Analysis: Gold miners rush to Latin America as prices soar

By Mica Rosenberg and Diana Delgado

MEXICO CITY/BOGOTA (BestGrowthStock) – Mining companies are ramping up gold exploration in Latin America as areas before seen as risky, like southern Mexico and Colombia, are now glittering with new projects as precious metals prices soar.

Exploration budgets, the first thing mining companies slashed during the financial crisis, plummeted 42 percent from 2008 to 2009, the largest one-year decline in two decades, according to consultancy Metals Economics Group (MEG).

But the rebound has been quick in mining-friendly countries like Mexico, Chile, Peru and Argentina. The region won 26 percent of global exploration investment last year, the largest slice since 2001, MEG said in a report.

“Latin America is the No. 1 spot for junior companies to be exploring. They have a long mining history … and geologically it’s very prospective ground,” said Brent Cook, a U.S.-based independent mining analyst.

Investors are still shying away from Venezuela, where President Hugo Chavez has gone on nationalization sprees, as well as parts of Central America where communities and environmental groups oppose mines.

That leaves other countries in the region to benefit from record high gold prices, which peaked above $1,300 per troy ounce this month, boosted by a tumbling dollar.

“The gold price changed considerably the perspective of investors in exploration in Mexico,” Arturo Bonillas, president of Canada’s Timmins Gold Corp (TMM.V: ), told Reuters.

Timmins’ stock price plunged 83 percent from March 2008 to December 2008 at the height of the crisis, but shares have since bounced back. The company will produce around 100,000 troy ounces of gold a year in northern Mexico, he said.

Gold output in Mexico, already a major copper and silver producer, has grown three-fold since 2003 with the country now producing 2 million troy ounces (62.4 tonnes) a year. Mexico has 738 mining exploration projects in operation and more than 60 percent are digging for precious metals.

Much of that growth will be driven by Goldcorp’s (G.TO: ) massive Penasquito project. Even tycoon Carlos Slim, the world’s richest man, is cashing in on the excitement by expanding mining at his Grupo Carso (GCARSOA1.MX: ) conglomerate.


The money is flowing to places considered too risky in the past, including poor states in southern Mexico and to Colombia, which is recovering from decades of guerrilla war and drug violence.

“Chiapas and Oaxaca (in southern Mexico) have historically been underplayed by the exploration community,” said mining expert Peter Megaw. Now some junior exploration companies have found “bonanza grade” gold in the south and others are taking notice, he added.

Investment continues, with exploration spending in Mexico expected to balloon to between $1.2 billion and $1.5 billion over the next three years, despite concerns about spiraling drug violence in Mexico. Some exploration companies have left dangerous areas where cartels operate.

In Colombia, gold deposits under-explored for years are attracting miners after security fears ebbed under ex-President Alvaro Uribe. Before 1937, when decades of conflict began, Colombia was South America’s top gold producer.

“The business climate and security is improving every day,” said Michael Johnson, the chief operating officer at Calvista Gold Corp, soon to be listed on the Toronto stock exchange.

Calvista has an advanced exploration project on 400 acres in northeastern Colombia, a region were Canada’s Greystar Resources (GSL.TO: ), Ventana Gold (VEN.TO: ) and Galway Resources Ltd (GWY.V: ) already have a strong presence.

Colombia’s mining regulator, Ingeominas, has granted more than 1,600 gold exploration titles since 2004. Some 60 large and junior-sized gold companies are looking for gold and other precious metals in jungle-covered mountains, with juniors investing around $200 million per year.

“Colombia is an unexplored country due to the violence,” national mining association director Arturo Quiros said.

Excluding exploration, the Colombian gold industry could attract as much as $4 billion in investment over the next 10 years as companies develop the mines, Quiros said.

Argentina and Peru, both stable for foreign investors, are also reaping the rewards of the gold boom. Argentina’s mining chamber expects gold production to increase 21 percent this year from 2009, reaching more than 2 million troy ounces.

The region’s losers will likely be Venezuela and Bolivia, known for government takeovers of private assets.

Venezuela has rich gold veins but the only big private miner operating in the country is Russian-Canadian company Rusoro (RML.V: ). According to official statistics, formal miners produce about 192,000 troy ounces of gold a year (6 tonnes) in Venezuela, while the informal sector may produce twice that. The country’s reserves are likely more than 11.6 million troy ounces (360 tonnes), the central bank says.

“I don’t think we would consider operating in Venezuela because of the political risk,” said Tim Haldane, senior vice president at Canada’s Agnico-Eagle (AEM.TO: ), which runs the large Pinos Altos mine in Mexico.

(Additional reporting by Eduardo Garcia in Buenos Aires, Patricia Velez in Lima and Daniel Wallis in Caracas; Editing by Steve Orlofsky)

Analysis: Gold miners rush to Latin America as prices soar