Mining Leaders
1
2
colombia 2012
Mining Leaders
3
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
5
6
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
7
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
9
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
10
colombia 2012
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,
500
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
12
colombia 2012
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
14
colombia 2012
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
15
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
16
colombia 2012
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
17
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
18
colombia 2012
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
19
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.
20
colombia 2012
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
21
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 were previously government projects. The firms involved bought into projects that communications. Both Cerrejón and 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
22
colombia 2012
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
24
colombia 2012
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
25
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
26
colombia 2012
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)
Mining Leaders
27
28
colombia 2012