Mining Leaders: COLOMBIA 2013 (preview)

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6 lead article: Colombia Expects 14 leader insight

28 lead article: Bounty of the Caribbean 32 feature interview

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

15 box: The Man to Crack the Code?

16 Q&A

L. Moretzsohn · CCX · Partners with Nature

34 company focus

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

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

A. Ruíz · Inter-American Coal

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

D. Linsker · Control Risks · The Risk Remains

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

Design Assistant: Camilo Patiño Díaz

41 company focus:

International Media Coordinator: Karen Delgado Executive Directors

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

R. Stovash · CER · A Stalled Locomotive

Administrative Manager: Silvia González

Charlotte de Casabianca & Raluca Monac

35 Q&A

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

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

J. C. Quintero · Carboandes

2013

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gold

67 Q&A

J. Carrelo · Eco Oro · A New Approach

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

68 70 71 72 73 75

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

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

50 feature interview: Ari Sussman 52 project focus

base metals & uranium

I. Slater · Red Eagle · Santa Rosa

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

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

58 company focus

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

in with the New

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

J. López · Tolima Gold

59 60 62 63

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

R. Carrington · The Pioneer’s Perspective

84 lead issue: The Auction Block 86 Q&A

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K. Cunningham · Miranda Gold

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

R. Spencer · U3O8 Corp. · Uranium Nation

87 box: The Blue Gold Rush

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mining technology & services

88 lead article: Modern Times 94 company focus

Oliver Hoelzer · Liebherr

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

CONSULTANCY, financial & legal services

112 lead article: Taking Stock 116 Q&A

S. Petrovich · AK Drilling International

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

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

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

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

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

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

F. Jaramillo · Downing Teal

101 market focus: Technology & Automation 102 company focus

ml recommends

126 company focus

W. Feragotto · Golder Associates

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

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politics & economy

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lead article

Colombia

Expects C

PHOTO: Presidencia de la República de Colombia

olombian politics has seen some dramatic twists in 2012.

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

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

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

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90%

of seats in congress controlled

by Santos’s Partido de la U

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

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

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

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its current raw-materials bonanza.

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

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

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

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

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

Number of annual attacks by the FARC, 1997–2011

Source: www.arcoiris.com

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

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

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

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

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

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

55.9

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

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

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

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

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

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

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

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

The Key or the Caguán?

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

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

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

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

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

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

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

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

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lead article

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

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

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

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

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

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

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

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

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

Santos’s approval ratings

Source: www.colombiareports.com

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

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

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

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leader insight

Juan Manuel Santos President Republic of Colombia

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

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

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

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

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

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

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

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

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

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

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

The Man to crack the code?

BOX

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

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

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

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

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q&a

LICENSE María Constanza García President Agencia Nacional de Minería

TO DRILL

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

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

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

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

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

How will you improve communication with these ministries?

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

What infrastructure does Colombia need for the mining industry?

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

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

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

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

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

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

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

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

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

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article

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

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

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

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

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

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

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

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

At full capacity, the ANM will employ

Results of Mining Leaders Investor Survey 2012:

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

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

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

article

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

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

Acquiring permits for water usage and

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

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

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

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

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

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

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

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

Source: Fraser Institute

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

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

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q&a

THE BANK’S

Daniele La Porta Mining Specialist World Bank

BEHIND IT

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

In June the World Bank undertook a mission to Colombia.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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company focus

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

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

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

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

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

Olga Fernández Director Colombian-Canadian Chamber of Commerce

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

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

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

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

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

q&a

a changing

Chamber

César Díaz President Colombian Chamber of Mines

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

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

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

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

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

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

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

Colombia has not lost the confidence of foreign investors.

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

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

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

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

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

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

How can the royalties system be organized to avoid corruption?

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

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

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

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q&a

Perils of

José Antonio Ocampo Professor Columbia University

the Boom

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

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

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

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

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

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

How can Colombia combat Dutch disease?

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

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

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

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

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

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

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

José Antonio Ocampo

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

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

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

closing the gulf

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

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

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

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

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event profile

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

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

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

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

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

Eduardo Chaparro Director Asomineros

the individual contracts negotiated at each of the exhibition booths.

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

$530

million

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

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

Estimated value of deals made at Colombia Minera 2012

Destinations 2012-13

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

London • Hong Kong • Beijing • Australia

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

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

Brought to you by the events team at

ralia 12 Aust , 20

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

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

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

Brought to you by the events team at

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

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01/06/2012 11:13

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lead article

bounty of the caribbean

F

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

PHOTO: CCX

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

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lead article

thousands of tons

contribution by department to national coal production 2007–11

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

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

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

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

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

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

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lead article

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

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

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

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

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

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

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

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

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

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

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

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

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

feature interview

partners with nature

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

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

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

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

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

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

opportunity to head CCX came his way.

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

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

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2012