Colombia’s unlicensed gold miners are proving to be resilient to the steepest price drop in 16 years and government efforts to regulate their operations.
Investments by companies including AngloGold Ashanti Ltd. (ANG) are being held back as ambiguous local regulations exacerbate the effects of the global gold slump. In contrast, informal operations in remote rivers and jungle areas are flourishing. The government acknowledges that the number of producers without licenses probably has risen from the last census in 2010-2011, when they accounted for 87 percent of all gold mines.
“The informal sector is booming as they have much lower overheads,” Trident Gold Corp. (TTG) Chief Financial Officer Andrew Smith said in an interview from Medellin. “Their great advantage is that they can operate on a much smaller scale. For international companies, just being listed is a burden.”
While authorities are shutting down unregulated producers at an unprecedented rate, the growth of new operations shielded from environmental and labor restrictions is even faster, police say. Armed groups can reap more profit from illegal gold mining than cocaine. Anticipation of a new regulatory code for the industry were dashed in May after a court ruled indigenous groups weren’t properly consulted.
Colombia has been luring gold prospectors since Spanish conquistadors pursued the mythical city of El Dorado. In the 19th century, the country was among the world’s largest producers, only to slip down the rankings a century later amid decades of violence. Over the past five years revenue from gold exports has increased 10-fold, government data show.
The country’s two largest producers, Mineros SA (MINEROS), based in Medellin, and Gran Colombia Gold Corp. (GCM), based in Toronto, account for 10 percent to 15 percent of the country’s 66-metric ton annual output and $3 billion in exports, according to Cesar Diaz, head of mining chamber Camera Colombiana de Mineria.
The rest comes from small-scale legal operations, others that have worked the same area for generations tax free and without permits and those with ties to criminal or rebel groups including the Revolutionary Armed Forces of Colombia, or FARC.
In Guainia province, in Colombia’s eastern Amazon jungle, unlicensed miners use makeshift barges to pan for gold from along the Inirida River. A day’s journey down river from Puerto Inirida, the state capital, five men are ending a 20-hour shift on one of these dredges, just after dawn on March 16.
Two men dive into the coffee-colored river. With a hose attached to a rattling pump, they suck sand into a wooden trough. Bits of gold-encrusted sand stick to a carpet and the rest of the muck slides back into the river. Two hours later, on shore, the crew uses their bare hands to mix the gold-rich sand with mercury. They cook what’s left with a torch, engulfing themselves in a cloud of vapor, to produce six grams of nearly pure gold at a market price of about $260.
Nationwide, 63 percent of all mines are technically illegal, with no government oversight or license, a March 2012 Mining Ministry report shows.
“That vacuum is often filled by illegal groups, including the FARC,” Carlos Cante, who runs the ministry’s program to combat illegal mining, said in a March interview in Bogota.
An illegal mine in the jungle can extract two kilograms of gold a week, Colonel Hector Paez, acting director of the country’s rural police division, said in a June 19 interview.
“Illegal mining has risen in this country - for gold, coltan, limestone and construction materials,” Paez said, adding that the precious metal is also easy to legalize. “As soon as it’s excavated and away from the mine it’s legal.”
In the Baja Cauca area of Antioquia, illegal gold processing shacks operate openly by the road, sifting river sand day and night, while dozens of packs of excavators dig up small tributaries of the Nechi River. Unlicensed miners began this month a series of protests against the government’s policy of destroying machinery captured from their operations.
Avoiding environmental and labor rules and taxes is proving to be a boon for informal miners after prices plunged this year, said Mineros CEO Beatriz Uribe.
“They don’t have the problem of maintaining salaries,” Uribe said in a July 3 interview. “If the price is good they work. If it isn’t, they stop. They can survive a fall in prices more easily.”
Gold has lost 21 percent this year, erasing $56.4 billion from the value of assets in exchange-traded products backed by the metal. The metal for December delivery fell 1.5 percent to $1,315.40 an ounce at 1:50 p.m. on the Comex in New York.
Mineros and other mining companies in Colombia are revising output and earnings targets following the price slump and strikes, while smaller explorers face a funding squeeze.
“The level of funds for exploration companies like ours is almost non-existent,” Trident’s Smith said.
Exacerbating the global conditions for companies in Colombia are unpredictable or unclear rules, according to AngloGold, Eco Oro Minerals Corp. (EOM) and Minincol SAS.
Minincol, a Bogota-based explorer, is shifting most of its operations to neighboring Peru, an AngloGold project was halted and equipment seized by local authorities in March while Vancouver-based Eco Oro says a lack of licensing clarity is threatening its ability to fund the Angostura gold and silver project. The chamber forecasts foreign investment in mining to fall at least 10 percent this year and even more in exploration.
“We are a Colombian company but we see better opportunities abroad,” Minincol CEO Victor Carrillo said by telephone. “The sector is in a critical state. There is a collection of problems relating to how the industry is managed, like the environmental and social aspects.”
The government began tinkering with tax rules and other regulations affecting the industry in 2010, according to Claudia Jimenez, president of the Mineria a Gran Escala federation of mining companies.
“Colombia poses a challenge as it has real potential for minerals but it is still adapting its institutions and there is no mining tradition, especially for gold,” Johannesburg-based AngloGold Ashanti said in an e-mailed response to questions. “There are inconsistencies and a lack of clarity in the regulatory framework.”
In 2011, Eco Oro, formerly Greystar Resources, withdrew an application for an environmental license to develop Angostura as an open pit after spending about $158 million.
The withdrawal came amid government and community opposition to the project in the eastern ridge of Colombia’s Andes mountain range, close to a high-altitude habitat known as paramo. Now the company plans an underground mine at lower altitude and is waiting for clarification of the paramo boundaries, said CEO Joao Carrelo.
“The longer this definition is delayed, the more challenging it will become to generate investor interest to finance further phases,” Carrelo said in an e-mailed response to questions. “With geopolitical risk becoming a greater concern for investors globally, governments need to offer judicial and contractual stability.”
President Juan Manuel Santos, who as defense minister helped turn the tide in a five-decade war against cocaine-funded rebel groups, said during his 2010 election campaign that he wants mining to be an engine of economic growth. His government says the regulatory environment is improving. After the expiry of its proposed mining code changes, the government is turning to a series of presidential decrees to formalize the industry.
“We have made huge strides in the last two years,” Energy and Mines Minister Federico Renjifo said in a June 11 interview in Montreal. “We have restructured, and there is a transition. We sent a lot of government workers to Canada, the U.S. and Europe so that they could learn about best practices.”
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