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Colombia a Hot Investment Market

Stock-Markets / Emerging Markets Oct 18, 2010 - 02:25 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleChris Berry is the founder of the New York-based mining research firm, House Mountain Partners, LLC, which focuses on the evolving geopolitical relationship between emerging and developed economies, the commodity space and junior mining and resource stocks positioned to benefit. Miller O'Prey, a well-respected professional geologist, is COO of Solvista Gold Corp. He has been working in Colombia for five years, and previously worked with both Grupo de Bullet and Continental Gold Ltd. In this exclusive interview with The Gold Report at the 6th Annual Colombian Mining Conference in Medellin, they share their enthusiasm about Colombia as an emerging investment market and offer strong recommendations for junior mining firms that offer excellent prospects.

The Gold Report: Chris, why do you think we are seeing such an increase in foreign investment in mining in Colombia, and how would you describe the current investment environment? What are the political changes in the past 10 years that have created opportunities for foreign investors?

Chris Berry: One of the things that we focus on in our research is geopolitics and its effects on juniors. We look at the political, economic and geopolitical implications that provide compelling investment opportunities.

Colombia over the last 10 years has certainly changed its tune, first with the election of President Uribe and now with President Santos, the former defense minister. They both have engendered political stability by fomenting democracy and pro-business policies. Between 2000 and 2009, the average GDP growth rate in Colombia was about 4%. So you're looking at an emerging market with a large and growing middle class, a diverse economy and relative political stability. Mining is a big part of the economy, but it's by no means the only activity driving economic growth. It seems that with the recent election of President Uribe, Colombians have voted for the status quo, which is defined by political stability. I think this is set to continue.

TGR: Do you have a comment, Miller?

Miller O'Prey: I have found it a much easier place to work in the past five years. Every year it's become easier, and more regions have become safer in the field so that you can go and visit them. Also, more companies have come in, which attracts more interest. So it's just become an easier place to work.

TGR: You definitely notice a peaceful feeling. In Medellin, there is an element of security; everything seems under control. Is that your sense, even outside the city?

MO: Yes, during the five years I've been living and working here, I've never gone into the field with a bodyguard, and I never intend to. I move about with the same freedom as I would in any major city in the world.

TGR: What is it about Colombia's geology that makes it such an interesting place for precious metals?

MO: If you go back to recent history and look at the production statistics for the whole of South America, in 1937 Colombia was a producer above and beyond any other country. It was only when exploration really developed in the '60s and '70s that countries like Chile and then Peru were able to take off and reap the rewards of modern exploration and mining. Obviously, with the political situation in Colombia during the '60s, '70s and '80s, that exploration wasn't possible. It's only been since President Uribe came to power in 2002 that the situation has improved sufficiently to allow exploration companies into the countryside to start exploring.

I don't think anyone would dispute the geological potential of Colombia, which sits on the Andes Mountain chain. There's also a great mining history. For example, 200 years ago, the English government was willing to lend money, because of the known gold reserves in Colombia, to the Colombian rebels fighting the war of independence against the Spanish. We're celebrating 200 years of Colombian independence this year. So the geological precious metal potential of Colombia has been known about for a long time. It's only in recent times that mining companies have been able to come in and apply modern mining techniques. Over the past five years we've seen the results—there have been a number of pretty big discoveries.

TGR: Chris, how do you see Colombia growing as a destination for foreign investment?

CB: I read recently that gold miners are set to invest $4.5 billion in Colombia between 2010 and 2020. The way I look at it, foreign direction investment (FDI) is a huge vote of confidence. Such a large amount of money being poured into this economy leads to more royalties for the government and increases investments in infrastructure. So Colombia today is an example of a perfect storm, where stable politics are aligning nicely with an investment climate with significant upside. The end result is the average Colombian citizen's quality of life is improving. That's number one.

Number two, just some basic statistics on FDI in the mining sector: in 2008, $2.1 billion came into the country; in 2009 that number increased to $3.24 billion, roughly a 50% increase. It is set to increase again in 2010, although I don't know what the actual number will be, but we can assume it will be higher due to metals prices' strength. The stability of Colombian politics and the business-friendly climate here support this trend. The rest of the world is just now waking up to that fact.

TGR: With the more stable political situation, many junior mining investors are looking for opportunities in Colombia. Miller, could you discuss some of the public companies in the junior space, particularly those who have staff in Colombia, who understand the social ramifications of building a mine here and who hold properties that actually have the potential to become mines?

MO: I recently moved to a new company, called Solvista Gold Corp., which is private but is soon to go public. Solvista is a subsidiary of Norvista Resources Corp., a private natural resources merchant bank in Toronto. We have a sister company here in Colombia called Calvista Gold Corporation, which is working in the Santander Dept. in the California District. I moved to Solvista because I think we have some really good opportunities and some very good projects.

Earlier this year, we selected two projects from the Grupo De Bullet portfolio and made a deal with them. Bullet is a private company and one of the larger landholders in Colombia. The two projects are called Guadalupe and Caramanta. Both are located in Antioquia state, one of the best places to work in Colombia, not only because it's the center of mining and mining history in Colombia, but also in terms of infrastructure and development in the field. It's an area that has always had very good security, even through some of the worse times for Colombia. So that's a company, actually two companies, that I think are really interesting.

TGR: Neither of these companies has gone public yet?

MO: Calvista is in the process of developing their IPO at present. With Solvista, we're going through the first stages of some fundraising, with a plan to go public no later than early 2011.

TGR: Will you list on the Venture?

MO: Yes, we'll list on the Venture in Toronto.

TGR: Are there other junior companies of interest?

MO: Two other companies that I think are definitely worth having a good look at are Antioquia Gold Inc. (TSX.V:AGD), a company I did some work for a few years ago. They have a project very close to Medellin, about two hours away, with very good infrastructure and some very interesting drill intersections. They have a great team of geologists and have gone about their exploration very professionally. I think they have a very good chance for success. Chris knows a little more about them.

I would also mention Continental Gold Ltd. (TSX:CNL), which went public in Toronto earlier this year. They have a really strong team in Colombia. The company is headed up by a Colombian British national, Mark Moseley-Williams, who is running the operation in Colombia. Ari Sussman is the president, based in Toronto. They have a very good project at Buriticá, where they released some pretty spectacular numbers about a month ago, and are well positioned cash-wise to be able to advance their project. So those would be my best bets for the foreseeable future.

TGR: Excellent. Chris, do you want to add anything about either of those companies or any others?

CB: Sure, to start off, I would certainly agree with Antioquia Gold as one of Miller's picks. I find them intriguing for a number of reasons. They're working on about 5,600 hectares of land near Cisneros right now, and they're getting some good results on their drilling. One of the things I like is that Rick Thibault, the CEO, has created a pipeline of projects. The Cisneros project comprises the 5,600 hectares I mentioned above, but they have another 32,000 hectares in Colombia they haven't even looked at yet. So, if you think about their pipeline potential, they've got this locked up in their back pocket, which bodes well for the future.

Another interesting thing Antioquia has done is to combine forces with a strategic partner, Desafio Minero S.A.C., a private Peruvian company that is mining about 200,000 ounces of gold per year in Peru. I'm also encouraged by the fact that because of this new partnership, Antioquia has been able to immediately leverage the geologic expertise of Desafio and has realized that the geology in Cisneros is very similar to the geology of Desafio's Peruvian mining operation. A more immediate understanding of the geology around Cisneros can really aid Antioquia in decision-making on drilling, for instance, going forward.

TGR: Do you have other companies to suggest?

CB: Another company is Galway Resources Ltd. (TSX.V:GWY), which is run by Rob Hinchcliffe, a former mining analyst with Prudential. He's run this company for a little while now. While it's a gold and coal play, I'm just focused on the gold potential. They have a property of about 1,900 hectares in the California-Vetas region near Ventana's property and have acquired a past-producing mine called Reina De Oro. It's the largest mine in the region and has been active for 400 years. One of the sayings in the mining industry is that "you find a mine where there's been a mine." This is the situation with both of these companies, Antioquia and Galway, and I think they are positioned to succeed.

TGR: Miller, a lot of new companies are arriving in Colombia and we've noticed this conference has grown year after year. Obviously they're not all going to succeed and build a mine. In your view, having been here for several years, what elements do you think will create success for a junior mining company in Colombia?

MO: I think the most important thing here is the team that a company can put together because there is still a rather limited number of geologists who have experience in Colombia. Getting hold of those guys is becoming more and more difficult. So I think it's very important that a company can show a proven team in Colombia with experience over the past five to 10 years. Also, there are many projects that have a bit of work done but need to be looked at seriously. I think a combination of a strong team and a good location are what's most important.

TGR: There seems to be a lot of excitement amongst the attendees at the conference. We're looking at an emerging mining district that's basically been untouched for the last 30 years, which is a good reason for excitement.

CB: It's interesting. One of the things that we'll do in our research is focus on area plays. I did a lot of work in the Yukon earlier this year and Colombia and the Yukon are similar in a number of ways. The political climate is right, mining investment is being welcomed and deeper exploration is taking place. Both governments really understand how mining can play a very productive role in society. So when you've got these factors in place, you've got a recipe for success.

MO: I'm just happy to be in Colombia. I hope to be here for a long, long time.

Chris Berry, with a lifelong interest in geopolitics and the financial issues that emerge from these relationships, founded House Mountain Partners in 2010. House Mountain firmly believes that the emerging quality of life cycle emanating from emerging markets is a "game changer" that will affect every one of us throughout the world for decades. With that in mind, the firm focuses on the intersection of three topics: the evolving geopolitical relationship between emerging and developed economies, the commodity space and junior mining and resource stocks positioned to benefit from this phenomenon. Chris spent 13 years working across various roles in sales and brokerage on Wall Street before founding House Mountain Partners. He holds an MBA in finance with an international focus from Fordham University, and a BA in international studies from The Virginia Military Institute.

Miller O'Prey, who has worked in a variety of geological and geopolitical environments, is a professional geologist with more than 10 years' experience in precious and base metals exploration. In 2005 Miller moved to Colombia to set up the operations of AIM-listed Cambridge Mineral Resources, before moving on to Grupo de Bullet S.A. in 2008, where he oversaw initial exploration work on a number of properties, including Guadalupe. In August 2010, Miller joined Solvista Gold Corporation to manage the followup exploration at Guadalupe and Caramanta as a Qualified Person (as per National Instrument 43-101).

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

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