For good reason, gold explorers, producers and investors have their eye on Colombia
Published in March 9, 2012on
Found in the The Globe and Mail • An Information Feature
By Eric Hoesgen and Dennis Hoesgen
Senior Investment Advisors
Canaccord Wealth Management
Less than two decades ago, Colombia’s economy – and mining activity – was languishing. Today, sophisticated mineral exploration teams from around the world arrive at Bogotá El Dorado International Airport every week, keen to work in what has become one of the world’s key resource industry hot spots. They are coming to Colombia not only because of its inherent resource wealth, but also because of government policies that have helped make Colombia a stable, business-friendly economy that welcomes responsible mineral exploration and mining.
Once infamous for its illicit drug trade and internal strife, Colombia’s efforts to address these issues have paid dividends. Since 2002, when the military crack- down on the FARC (Revolutionary Armed Forces of Colombia) began, foreign direct investment (FDI) in Colombia has surged. Between 2005 and 2010, FDI in mining grew at an average rate of five per cent annually.
In 2009, FDI in Colombia’s mining industry soared to $3.24 billion US, helping make mining one of the nation’s top five drivers of economic growth and job creation, as defined by President Juan Manuel Santos’ ‘Prosperity for all’ program. In 2010, mining was responsible for an impressive 30 per cent ($2.05 billion) of Colombia’s FDI, and 2.2 per cent of its GDP. Last year, the mining industry generated 227,000 direct jobs, according to a survey by the National Administrative Department of Statistics.
Indeed, the last 10 years has seen Colombia’s potential to become a major gold-producing nation reawaken and build on a history of gold production that stretches back to the 1500s. In fact, until 1937, Colombia was the largest gold producer in the Americas. Already, Colombia has risen to become the 19th largest gold producer in the world and 5th in South America.
Another aspect of Colombia’s rising success is due to the passing in 2001 of a contemporary Mining Act that requires companies to present a Social and Environmental Impact Study (EIS) in order for a concession to proceed from its exploration phase into the mine construction/production phase. This resulting emphasis on social and environmental responsibility has upped the ante in the mining world and is proving to be an arena where forward- thinking Canadian companies are building competitive advantage.
In fact, select Canadian exploration companies operating in Colombia are going beyond sheer legal compliance by investing in social and environmental programs to help build positive, lasting relationships with local communities. In part, this involves hosting workshops and meeting with community leaders to present and discuss the company’s initiatives. It also means listening and responding to the concerns and goals of local citizens, including how they can best participate in a project. Leading companies are also working to measure and mitigate the impacts of their operations on the air, water and soil.
Efforts like these are not only the ethically right thing to do; they are also helping to ensure the sustainability and progression of projects.
Vancouver-based Batero Gold Corp., for example, is among the Canadian exploration companies taking such a sustainable approach to business in Colombia. As a result, not only has Batero garnered strong support among Colombian investors, it also has earned strong support among local residents, who are benefiting beyond direct employment in Batero’s exploration work. For example, Batero’s innovative ‘Farms for the Future’ program doesn’t just pay local coffee farmers for the right to explore on their property, the company helps these farmers build a better future for themselves by exchanging less productive land for acreage in adjacent valleys better suited to coffee farming. The program also provides these farmers with better housing and farming equipment. Families who participated in Farms for the Future have been able to substantially increase their income.
In the world of resource investing, efforts like these can make a big difference to a project’s long- term potential to succeed.
Major mining companies are paying attention, particularly when significant resource discoveries are made. Notably, in 2010, EBX Group, a Brazilian holding company founded by mining magnate Eike Batista, made an unsolicited $1.5 billion US offer for 80 per cent of Ventana’s outstanding shares. In a stunning move two months later, EBX increased its offer by 30 per cent. Ventana shareholders accepted. Recently, major gold producer IAMGOLD Corporation took more than 10 per cent stakes in Colombian junior gold exploration companies Tolima Gold Corp., Bellhaven Copper and Gold Inc., and Colombia Crest Gold Corp.
Investments like these are driving business that has already helped Colombia earn rank among the world’s leading emerging economies. For this and other reasons, junior resource exploration companies with strong prospects in Colombia are worth watching.
This article is solely the work of its authors, Eric Hoesgen and Dennis Hoesgen, registered Senior Investment Advisors at Canaccord Wealth Management, a division of Canaccord Genuity Corp., Member Canadian Investor Protection Fund. The views expressed in it are those of the authors alone and are not necessarily those of Canaccord.
Eric Hoesgen and Dennis Hoesgen can be reached at (604)643-7705 or HIP@Canaccord.com.
This report was produced by Randall Anthony communications inc. (www.randallanthony.com) in conjunction with the advertising department of the globe and Mail. richard Deacon, national Business Development Manager, firstname.lastname@example.org.