is also an important factor to take into consideration. If it’s hazardous or highly flammable, for example, the risk will be higher. As in all industries, standards vary from country to country. Some clients are very conscientious about risks and take the necessary precautions, so their risks are mitigated. These factors are also examined carefully and factored into the risk analysis. We have developed a team focused on the mining sector in Colombia. We have engineers specialized in risks who are experienced in mining projects. They normally visit the work site, and they have a detailed questionnaire they present to companies. We also present this risk to the insurance market, which already has developed methodologies and questionnaires, which we follow to have the complete information we need, and to make a clear and transparent sale of the risk to the market.

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Are foreign companies operating in Colombia compelled to buy insurance here or can they insure themselves in North America?

Insurance legislation has what are called admitted and nonadmitted countries. Colombia is a non-admitted country, meaning that all insurance, excluding that for marine cargo and transportation goods, has to be bought with local carriers inside the country. Sometimes, especially for liability, a first limit is bought locally, which would cover the lawsuits that could happen inside the country. Since it is an international market, most of our insurance companies are international. So we try to help our clients work locally with the same carrier that they use in their head office, which facilitates the placement of the risks.

How does an insurance company analyze the security threat to workers?

The insurance program in Colombia has two kinds of coverage: what we call all-risk coverage, and terrorism coverage. For many years the terrorism coverage was as expensive as the all-risk coverage, which includes earthquake, fire and many other risks that would, in many other countries, usually be more expensive than terrorism risk. Over the past 10 or 12 years, however, the security situation in our country has improved and the rates have also decreased. We also work with third party specialists which help us assess the threats. We do not sell kidnap and ransom coverage, for two reasons. First, we always like to stand by our client in all losses, and we know that if we have an earthquake or a fire, we can go to our client’s office and we can work out the loss until he gets paid. But with kidnap and ransom, we always find it difficult to accompany the client with the claim, because it is handled by an expert, normally from London, who never shares any of the information. And second, right now the legislation is not completely clear on whether it is legal to sell kidnap and ransom insurance. It used to be illegal, but now it’s a grey area.

We are very aware that our clients travel to Colombia with kidnap and ransom coverage, which is sold openly on the international market. And, as we understand, this has also decreased in price.

q&a

The assessment of risk depends on the type of mining being undertaken

Do you offer insurance against risk of regulatory change?

Actions that governments take are not normally included in policies. In a car accident, for example, the insurance company will cover your losses, but not a fine from a traffic officer. This can be translated into other sectors. Losses resulting from not complying with existing legislation would never be included in the policy.

But if a company starts a project and the government modifies legislation, affecting that project, we can look into coverage for that. However, we have the security provided by a government applying legislation that will facilitate foreign investment in many different sectors, especially growing ones like mining.

How do you see the market for insurance for mining companies growing in the coming years?

It all depends on the speed at which the industry develops.

Compared to the oil and gas industry, mining has never been as fast or as active, and a lot of mining is still done by local mining companies or individual people who do not establish their

companies formally. Itâ&#x20AC;&#x2122;s relatively easy to exploit coal in a small mine and this can be done with a small amount of capital. If most of the exploitation is done by professional and organized companies, then the industry will grow faster. But if it much remains done by informal companies, then it will take longer.

What are the key issues, challenges and opportunities for insurance in the natural resources sector?

Except for coal, mining has not historically been a very active market. As such we have the challenge of selling the risks to insurance companies and we have the challenge of making investment in our country easy for foreigners. The industry will grow with the legal system and with more knowledge and technology. But we also have to provide easy and transparent insurance. Specifically for the mining sector, our companyâ&#x20AC;&#x2122;s and our industryâ&#x20AC;&#x2122;s challenge is to have the expertise and the know-how ready when our clients arrive, having everything prepared and the markets ready to underwrite their risks.

Mining Leaders

leader insight Rupert Stebbings Managing Director Colombia Celfin Capital

Celfin Capital has been operating in Chile for 23 years, and is the country’s largest brokerage. In recent years they have used their deep regional knowledge and experience to expand to new markets, opening operations in Peru in 2008 and in Colombia in 2010. Rupert Stebbings has worked in the Colombian financial sector since 2006 and was formerly the Director of International Business at Interbolsa. BTG Pactual, Brazil’s largest independent securities firm, bought Celfin for $245 million in February 2012.

FINANCIAL & LEGAL SERVICES

Think Local As the general manager of the one of only two brokerages in all three Integrated Latin American Market (MILA) countries, I often get asked whether Celfin Capital’s decision to establish an office in Colombia was motivated by the unified bourse.

The short answer is not at all. Colombia today offers investors as much potential as any other country you might care to name.

Its relatively recent security improvements mean that its incredible natural resources are now safe and highly attractive assets, both for the country and for companies that do business here. Colombia is an enormous country. Its current population is 46 million, making it the third-largest country in Latin America and it will grow to 50 million people in under 10 years. Its massive quantities of copper, uranium, gas, gold and many other resources mean that, if it can remain stable and preserve a business-friendly environment, it could become the richest country in the region.

companies should list on the BVC, even—or especially—if they maintain other listings elsewhere.

First, listing on the BVC makes basic financial sense, since it greatly increases liquidity as can be seen in the examples of the oil companies Pacific Rubiales and Canacol, which saw volumes rise 40% and 25% respectively between the six months prior to listing and the six months following. It will connect companies to more local investors and to more eager capital.

A local listing makes all domestic Colombia offers especially strong promise for mining companies. The mining business easier. Most importantly, it industry is booming right now, as resources that couldn’t be accessed before attracts more funds. MILA’s success are now within reach. The sector also so far shows that listing on one of benefits from good oversight. It’s wellits national exchanges will help regulated, with the right amount of “Listing on the BVC makes basic companies find investors in all three structure to allow companies to operate financial sense, since it greatly of its member countries. Second, and efficiently and profitably while—just increases liquidity as can be perhaps more important, listing in as importantly, and in contrast to some seen in the examples of the oil Colombia makes very good political neighboring countries—protecting companies Pacific Rubiales and sense. This is simple, but an oversight companies and always letting them Canacol, which saw volumes rise many foreign companies make. A know where they stand, legally and 40% and 25% respectively” company facing political or legal financially. problems with local authorities is in an infinitely better position if even 20 For those companies entering the percent of its shareholders are local. market or already operating here I In a time of local pressure, having local actors personally invested in offer one piece of advice that could your company’s healthy operation makes the difference between fighting potentially help them enormously: by yourself and having people standing up for and with you. choose to list on the Colombian Stock Exchange (BVC).

Many What about the costs? They’re minimal versus the potential pool of new companies operating here already list investors and other aforementioned benefits. Good, promising companies on the Toronto Stock Exchange and, can handle these costs and will benefit greatly once the process is completed whether out of complacency or lack and the listing realized. Related to this, I think another important step foreign of understanding of the BVC, feel that mining firms can take is to establish a local office in Colombia. At the moment is good enough. It’s not. Many mining many of the gold explorers are based in Toronto and fly in and out of Colombia. firms have talked about listing on the We have seen in the oil sector that those firms that have established local BVC, but none have yet done it. This offices have often been the most successful. Having face time with other local failure of action is a huge mistake. companies and financial institutions is important, and I think that having a There are two significant reasons strong Colombian presence could be of great help to gold companies.

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LEAD ARTICLE

ml recommends

Fashion for Passion In 2011, Fortune Magazine named Bogota as one of the top 15 cities in the world in which to do business and the World Bank gave it second place in its list of top places for entrepreneurs in Latin America. Not bad for a city which just 10 years ago was considered one of the most dangerous in the world. Aptly, Colombia’s tourist board now runs the slogan ‘the only risk is wanting to stay.’ So what does a mining executive coming to Colombia have to expect?

In terms of the Colombian mining sector, the three major investment hubs are Bogota, Medellin and Barranquilla. The most important of the three being Bogota. The capital, positioned 2625m above sea level on a wide, flat, Andean plateau is the choice location for head offices of multinationals. The city is both the economic and political capital of the country and is the main entry point for flights arriving into the country.

Though in need of redevelopment, El Dorado, Bogota’s international airport, remains the largest in Latin American in terms of cargo movement, transporting 593,946 tons in 2010.

Expansion and upgrading of the airport are expected to be completed by 2014. As well as domestic carriers such as Avianca and Aires Airlines, many international carriers operate in the facility, including Air Canada, Air France, Continental, Lufthansa and Iberia. There are good connections to Europe, Canada, the United States and the rest of South America with direct international flights to Toronto, Paris, Houston, Sao Paolo, New York and Caracas among others. The easiest route from Australia is to catch a connecting flight through LA, Buenos Aires or Santiago. Medellin, Cartagena, Barranquilla and Cali also have international airports, all

of which have reported growth in passenger numbers in recent years.

The effects of the growing interest in Colombia are already being felt in the hospitality market, with a large number of new hotels being built to cater for both tourists and business visitors alike. The country offers various incentives for hotel investment including a thirty year income tax break for hotel construction. Major hotel chains have started to establish a presence here, with Sheraton announcing plans to invest over $90million in Cartagena, Avia and Marriot spending $100 million in the construction of over 1,170 hotel rooms Mining Leaders

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LEAD ARTICLE

37%

estimated increase in luxury hotel rooms in bogota 2012

Medellin has become the centre of Colombia’s gold boom and boosts some of the best nightlife to be found anywhere in the country

in Cali by 2013 and in Bogota the number of 4 and 5 star hotel rooms is expected to grow by 37% in 2012. Included in that is a new Hilton hotel for Bogota and the possibility of expansion to Medellin.

Medellin, Colombia’s second city sits 245km northwest of the Bogota is somewhat of a rival to the capital, both culturally and economically. The city, the capital of the Antioquia department and Colombia’s second largest industrial centre, was once home to Pablo Escobar and his infamous activities but in recent years has become famous for its proud Paisa culture, its fashion, its attractive population and its fantastic nightlife. It seems appropriate in that context then that this flashy city has become the epicentre of Colombia’s burgeoning gold boom. Gold represents 40% of Antioquia’s exports and many major gold companies have set up office here. Most flights to Medellin land at the José María Córdova International Airport, situated in the municipality of Rionegro and a 30-40 minute taxi ride from the centre of the city.

A further 727 kilometers from Bogota and 758 kilometers from Medellin is the Caribbean coastal city of Barranquilla.

Though not quite as charming as pop singer Shakira, the city’s most famous native, Barranquilla is nevertheless a hugely important industrial hub and the centre of the country’s coal industry. The port is approximately 11 kilometers from the Magdelena River which runs nearly

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the whole length of the country. Plans are underway to dredge parts of the river, opening it up as an important thoroughfare means of transport.

Much of the country’s coal is exported through the port.

Entry into Colombia is fairly straightforward. Nationals of some countries, including most of Western Europe, the Americas, Japan, Australia and New Zealand, don’t need a visa to enter Colombia. Entry on a tourist visa is usually for 30 or 60 days, and can be extended in any DAS office for up to six months within the same calendar year. From there you can transfer to a various different types of visas, including business visas and entrepreneurial. All foreign embassies are located in Bogota, and can be contacted if advice is needed

regarding visas.

Traditionally, Colombian media has been dominated by a small group of families, however in recent years the numbers of alternative media resources have begun to increase. El Tiempo and El Espectador are the most popular dailies, offering an overview of national and international sports, news and entertainment. La Republica, also a daily, focuses more on financial and economic happenings. Weekly and monthly magazines include Dinero, Poder, Portafolio and Semana, the latter in particular containing well researched articles highlighting issues of relevance to the mining sector. A good English-language resource providing a general overview of issues and news in Colombia is colombiareports.com. Caracol radio is the national radio station. TV remains the most popular media outlet for the majority of Colombians. Internet is widely available in all major cities.

Mining Leaders

hotel listing

RADISSON Bogota

bh LA QUINTA

HACIENDA ROYAL

Radisson Bogota is conveniently located next to the Teleport Business Park, the newest and most exclusive business area in the city.

Peace and tranquillity merge at BH La Quinta to create an intimate atmosphere that invites relaxation and rest.

Hacienda Royal allows guests easy access to shopping malls, leisure activities and a variety of gourmet restaurants.

Calle 113 # 7-65, Bogota (57-1) 629 5559 radisson@hotelesroyal.com www.radisson.com

Carrera 5 # 74-52, Bogota (57-1) 742 4908 recepcionlaquinta@bhhoteles.com www.bhhoteles.com

Calle 114 No 6Aâ&#x20AC;&#x201C; 02 : (57-1) 657 8900 contactoweb@haciendaroyal.com www.hotelesroyal.com

BH PARQUE 93

Bogota ROYAL

BH EL RETIRO

In the banking and financial district, BH Parque 93 is close to shopping malls and has easy access to the airport.

Bogota Royal has 142 spacious and newly renovated rooms, exquisite cuisine, excellent service and a high level of security.

In a fantastic location, BH El Retiro is just 300 meters away from three premier shopping malls and Bogotaâ&#x20AC;&#x2122;s excellent nightlife district.

Carrera 14 # 93A-69, Bogota (57-1) 743 2820 recepcionparque93@bhhoteles.com www.bhhoteles.com

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Carrera 8A # 99-55, Bogota (57-1) 636 2938 reservas@bogotaroyal.com www.hotelesroyal.com

Calle 80 # 10-11, Bogota (57-1) 7 56 3177 recepcionelretiro@bhhoteles.com www.bhhoteles.com

Mining Leaders

hotel listing

BH TEMPO

PAVILLON royal

BH EL POBLADO

BH Tempo has contemporary and elegant design and is perfect for those who appreciate rest and relaxation.

The Pavillon Royal is an exclusive and sophisticated hotel, characterized by its warm service and good food.

Located in the best area of Medellin, on the Avenida El Poblado, BH El Poblado has all the conveniences and comfort you will need.

Carrera 7 # 65-01, Bogota (57-1) 742 4095 recepciontempo@bhhoteles.com www.bhhoteles.com

Calle 94 # 11-45, Bogota (57-1) 650 2550 recepcionpr@pavillonroyal.com.co www.pavillonroyal.com.co

Carrera 43 # 9 Sur 35, Medellin (57-4) 604 3534 recepcionelpoblado@bhhoteles.com www.bhhoteles.com

Medellin ROYAL

ROYAL PUERTA RELOJ

Royal Barranquilla

Medellin Royal is designed to meet the highest standards of quality and service, providing guests with the comfort they need.

Urban Royal Puerta del Reloj is located inside the walled city. Framed by the impressive clock tower, it is the only hotel in the main square.

Royal Barranquilla boosts modern facilities in a central location, complete with spectacular views from the rooftop terrace.

Carrera 42 # 5 Sur - 130, Medellin (57-4) 448 5700 www.medellinroyal.com

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Carrera 7 # 34-10, Cartagena (57-5) 645 5050 reservas@hotelesroyal.com www.urbanroyalpuertadelreloj.com

Calle 80 # 51Bâ&#x20AC;&#x201C;25, Barranquilla (57-5) 373 8080 reservas@hotelesroyal.com www.smartsuitesroyal.com

Services: Chauffeur drive service Airport transfers Business meetings transfers Night events City tours and shopping tours Day trips On time, Security, Comfort and Human value

Our Company has more than 15 year of experience in special transportations to executive personal of the multinational companies and that guaranty the quality of our service.

Telephone: Tel: (571) 6008755 / 6005791 Sales telephone: (57) 3102394281 Manager telephone: (57) 3102539518 Fax: (571) 7581467 www.expresscarsa.com info@ expresscarsa.com/expresscarsa@ yahoo.com Bogotรก colombia Mining Leaders

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