Colombia enters crucial make-or-break stage

By: Anthony Vaccaro
2012-12-21

It’s safe to say that some of the initial fervour around mineral exploration in Colombia has cooled recently.

The explanation is twofold.

First, on the macro side of things, the theme for big money over the last year has been a flight to safety, with dividend-paying miners in the developed world, rather than mine developers in emerging markets like Colombia, being the preferred destination for capital.

On the micro side, Colombia has rattled investors by creating an impression of uncertainty around environmental issues, with the status of one of the country’s  pre-eminent gold projects, Eco Oro Minerals’ (EOM-T) Angostura, still up in the air because parts of it rest in the high-altitude paramo ecosystem that the government aims to protect.

Folded into the mix is the status of artisanal miners, an especially touchy subject not only as the government tries to balance artisanal miners’ prosperity against environmental degradation and the fact that many small-scale mines are suspected to be supplying funds, willingly or not, to armed illegal groups like the FARC.

Such challenges have been reflected in the Fraser Institute’s survey of mining companies for 2012, which saw Colombia’s score fall to 38 from 51.2 the year previous. Colombia now ranks 64th in the world, just below Tanzania and above Argentina’s Santa Cruz province.

Investors are watching President Juan Manuel Santos closely, as he will preside over a new mining code expected to come into effect in 2013. He has big shoes to fill as his predecessor, Alvaro Uribe, is credited with ushering in an era of relative security that paved the way for the inflows of foreign capital that made Colombia the talk of the mining world just a few years ago.

The code should be implemented at a crucial time as many onlookers expect 2013 to be a key year in the evolution of mining in the country as some near-term development projects begin the push to see if a modern profitable gold mine can be brought into operation in Colombia.
Broadly speaking, Colombia’s significant gold properties can be found in one of three zones. Most prominent in terms of junior activity is the Middle (Mid) Cauca Belt, which hosts large-scale projects such as AngloGold Ashanti’s (AU-N AGG-A) La Colosa project in the south. Just north of La Colosa lies Batero Gold’s (BAT-V) Quinchia project, followed by Gran Colombia Gold’s (GCM-T) Marmato, Sunward Resources’ (SWD-T) Titiribi, and Continental Gold’s (CNL-T) Buritica at the northern end of the belt.

To the east of the Mid Cauca is the Antioquian Batholith, which hosts AngloGold and B2 Gold’s (BTO-T) Gramalote, Gran Colombia’s Segovia mine and Red Eagle Mining’s (RD-V) Santa Rosa.

Further east towards the Venezuelan border lies the California District in the Santander department, which hosts the world-class La Bodega and the aforementioned Angostura.

La Bodega was, of course, discovered by Ventana Gold, which was then taken out by Eike Batista’s EBX Group for $1.5 billion. The Brazilian billionaire has continued his Colombia buying spree with recent takeovers of juniors Galway Resources and Calvista Gold.

Sunward Resources (SWD-T)

Sunward Resources owns the Titiribi project, 70 km southwest of Medellin in the Mid-Cauca belt of Antioquia Department.

With measured and indicated resources at 4.58 million oz. gold contained in 275.4 million tonnes grading 0.52 gram gold and inferred resources at 6.4 million oz. gold in 359.6 million tonnes grading 0.56 gram gold, the Titribi story has been largely about scale.

(The project also contains 615 million lbs. copper at a grade of 0.17% copper in measured and indicated resources and 389 million lbs. copper at 0.09% copper in inferred resources.)

Now, management is focusing in on getting all that tonnage into production.

“At this stage, the plan is to move up the value chain and to start to remove risk and uncertainty,” says Colin Andrew, CEO of Sunward.

The company wants to ensure that development costs at Titribi are reasonable, and to keep things manageable, it’s looking at mining the shallow part of the property’s key Cerro Vetas deposit via a 200-metre-deep open pit that would be roughly circular in shape, with the edges being made up of a topographical high.

That high ridge around the edge is a key point as it makes a large hole in the ground more palatable, since mining would be visible from the surrounding communities.

Sunward signalled to the world that its ambitions are greater than the average junior when it managed to raise $51.3 million in a private placement two years ago. The key investor in that financing was the Electrum Group — a private company founded by Thomas Kaplan that holds stakes in a vast suite of mining projects around the world.

Electrum Group’s president, Igor Levental, says Titiribi’s size potential caught the company’s attention.

“The endowment was 3.7 million ounces inferred, plus copper when we arrived,” he says. “But in the setting it is in, we felt it should grow substantially.”

Levental, who also serves on Sunward’s board, emphasizes that Sunward not only has the scale to drive a profitable mine in the future, but also the right people to get it there.

The board includes Gil Leathley, the former chief operating officer of Homestake Mining; Greg Lang, the former president of Barrick Gold North America; and Ricardo Duarte, who was Colombia’s chief trade negotiator under the Uribe government, and presided over Canada’s free-trade agreement with Colombia.

“We have a really strong board and the project is growing,” Levental says. “We’re comfortable with the area. We did our due diligence on the district and its history. Geopolitical issues are very important to us, and we’ve found that Colombia has been a rewarding place to operate in.”

Solvista Gold (SVV-V)

Still within the Mid-Cauca belt, about 30 km south from Titiribi and 10 km north of Gran Colombia Gold’s world-class Marmato project, is Solvista Gold’s early stage Caramanta project.

At presstime, only results from three drill holes had been released, but the market has shown enthusiasm for the idea that the company could be on to the next big copper and gold porphyry find in the region. Solvista shares began September trading for 44¢, but as drill results came out, the stock closed as high as $1.16 during the month.

The early success comes as less of a surprise when it’s considered that the company was born out of Grupo de Bullet’s assets. Bullet was founded and presided over by Bob Allen, an early mover in Colombia’s gold exploration space who has been able to lock up a great deal of prospective ground. Bullet currently has a 28% stake in Solvista.

Solvista listed on the TSX Venture Exchange in May 2011 and started drilling first at its Guadalupe property. It wasn’t until June 2012 that drilling at Caramanta began, but when the property returned porphyry style mineralization in an intercept of 149.7 metres grading 2.1 grams gold, it became the focus. The company now plans to spend 80% of its exploration budget at Caramanta.

Just eight days after the discovery hole was released came results from the third hole at the project. That hole returned an intercept of 133.7 metres grading 1.54 grams gold equivalent and another of 191.3 metres grading 1.04 grams gold equivalent.

Solvista is in the midst of an 8,000-metre program, with one of the two drill rigs turning at the property targeting the area around the El Reten discovery, while the second tests satellite targets farther afield.

Results from the broader exploration targets are expected early next year, and in the meantime, Solvista will focus on delineating the known zone.

With $6.5 million in cash, Solvista CEO Miller O’Prey estimates those funds will last into mid-2013, or to the end of the year, if necessary.

Up to $13 million in new funds could come from the exercise of warrants that expire in April and May at a strike price of $1.10. The junior’s shares have recently traded between 75¢ and 85¢.

While O’Prey says the geology of Caramanta may differ from its more renowned neighbours, the end game is similar: “It will end up with a big hole in the ground,” he says.

As for the regulatory environment in the country, O’Prey is pragmatic in his outlook.

“The government at the highest levels has made it clear that mining is one of five motors of economic development,” he says. “But there’s still a lot of learning to be done in mid to lower levels of the bureaucracy. It takes a lot to make the wheels turn, but that’s just the growing pains of an emerging industry.”

Red Eagle Mining (RD-V)

East of the Mid-Cauca is the Antioquian Batholith, where Red Eagle Mining’s Santa Rosa project lies, roughly 70 km north of Medellin.

Acquired from a Colombian who owns small-scale mines around the country, the property certainly had historic credentials. It hosted a mine 400 years ago that produced an estimated 30 million tonnes of ore, says Red Eagle CEO Ian Slater.

“There aren’t many properties left in the world that were once Colonial-era mines that are not modern mines today,” Slater says.

The property has been worked by artisanal miners since (as evidenced by the more than 500 adits Red Eagle has found on the property), but the former land owner legalized all the workers, hired them and then moved them to another property when Red Eagle purchased the land.

Perhaps the diminished risk on the artisanal relations side helped Red Eagle on the financing front. The company raised eyebrows earlier this year when it managed to raise over $20 million in a private placement at a time when few juniors were able to scare up a few pennies from equity markets.

Slater says Red Eagle’s financing success was due to the quality of its project.

“We’ve drilled 23,000 metres already and a lot of those holes came back with spectacular results,” he says. “We had four holes hit high grade with over five to seven metres of 30 to 40 grams (gold) and we have a clear plan to get into production.”

With the financing, Red Eagle is funded right through feasibility.

The company expects to have a maiden resource by the end of 2012 and a preliminary economic assessment by the end of the first quarter of 2013, after which it will start the permitting process.

While no formal studies have been completed yet, Red Eagle is considering initially building an open-pit mine with a 2-million-tonne-per-year carbon-in-leach plant. The projected capex would be under $100 million, and the open pit could be expanded to include an underground operation, depending on the results of a recently started fourth phase of drilling.

The 17,000-metre drill program is aimed at in­­creasing the quality of the forthcoming resource estimate and extending the resource at depth. It will test the deposit to 500 metres depth, twice the depth of previous drilling.

Previous drill highlights include: 39.7 metres grading 1.59 grams gold; 58.9 metres at 1 gram; and 66.9 metres at 3.06 grams.

While those intercepts are promising, Slater is most excited by the scale of the project, as there are veins throughout the ground, with the economic concentrations occurring in the shear zones.

Red Eagle has only tested one shear zone so far — San Ramon, a 1.8-km-long shear zone in the eastern half of the property, where the previous owner had mined high-grade veins.

A projected open pit at San Ramon overlays a mineralized zone that is 20-30 metres wide and open at depth.

Red Eagle hopes to start construction of a modern gold mine in 2014.

Atico Mining (ATY-V)

Staying with the Antiquoan Batholith, but flying under the radar, is Atico Mining, which has an option to acquire the El Roble mine.

The company began its Colombian odyssey when Jorge Ganoza, CEO of Fortuna Silver Mines (FVI-T) heard about a small operating mine in Colombia near Medellin back in 2010.

Trafigura and a Mexican group were negotiating with a private owner for El Roble, but when the two sides couldn’t come to terms, Ganoza’s team stepped in and struck an option agreement on the property in early 2011.

That agreement outlines a two-year staged payment, including a $2.25-million payment that has already been made. The next step, which would trigger the option and give Atico a 90% stake in El Roble, is a lump sum payment of $14 million.

The deal expires in January, but can be extended one more year for $1.2 million. Atico, which has about $4 million in cash, plans to use its right of extension so it can finish up its current exploration program. The company has completed half of an 11,000-metre drill program that is expected to wrap up in April.

In the meantime, El Roble continues to produce copper and gold concentrate. The underground mine has been operating for the past 22 years with a flotation mill that has a capacity of 400 tonnes per day. Throughput is currently 360 tonnes per day with mining going down to the 2,000 level, which is 230 metres below the surface. Ganoza says roughly 1.5 million tonnes of high-grade ore has been mined to date.

Atico believes that the volcanogenic massive sulphides being mined in the upper zone extend in the same direction at depth. If it does display such symmetry (as VMS deposits are known to), El Roble could have another 1.5 million tonnes of mine-worthy material.

Bolstering Atico’s hypothesis are drill results that have intersected mineralization 230 metres below the 2,000 level.

Highlights from the drill program include: 40 metres grading 6.5% copper and 17 grams gold; 40 metres of 6.5% copper and 1.8 grams gold; and 18 metres at 10% copper and close to 2 grams gold.

While those grades are impressive, Atico hopes to find other deposits on the 60-sq.-km property as well. “VMS deposits usually happen in clusters and we see potential for other finds around El Roble,” Ganoza says.

Another growth driver at the property is increased efficiency at the current mine. While no National Instrument 43-101-compliant resource has been completed on the deposit, the owners claim to have another year’s worth of reserves.

A historical estimate done by Kennecott outlined 1.2 million tonnes grading 4.8% copper and 3.2 grams gold. The current operation, however, has been milling at an average head grade of just 2.5% copper and 2.5 grams gold per tonne.

“The fact that the average grade is lower than the historical resource is due to dilution,” Ganoza says. “They are using very unsophisticated mining techniques.”

But while the mining may be lacking, Ganoza says the mill is ready to go.

“The majority of capex will go into the mine to bring it up to standard,” he says.

Atico expects that will cost $4-5 million — roughly the same amount the current mine is expected to generate in free cash flow this year.