March/April 2012

Ecuador & Colombia

A shared border, but worlds apart on policy

By Dan Zlotnikov

While their Andean neighbours to the south, Peru and Chile, have long embraced foreign investment in mining, Ecuador and Colombia are emerging gold and copper producers that – depending on the how they play their cards – could either become global mining powers or regions where explorers and their financiers still fear to tread.

Rising commodity prices, particularly for copper and gold, have fuelled the rush to these relatively high-risk South American jurisdictions. With metals trading at or near record levels, mining companies are willing to take on more political risk in order to secure land that is both prospective and underexplored.

There is no question about the geological potential of Colombia or Ecuador. The northern Andes host significant gold and copper deposits and large deposits of coal and iron ore. Colombia has the largest coal reserves in South America and ranks seventh in the world in gold exploration spending. Ecuador is home to one of the biggest gold discoveries of the past decade, Fruta del Norte, in the jungles of the southeast.

Although current gold production in Colombia is mostly small scale from placer and vein-type deposits, there are several larger gold deposits, such as La Bodega and Marmato, some of them related to large porphyry copper systems. In Ecuador, epithermal, skarn-type gold and porphyry copper deposits are plentiful.

In the 2011-12 Fraser Institute Survey of Mining Companies, Colombia rates well above Ecuador on the indexes that evaluate attractiveness for investment, policy clarity and mineral potential. The mining community, however, remains dubious about the security situation in Colombia.

“Ecuador is a very prospective country with a longer history of established mining, but it has an anti-business government, and that makes all the difference," says Jorge Neher, an international partner for law firm Norton Rose (which recently merged with Macleod Dixon), based in Bogota. "It is not an attractive jurisdiction to pour money into. Colombia is the total opposite: a very prospective country that is underexplored but with probusiness regulations and government."

Colombia becoming more secure, but risks remain

Colombia can expect GDP growth of 4.3 per cent in 2012 and six per cent in 2013, largely as a result of further developments in hydrocarbons and mining’s emergence as a leading growth sector, according to Chilebased Celfin Capital Equity Research’s first quarter outlook for 2012.


Until recently, security issues have discouraged foreign investors. Four decades of rebel insurgency, including attacks on oil and gas pipelines, transmission lines, and other crucial infrastructure, turned the country into a nogo zone. Land mines litter the country and continue to be planted by the Revolutionary Armed Forces of Colombia (FARC) and other illegal armed groups.

But the situation is improving. Attacks against pipelines dropped to 31 in 2010 compared with hundreds annually in the early 2000s. And while the government estimates that landmines still lay buried in most of the country’s 62 provinces, there is a concerted effort to sweep suspected areas and destroy explosive devices. Over the past decade, more than 54,000 paramilitaries and guerrillas have demobilized, kidnappings have fallen 90 per cent, homicides 46 per cent, and terrorist attacks 71 per cent, according to the U.S. Department of State.

Neher traces the improvements back to the 2002 election of president Alvaro Uribe, who campaigned on a platform of better security and economic reform. In 2010, Uribe passed the torch to Juan Manual Santos.

"Before 2002, the government tried to negotiate with the rebel groups, but they were being taken for a ride because the guerrillas just continued to arm themselves and get stronger," Neher says. "The threat is still there but it’s a fraction of what it used to be."

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