Andean Gold Rush Attracts Investors

Precious metal investors are heading to Colombia and Ecuador, with each country showing that they can handle modern, large-scale mining projects...


Despite the immense geological potential, with over 100 million ounces of gold discovered by explorers in recent years, investor interest in Colombia had started to wane due the perception that the government couldn’t permit projects into production. These factors, combined with the failing gold price since 2011, saw the influx of exploration investment capital taper off as explorers ran into increasing administrative bureaucracy.

But in late 2016, Colombia persuaded investors that it was serious about developing a modern mining industry. The completion of the permitting of Continental Gold’s (TSX: CNL) Buritica gold project in Antioquia set the way for a significant gold mine that will produce over 250,000 ounces a year (oz/y).

Indeed that project came on the heels of Red Eagle Mining (TSX: R) bringing its 70,000 oz/y  San Ramon gold mine in Antioquia into production in November and Antioquia Gold (TSXV: AGD) starting construction of its Cisneros mine that will produce over 30,000 oz/y from the third quarter in 2017. These new builds will add to Colombia’s existing formal gold mining portfolio of Gran Colombia Gold (TSX: GCM) that produces about 140,000 oz/y and local company Mineros SA that produces over 100,000 oz/y.

The success of Continental and Red Eagle is seeing exploration companies, the much-needed lifeblood of the mining industry, return to Colombia. From Australia’s Metminco (ASX: MNC), which acquired the Miraflores gold project in Risaralda and plans to advance it to a feasibility study, to earlier stage exploration stories such as Angel Gold (TSXV: ANG) and Royal Road Minerals (TSXV: RYR).

Copper is also generating a lot of exploration interest in Colombia, particularly since mining investor legend Robert Friedland invested in Cordoba Minerals (TSXV: CDB) and its San Matias project in Cordoba that has the possibility of being a large-scale copper-gold district. AngloGold Ashanti is also getting increasing attention for its Nuevo Chaquiro copper-gold project that hosts 604 million tonnes grading 0.65% copper, 0.32 g/t gold, 4.4 g/t silver and molybdenum. “[Monster Mongolian copper project] Oyu Tolgoi has similar geology as [Nuevo Chaquiro]. We are going to do a conceptual study on the high-grade core of the deposit,” said Nick Winer, VP Greenfields Exploration, AngloGold Ashanti.

Peace dividend

Bureaucracy wasn’t the only headache for miners in Colombia. The ongoing war with various guerrilla groups affected many of the areas that have the best mining potential. Now the historic peace deal agreed with the Farc guerilla group has effectively opened up a large swathe of the Andes mountain chain to Colombia’s mining and exploration sector. Stretching from the southern border with Ecuador up to Cali, it is an area that is largely unexplored due to the conflict. Evidence of the potential for large discoveries is shown by Solgold’s (AIM: SOLG) Cascabel gold-copper project in Ecuador some 25km south of the Colombian border in Ecuador.

Peace will also bring challenges according to Sergio Guzman of Control Risks Group who cautions that the political capital that President Juan Manuel Santos expended to achieve a peace agreement, could see the legislative agenda paralyzed for the remaining two years of his administration. For Guzman, peace will mean that communities are likely to want, “a greater say in projects; communities will want a seat at the table, they will want to reap a peace dividend and see their conditions improve.”

Despite the recent progress, Colombia is not without its challenges as the Colombia Gold Symposium in Medellin in November highlighted. During the event, Javier Garcia, Vice President at the National Mining Agency (ANM) admitted that the recent decision to allow local authorities to have a say in whether mining and exploration activities can occur in their territories slowed the processing of concession applications as the ANM adjusted to the changing legal landscape.

"Despite the recent progress, Colombia is not without its challenges…"

Indeed Colombia faces an increasing number of international lawsuits for its alleged failure to protect the acquired rights of mining concession holders. Eco Oro Minerals (TSX: EOM) is taking action against the government under the Free Trade Agreement (FTA) between Canada and Colombia claiming that government measures and omissions directly impacted the rights granted to it to exploit its Angostura gold project in Santander in which it has invested over $200million.

Of course seasoned investors will know that Colombia has not turned into a mining paradise overnight. Challenges remain. However, the steady stream of permitted projects last year shows that conditions are improving. Moreover, thanks to the previous difficulties there are a host of projects available with excellent potential. The early movers will reap the best rewards.


Ecuador’s fall from and return to investor favour is more dramatic and more related to politics than bureaucracy. Buoyed by strong oil prices at the start of the decade, the government of President Rafael Correa implemented a series of mining sector reforms that resulted in higher taxation and increased state participation, and it stopped issuing exploration concessions. The subsequent fall in the oil price saw the government backtrack and put policies in place to make the country attractive to mining investors again, with growing success.

Realising that it had gone too far, the government retained consulting firm Wood Mackenzie to help reform its mining regulations and taxation to be attractive to the sector. A key outcome is that certain taxes are not payable until a project has recovered its capital costs and the conditions under which a sovereign adjustment and windfall tax payments are levied have been made very specific and less likely to occur. “Due to the capital intensity of mining, it will not apply until late in a mine’s life if at all. When a project breaks even, it is still a long way behind the country’s tax take so it is unlikely to apply unless a mine is not very capital intensive,” said Patrick Barnes of Wood Mackenzie regarding the sovereign adjustment.

"interest in Ecuador is growing again…"

Pivotal in Ecuador’s mining story is the massive Fruta del Norte gold deposit. Formerly owned by Kinross Gold (TSX: K), the aggressive taxation changes meant Kinross was unable or unwilling to reach an agreement with the government and it walked away from the project. Sensing an opportunity, the project was snapped up by Lundin Gold (TSX: LUG). Thanks to the changes in the taxation regime Lundin achieved less onerous terms and already received all permits to start building a gold mine. “We have negotiated more favourable terms based on Ecuador’s decision to build a competitive and responsible mining industry,” said Lundin Gold President & CEO Ron Hochstein.

Lundin’s agreement includes a flat rate 5% net smelter return royalty that is deductible against future royalties; an advance royalty payment of $65million paid in three instalments over two years and recoverable over five years. The corporate tax rate was fixed at 22% and government legislation extends VAT recovery to the mining sector.

With Lundin showing the way, interest in Ecuador is growing again. INV Metals (TSXV: INV) is one of the first to benefit having recalculated the pre-feasibility study of its Loma Larga gold-copper project at the start of 2016 informed by the way that Lundin handled taxation, which improved project economics and enabled it to increase its scale from 1,000 tonnes per day (tpd) to 3,000 tpd.


With investors no longer so fearful of the potential government take in Ecuador, exploration interest is returning. Following a six-year freeze on applications, Ecuador began to issue exploration concessions again at the end of 2016. With the Constitution preventing the state from directly awarding concessions, applications will be via a Swiss challenge procurement process that allows other companies to match or exceed the original bid. To date, more than 300 exploration areas have been requested.

Solgold already had exploration concessions, and its 2016 results at its Cascabal gold-copper project have underscored the country’s potential. Cascabel was one of the key exploration successes of 2016 anywhere in the world with more than six drill holes returning intercepts of over 1,000m grading more than 1% copper equivalent. That was enough to see Australian major Newcrest Mining (ASX: NCM) to invest in the company. “We have only drilled 23,700m in 18 holes so far and that includes six of the 30 best intercepts on the planet,” said VP exploration Jason Ward. That was echoed by a Dundee Capital Markets report: “Drilling has returned some of the most impressive copper-gold porphyry intercepts we have ever seen.”

With money flowing into the mining sector again, 2017 promises to see increasing interest in both Colombia and Ecuador from project financings to exploration capital.