Colombia open for business

ONCE plagued by drugs and guerrilla violence, Colombia has been perceived as a risky destination for foreign investment. But the country is turning over a new leaf, and large and small coal companies are keen to grab a foothold in an emerging coal province.
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Lauren Barrett

Mining giants including Glencore, Drummond Coal, BHP Billiton and Vale have established themselves in Colombia’s burgeoning mining industry and now smaller companies are overcoming fears over security risks surrounding the country.

According to the World Coal Association, Colombian currently ranks sixth on the world scale of coal exports, behind South Africa and America.

With an attractive fiscal and tax structure, which includes 5% royalties on coal of up to 3 million tonnes per annum and a stable democratic government, Colombia is focusing on developing more infrastructure to support its future mining sector.

This includes the widening of the Panama Canal, planned for completion in 2014 and the construction of a new rail line which would connect coal mines in the Cesar basin to Colombian’s Atlantic cost.

The rail line is planned to run parallel to the Fenoco rail line, owned by Drummond and Glencore which currently transports 50Mtpa. The $US1.07 million new rail project will expand the line’s capacity to 100Mtpa.

Melbourne-based coal company New Age Exploration sees a big future for coal mining in Colombia.

It has acquired five coal projects in Colombia in 12 months and wants to move from coal explorer to producer via the Terranova coking coal mine in the Subachoque Valley.

The mine already produces 25,000 tonnes per annum but NAE plans to ramp this up to 365,000tpa by January 2013.

Soverign Risk

With a promising mine expansion project and a pipeline of thermal and coking coal tenements, NAE managing director Gary Fietz told ILN that Colombia not only had attractive reserves but was also very secure with little sovereign risk.

“The first reason that companies are currently heading to Colombia in droves is that the security situation in Colombia has been substantially improved,” Fietz said.

He said the major reasons for this included efforts by current and past presidents taking a zero tolerance approach to drugs and guerrilla warfare.

Also prompting change in the country has been Plan Colombia, an American and Colombian initiative which has seen billions of dollars and military support being poured into the country for more than a decade to help curb the problems the country was facing.

Fietz said American military and financial support had essentially moved the drug trade and guerrilla violence to Colombia’s border and, “that’s why companies are going there today rather than before”

Another Australian-based company on the Colombian scene is Tigers Realm Coal.

Its Landazuri tenement located in the Santander department has an inferred resource of 28 million tonnes, and managing director Martin Grant said the project is well suited for an open pit production.

TRC aims to begin another drilling program at Landazuri before the end of Christmas and complete the project’s pre-feasibility study by the end of 2012.

While the project is in its early stages, the company envisions the mine’s development will be split into two stages, with stage one targeting around 500,000t of coking coal.

Grant told ILN there had been a tremendous level of change in Colombia over the past ten years, which was driven by the level of direct foreign investment flooding into the country.

“Mining investment in Colombia has really gone through the roof which has really been driven by coal but also base metals of gold, copper and nickel,” he said.

“At this point in time mining represents probably a third of foreign direct inventstment in Colombia.”

Grant said although safety and security woes are not necessarily a thing of the past, they had dramatically improved over recent years.

“I think the mere fact that Colombia’s become a tourist destination in its own right, you get a sense that it is a much different place than what it was ten years ago,” he said.

The Colombian government has started to catch on to the flood of overseas mining companies looking to invest in the county, with energy minister Mauricio Cardenas recently announcing it planned to export up to 100Mt of coal by 2015, up 33% from current export levels, according to Platts.

Thermal Coal

With infrastructure development ramping up, Grant believes more Australian coal companies will consider Colombia as its next investment destination

“Colombia is well regarded now as a very important thermal coal producer and I think we’ll see more activity in metallurgical coal, copper and gold,” he said.

While the country seems to be an upcoming coal destination for overseas companies and has achieved an immense amount of change, Fietz said people’s perceptions of Colombia have not yet caught up with the country’s new look.

“There is a misconception of risk,” Fietz said.

“If a lot of people knew how secure it is then there would be a lot more people there.”