Crucial Investor Lessons From Colombia’s Gigantic ‘Buritica’ Gold-Mining Project: CGS Director
Editor’s Note: The annual Colombia Gold Symposium (CGS) conference here in Medellin — organized by CGS director, veteran mining journalist and British expat Paul Harris — brings together leading international and domestic mining companies, consultants and government regulators, to explore the challenges and opportunities of gold mining here in Antioquia as well as elsewhere in Colombia and in neighboring countries.
Below we reprint Paul Harris’ outstanding recap of the history of the giant Buritica, Antioquia gold-mining project, recently sold by Canadian mining developer Continental Resources to Chinese mining giant Zijin Resources. This article is not only factual but also keenly observational about the profound risks and rewards of undertaking large-scale gold and copper mining in Antioquia and Colombia. Harris’s opinions are of course his own and not necessarily those of Medellin Herald. Enjoy!
Buritica: A Triumph Against the Odds
from: Colombia Gold Symposium (CGS) December2020 newsletter
by Paul Harris
(for subscription information, see: https://colombiagold.co/ )
On Friday 23 October 2020, Colombian President Ivan Duque helped inaugurate Zijin Continental Gold’s 282,000 ounces/year Buritica gold mine in Antioquia, Colombia.
A day of positivity and hope was more subdued than it perhaps should have been given Covid-19 social distancing measures, but was perhaps fitting given the abnormal trials and tribulations the project overcame to become Colombia’s biggest producing underground gold mine.
Buritica today is an example of modernity and the power of investment with two, 5×5-meters tunnels driven into the orebody which is being exploited by a mechanized mining fleet, a far cry from the narrow tunnel into which one walked, doubled over into the Centena mine scratched out of the rock using decades-old methods where the Buritica story began.
Finding an economic deposit and building a mine is a challenging task at the best of times, but Buritica took a superhuman effort to overcome the extraordinary challenges of operating in Colombia.
Ten years ago, reaching the Centena mine meant a thirty-minute mule ride down the precipitous slopes, a journey which almost claimed one worker in the early days whose mule slipped and fell sending him crashing down the slope only to be stopped by barbed wire which left him with thankful for his life and with a gruesome scar on his neck.
The town of Buritica is named after a local cacique who was burned for not revealing to Spanish Conquistadores the source of the gold in the region, a stubbornness and stoicism which has echoed through the ages and characterized the efforts of the project’s promoters to advance it, facing similar aggression from multiple sources along the way.
Continental Gold was the vision of Bob Allen, owner of Grupo de Bullet, who had operated the Centena mine for many years and believed it could be something more.
Having formed Continental Gold in May 2007, he convinced some of the most astute investors in the junior mining space to invest including George Ireland’s Geologic Resource fund and Passport Capital’s Neil Adshead—who subsequently became a key part of the Sprott Natural Resources team—as part of the initial investor group.
Allen named the company Continental Gold because he liked expansive connotation of the name, suggestive of a multinational organization with multiple assets in the hemisphere. The first logo of Continental Gold replicated the globe logo of Continental Airlines, with Allen adamant the company should not adopt a Colombia artifact as a logo as other companies had done, although it subsequently did with the change of management in 2010, adopting the Tolima jaguar man as its central figure.
Allen’s stubbornness and drive were key in the early days when, less than a year old, he funded the company going from his own pocket for more than a year following the 2008 Global Financial Crisis which saw the gold price plunge and the capital markets close.
During this time, he resisted many predatory offers to acquire the company too cheaply, convinced of its underlying value, until the company did a reverse takeover deal with Cronus Resources in early 2010 which brought Ari Sussman into the company as CEO.
“I sent Vic Wall and Greg Hall, and former Placer Dome chief geologist to visit Buritica. After a day in the underground mine they called me and said they think it is Porgera [a large gold and silver mine in Papua New Guinea]. That was the defining moment and they ended up being right,” said Sussman.
Continental debuted on the TSX in April 2020 and the timing could not have been better: the rapid recovery from the GFC propelled the gold price towards what would eventually be record highs in 2011; Colombia was the hottest gold exploration jurisdiction in the world due to the economic opening that accompanied the Democratic Security policy of president Alvaro Uribe and dozens of exploration juniors flooded into the country as Canadian capital markets wanted couldn’t get enough.
These conditions, together with high-grade drill results, enabled Sussman to take Continental from a small mine barely generating enough cash to pay its staff to a billion-dollar market capitalization in little over a year as its share price topped out at C$10.78 barely eight months after listing, before it put out a resource estimate or an economic study.
Sussman hired the best people he could to help him advance the project such as the late geologist Vic Wall as special advisor, who was instrumental in changing the geological interpretation of Buritica from being a mesothermal vein system to a carbonate base metal vein system, which unlocked the door to defining a large resource.
Buritica’s resource grew rapidly from an initial 3.1 million ounces gold equivalent in 2011 to just shy of 9 million ounces in June 2015, and now standing at more than 11 million ounces.
He also hired COO Don Gray fresh from the successful construction of the Escobal silver mine in Guatemala to build the mine, former Cerrejon, CEO Leon Teicher as chair in March 2015, Mateo Restrepo as EVP (and later president) in August 2015 and in 2018, he brought former EVP and COO of Cerrejón Luis Meneses out of retirement as country manager, who brought a very senior manager’s hat to the table which stabilized the company and allowed the construction to proceed without further problems.
Restrepo brought a deep understanding of both the political and private sector spheres having formerly been an advisor to former president Alvaro Uribe and an executive at the Prodeco coal mine.
Teicher was former president and CEO of the Cerrejon coal mine in La Guajira, Colombia, had long experience dealing with government and local community issues, and brought a big mining mindset to the board, the company’s corporate governance and the way it operated. These latter two were to prove instrumental to overcome the many challenges in store for the project.
For Sussman, success was due to the people he hired. “The tenacity of the people involved was the standout considering how complex it is to be first out of the gate for a large gold project in Colombia, pushing forward against the odds and carrying the mining sector on the shoulders of the company. This took really talented people,” he said.
However, Sussman’s don was fund raising. He raised C$28.75 million with the initial public offering and subsequent raises of C$68.4 million in September 2010 on the back of its first reported drill results from Veta Sur of 14.3m grading 446 grams per tonne of gold and 166g/t silver.
A C$86.3 million raising in November 2012 meant the company didn’t have to raise money again for four years, which enabled Continental to weather the bear market without the dilutive financings which destroyed other juniors.
“The 2012 saw us raise at highest share price ever. We were offered a lot more money and I knew the market was at a top and I should have taken more money to reduce dilution later,” he said.
Sussman also raised US$250 million project financing in January 2017, a $109 million investment from Newmont Mining in May 2017 and $175 million in additional project financing in March 2019. In total, he raised at least $800 million for the project over the past ten years.
Ultimately, while setting Continental and Buritica on a path for success, with the prospect of having to return refinance at a time when the Canadian capital markets were viewing Colombia as a jurisdiction with increasing risk Sussman negotiated the sale of the company to China’s Zijin Mining in March 2020 for US$989 million, a surprise to many who had naturally assumed Newmont would eventually upgrade its 19.9% stake in the Continental and buy the company.
Newmont had its hands full digesting its acquisition of Goldcorp on early 2019 and readily sold its Continental stock to Zijin, banking a nice profit. When Zijin inaugurated the mine in October, it said the development cost was $610 million, some 53% more than the February 2016 feasibility estimate of $389 million.
Navigating geological and financial market challenges are par for the course for any junior explorer CEO, but these paled compared to the challenges Colombia had in store for the project.
The project repeatedly suffered at the hands of illegality. The high-grade gold is Buritica’s main appeal but also a security risk.
In the early days, gold doré bars were taken by road to Medellin, until bandits held up the truck it was transported in on the road to Santa Fe de Antioquia. From then on shipments were undertaken by helicopter.
High-grade gold trips the greed gene in many individuals and in rural areas of Colombia where the rule of law is often only a paper concept, nefarious things happen.
In 2010, there were no illegal miners or other small-scale miners on the Buritica concessions. They didn’t start appearing until 2012 once the company had published very high-grade drill results.
These became a flood of some 5,000 illegal miners invading the concessions in 2014-2015 with criminal organizations reportedly behind the initiative.
Meanwhile, both the local and national governments did nothing, an attitude that only changed once the illegal miners started killing themselves via unsafe workings practices and the public health calamity in the town of Buritica grew to the extent that they couldn’t ignore it anymore.
The public water system in Buritica collapsed due to the illegal processing plants installed in houses; prices for food and property rocketed which meant many locals could no longer afford basic necessities; there was a spike in the number of sexually transmitted diseases and teen pregnancies in the town as prostitution took off; an increased number of accidents on the narrow road leading to the Pan-American Highway and widespread environmental destruction including mercury contamination, which some local politicians tried to pin on Continental although it had never used mercury.
When the intervention of public forces happened in April 2016, it had nothing to do with the violation of Continental’s economic rights and probably would not have happened at all given the insouciant attitude of Antioquia’s governor at the time, were it not for the astute hire of Mateo Restrepo, who managed to corral and coordinate the various state and national authorities to action, which was partially successful in shutting down and evicting the majority of the illegal miners.
However, the job was left incomplete, which meant some of the illegal invaders remained and the company was forced to formalize them under a curious change of narrative where the criminals were recast as small miners or traditional miners—despite being recent arrivals—via a government process through which the criminal becomes legal, where theft is no longer theft if you complete some forms. Problem solved, for the government at least.
The year before, Continental let go its vice president and legal representative, essentially for acting against the company’s interests. It was believed that he was a key figure in the invasion of the illegal miners, many of whom came from Segovia where he previously worked to liquidate the Frontino Gold Mines company.
After his dismissal from Continental he was arrested in March 2016 in Buritica on suspicion of being one of the organizers of criminal mining in Antioquia, according to former president Juan Manuel Santos.
After his dismissal and prior to his arrest this individual attempted to discredit the company by accusing it of corruption and trying to buy its environmental license by bribing Corantioquia officials.
While no evidence was presented to substantiate this claim, local press ran the story anyway, which cast the company into a political hurricane, particularly given that the Antioquia governor of the moment was Sergio Fajardo, who had taken a stance against private mining companies and who essentially went out of his way to avoid assisting them in any way, such as refusing to sign concession contracts and failing to respond to the Buritica social crisis.
Fajardo’s slogan was “Antioquia, the most educated” which for mining seemed to be implicit acceptance of illegal miners stealing state resources while wreaking environmental destructing and social havoc out of sight in a backwater of the department.
The illegal miners were Antioqueños and voters after all. It is hard to understand failure to support a project which uses the best available mining and environmental technology, advanced water management systems, which now provides 1,243 direct jobs, 1,075 indirect jobs and has contributed tens of millions of dollars to social programs undertaken through strategic alliances with Conservation International and SENA among other organizations, and which will provide a strong source of funding for this department for decades.
Together with SENA, Continental developed an underground mining school which has graduated Colombia’s first female underground miners. Continental started publishing annual sustainability reports in 2017 and has undertaken various environmental protection and restoration projects, invested in local agricultural production capacity through the Future Harvest program, as well as greatly improving the health and education service provision in the town.
The political brouhaha surrounding the false corruption claims delayed Buritica’s environmental permitting by at least a year. With a lack of clarity on the progress of the Corantioquia process and an increase in the size potential of the project which was crossing the permitting threshold, the company changed to permit Buritica with the ANLA national licensing authority as the project became a PINES project of national interest. The project finally received its environmental permit in November 2016.
Just when Continental thought the majority of its challenges were behind hit, its darkest hour was yet to come.
September 2018 witnessed the murder of three local geologists by dissidents of the former FARC terrorist group at the Berlin project in Antioquia, a few short weeks after a mine engineer had been shot dead at Buritica.
The company’s share price fell to a two-year low following the murders and concerns about the broader security situation.
Buritica is a once-in-a-generation gold asset which will underpin the development of the local region for many years. It is also a testament to human will overcoming adversity; of the literal blood, sweat and tears of too many people and large-scale investment, undertaken by foreign companies, which generates benefits that largely remain in Colombia.
It will be a landmark mine in terms of production, mining practices, social development aspects and a healthy financial contributor through taxes and royalties at the national, regional and local level as it produces an annual 253,000 ounces of gold and 466,000-oz of silver.
It took stubbornness and determination to get Buritica into production, overcoming theft, corruption, invasion, criminal gangs and murder in addition to locking horns with often apathetic local and national government which abandoned the company alone to deal with rule of law issues alone.
As the money starts to roll into government coffers from Buritica, including a projected COP$3 trillion (US$786 million) in royalties, one wonders how much better many rural communities in Colombia could be doing if there had have been adequate government support for the dozens of other explorers that came to Colombia a decade ago?
Continental, for example, in 2019 made social and environmental investments totaling COP$14.6 billion and COP$13 billion in purchases from local suppliers.
In 2018, these investments were COP$8.4 billion and COP$11.5 billion respectively, and in 2017 these totaled COP$4.3 billion and COP$4.7 billion.
But looking to the future, the greatest value of Buritica could be setting out a pathway for other projects to follow of how to do advance a gold project into production in Colombia.