FEATURE-Canadian gold juniors discover newly stable Colombia
* Canadian juniors have joined Colombia gold rush
* Investment wave could help country regain past glory
* Obtaining mining license could trigger acquisitions
* Colombia seen as stable environment for investment
(In U.S. dollars unless noted)
TORONTO, Feb 1 (Reuters) - Colombia, whose rich gold deposits were once the source of the Spanish Empire's power, is hot again.
Nearly a decade after the government launched a U.S.-backed offensive to end a long guerrilla conflict, violence has dropped in the South American country and political stability has returned.
Seemingly overnight, its nearly dormant gold-mining industry has stirred to life, and the country has become a mecca for junior miners searching for the next big find.
"In a sense it is a new frontier, where you have good geology that has been under-explored," said Robert Doyle, who sits on the board of Medoro Resources, a gold exploration company focused on Colombia. [ID:nN28241427]
"A lot of people have discovered that Colombia is a great jurisdiction for mining," said Doyle. "It has a good, clean, democratic government. ... And it has very clear, well-defined mining laws and environmental laws."
Medoro is one of several Canadian-based explorers that have joined the rush to develop Colombia's gold resources, part of a wave of foreign investment into the South American country.
Map of Colombian gold rush: r.reuters.com/taj77r
Canadian gold explorers: r.reuters.com/kaj77r
Factbox on gold projects: [ID:nN31223790]
Foreign explorers have forged ahead even though environmental concerns could trip up their projects, most of which have not advanced beyond basic planning. Sustaining their interest is the promise of a rich payday when production begins or a mining major steps up with a lucrative buyout offer.
Colombia, which sits atop the mineral-rich Andean range, produced about 80 million ounces of gold between the early 1500s and the late 1900s. But in recent years, production slowed. Little was invested in modern exploration and mining technology to tap the country's wealth.
This had led juniors like Medoro, Continental Gold (CNL.TO), Ventana Gold VEN.TO and Greystar Resources GSL.TO to play catch-up, and together they have poured hundreds of millions of dollars into their projects.
Many hope that the recent spike in investments will help Colombia rediscover its glory days. South Africa's AngloGold Ashanti (ANGJ.J) has already bought in, and experts say others are looking.
"If you, as a major producer, want to come into Colombia today, you have two options," said Continental Gold Chief Executive Ari Sussman. "You either accept grassroots exploration, or you buy someone out."
Many of the largest diversified miners already operate in the country, the biggest coal producer in Latin America. Xstrata BHP Billiton (BHP.AX) and Anglo American (AAL.L), jointly own Cerrejon Coal, Colombia's largest coal exporter.
But gold exploration in Colombia is decades behind neighboring countries and more work needs to be done before top producers such as Barrick Gold (ABX.TO) or Goldcorp (G.TO) come knocking with an offer for any of the juniors.
"There's a lot of risk involved," said Michael Fowler, a senior mining analyst with Loewen, Ondaatje, McCutcheon, noting that none of the juniors have produced a full feasibility study on their resource, how to process it and what it will cost.
"A lot of the companies working down there seem to be a little bit in the early stage, so I don't know," he said, noting that questions remain about developing the deposits.
Another problem is licensing. Greystar, which owns the Angostura project north of Bogota, has battled with local authorities for months to get a permit for the project, which is located the Paramo, a protected ecosystem. [ID:nN24193781]
Greystar may have to rejig its plans -- and end up producing less gold -- if it wants a permit, Fowler says.
The company says its planned open-pit mine would pose no environmental threat. If it gets the license, it could start producing gold by late 2012.
That could herald rapid change in the region, where Ventana's La Bodega and Galway Resources' California and Vetas projects are also located.
Brazilian billionaire Eike Batista has already started the M&A ball rolling with a bid that values Ventana Gold at about C$1.5 billion. [ID:nN28287173]
Ventana's La Bodega holds 3.5 million ounces of gold and 19.2 million ounces of silver, and will cost about $297 million to develop. Greystar's nearby Angostura has 11.5 million ounces of gold and will cost about $238 million to develop.
With all three companies working within meters of one another, consolidation is a real possibility -- especially if Batista's AUX Canada Acquisitions Inc succeeds in its bid for Ventana.
But not all explorers working in Colombia are looking for a quick sale.
"Normally I would be a seller of assets," said Continental Gold's Sussman of his company's Buritica project. "But in this case -- we believe it's going to be one of the lowest cost mines in the world -- it's a company maker."
Continental plans to develop the mine, and could eventually look to other projects in the region as it gears up to become a major force on the Colombian mining scene. [ID:nN27286249]
Regardless of who ends up owning the projects, analysts agree that after years of political and social unheaval, it's time for Colombia to shine.
"Like Peru and Chile, Colombia has favorable geology for large gold deposits that, in our view, have been preserved by past turmoil in the country," said Raymond James analyst Gary Baschuk, in a note to clients.
"We expect to see a significant increase in foreign investment to the country; making development of larger mining operations increasingly viable."
(Additional reporting by Pav Jordan in Toronto and Jack Kimball in Bogota; Editing by Frank McGurty)
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