Paul Harris: Placing Bets On Colombia

Some exploration projects in Colombia are advancing to the mine definition stage, says Paul Harris, the Colombia-based editor and publisher of the Colombia Gold Letter, and with the government starting to provide the level of administration that the sector needs, the country is poised for great things. In this interview with The Gold Report, Harris discusses the implications of Colombia's 2001 mining code and which companies are leading the project development curve.

The Gold Report: What makes Colombia an appealing mining jurisdiction to investors?

Paul Harris: Colombia has gold and it's high grade. There hasn't been a great deal of modern exploration and so there are probably a lot of deposits yet to be found. In the past 10 or 15 years around 90 million ounces have been discovered here.

TGR: How are investors affected by the recent news that the mining code in Colombia might not change, as it was previously thought?

PH: Effectively, Law 1382 of 2010 is dead and buried, so Colombia is left with Law 685 from 2001. This is generally considered a good thing in the mining and exploration sector because it is a technically based law, and people on both the government and the exploration mining sides are familiar with it. We can now expect the ministry to issue some administrative instruments to correct specific clauses. For example, Law 685 said you can't mine in the famous páramos, but it never defined what the páramos were. That needs a regulation that can be implemented via an administrative instrument. It doesn't need the drafting of a new law.

TGR: Are páramos similar to the national parks in the United States?

PH: No. A páramo is a specific ecosystem that typically occurs above 3,000 meters elevation. It is a rare ecosystem that has characteristic flora and fauna. Páramos should be well defined to ensure that they're protected and also so that land that is not páramo can be available for exploration and mining or, indeed, other economic activity.

The Gold Report: What makes Colombia an appealing mining jurisdiction to investors?

Paul Harris: Colombia has gold and it's high grade. There hasn't been a great deal of modern exploration and so there are probably a lot of deposits yet to be found. In the past 10 or 15 years around 90 million ounces have been discovered here.

TGR: How are investors affected by the recent news that the mining code in Colombia might not change, as it was previously thought?

PH: Effectively, Law 1382 of 2010 is dead and buried, so Colombia is left with Law 685 from 2001. This is generally considered a good thing in the mining and exploration sector because it is a technically based law, and people on both the government and the exploration mining sides are familiar with it. We can now expect the ministry to issue some administrative instruments to correct specific clauses. For example, Law 685 said you can't mine in the famous páramos, but it never defined what the páramos were. That needs a regulation that can be implemented via an administrative instrument. It doesn't need the drafting of a new law.

TGR: Are páramos similar to the national parks in the United States?

PH: No. A páramo is a specific ecosystem that typically occurs above 3,000 meters elevation. It is a rare ecosystem that has characteristic flora and fauna. Páramos should be well defined to ensure that they're protected and also so that land that is not páramo can be available for exploration and mining or, indeed, other economic activity.

PH: The two leading candidates are Continental Gold Ltd. (CNL:TSX; CGOOF:OTCQX) with Buriticá and Red Eagle Mining Corp. (RD:TSX.V) with Santa Rosa. Continental Gold's Buriticá could be producing 200,000 ounces (200 Koz) a year for 20 years. It will be a cash cow for Continental Gold or whichever major eventually takes it over. Red Eagle Mining is more modest, with a 10-year production horizon at a smaller volume of perhaps 50 Koz a year. It's relatively high grade and near surface, so it should become a gold mine.

TGR: Several members of Continental's management team were part of Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX), which is entering production in Brazil. Does that give you more confidence in Continental?

PH: Ari Sussman had great success at Colossus Minerals and is repeating that at Continental. At both companies he brought in the best technical expertise he could find, which increases the chance for success and successful execution.

TGR: Red Eagle Mining raised $20 million last year. How far will that take the company?

PH: All the way to the feasibility stage. It hopes to have its preliminary economic assessment sometime in the second quarter, and then it's going straight to feasibility, which it says it will complete in the first quarter of 2014.

TGR: Has it talked about tons per year or ounces per annum?

PH: It's got a resource of about 800 Koz.

TGR: How is it expanding that resource?

PH: Red Eagle was the first company in Colombia to readjust its strategy to focus on near-term production. It refocused on its San Ramon deposit at Santa Rosa to bring that into production, which will enable the company to survive and get some cash to do other work on its Santa Rosa concessions.

TGR: So this company looked at the financial climate and decided to develop the 800 Koz it has right now so it can get some cash flow and be less dependent on the equity markets for funding?

PH: That's right. In this day and age any company with the possibility of near-term production is going to actively look for it because it's not going to get any money for exploration from the markets. If it has cash coming in, it can keep going. Seafield Resources Ltd. (SFF:TSX.V) is taking that approach, as is Batero Gold Corp. (BAT:TSX.V). In Chile, QRS Capital Corp. (QRS:TSX.V) is looking at that with its copper project.

TGR: Does a merger between Batero and Seafield ultimately make sense?

PH: In many ways it does because the two projects are next-door neighbors. Having shared infrastructure and shared roads makes sense. However, both Batero and Seafield are run by very competitive CEOs, so coming to an agreement about who wears the trousers may be difficult. There may be too many egos involved for a merger to occur. That said, they have some important shareholders in common that could eventually try and push them together.

TGR: Can you tell us about some other companies operating in Colombia?

PH: Another possible gold mine is Gramalote, a joint venture 51% owned by AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and 49% by B2Gold Corp. (BTO:TSX; BGLPF:OTCQX). It's at the prefeasibility stage. I think the two partners have different strategies for that project. For AngloGold Ashanti, I think it's a pilot project to show Colombia that it's able to develop modern mines safely and in a way that benefits everyone and cares for the environment so that it can develop its massive La Colosa deposit. B2Gold is an emerging midtier producer and I think it really wants to optimize Gramalote for making money. Their different perspectives may mean the partners have different opinions about optimal pit size and production rate. For that reason I think AngloGold Ashanti will eventually buy out B2Gold so it can develop Gramalote as it wants to. I imagine that is why it wrestled operating control from B2 a couple of years ago, so it can proceed with its plan.

TGR: What about Eco Oro? Will Angostura eventually become a mine?

PH: Eco Oro Minerals Corp. (EOM:TSX.V) owns Angostura. It's at the prefeasibility study stage. I think Eco Oro is waiting for three things—the results of its prefeasibility study, the location of the Santurbán Park boundary and the definition of the páramo ecosystem.

The Santurbán Park boundary has been defined and—surprise, surprise—it didn't impact any of the ore bodies defined by the companies exploring in that region. It still remains for the government to define a páramo. How and where it draws that line could have an impact. Perhaps the most important of those three things for Eco Oro is the prefeasibility study.

TGR: Any other companies you would like to mention?

PH: Atico Mining Corp. (ATY:TSX.; ATCMF:OTCBB) has an option to acquire 90% of El Roble. Atico was due to exercise its option in the second quarter, and when it does it will obtain copper production. It has until the end of 2013 to exercise its option and given the recent fall in the markets and stock prices and given that the option will cost it $14 million, it may decide to postpone that until the end of the year to try and build up its stock price again so that any potential equity financings are less dilutive.

The company has a very clear understanding of the mine and the deposit and will be looking to increase production when it takes control. The mill was built by the Japanese and has more production capacity than the mine currently uses. The company will only have to increase its mining rate and open up new areas for exploitation to rapidly increase production and start generating even greater cash flow.

TGR: Is it producing copper concentrate and gold concentrate, or is it producing dore and copper concentrate?

PH: It's a copper concentrate, and the copper concentrate contains gold.

TGR: Do you agree with recent drill results that suggest there is potential for further discoveries at El Roble?

PH: Absolutely. Atico was attracted to El Roble because it's a volcanic massive sulphide (VMS) deposit, and those typically have clusters of lenses. Yet El Roble only exploits one lens. Under the VMS model there should be other lenses in its vicinity. It has a 10 kilometer strike or trend to explore. It has other targets to drill and expects to find other high-grade copper-bearing lenses.

TGR: Do you have one last piece of advice for Colombian investors?

PH: Patience. Exploration and mining is a long game. If you expect to get rich quick you better go to a casino, spin the wheel or put it on the horses.

Paul Harris is a mining information expert with over 12 years of experience as an analyst, journalist and researcher on the mining industry. He has spent nine years in Latin America, four years in Colombia and five years in Chile. Harris has written for leading industry publications and business newspapers around the world and produced reports for leading consultancy firms prior to starting the Colombia Gold Letter.

DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Continental Gold Ltd., Red Eagle Mining Corp., Colossus Minerals Inc., B2Gold Corp. and Atico Mining Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Paul Harris: I or my family own shares of the following companies mentioned in this interview: Continental Gold Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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