Quick question: which Canadian listed company is the largest producer of underground gold and silver in Colombia? The answer “Gran Colombia Gold” (GCM.T) is, to say the least, not well known to Canadian investors. This is a mid-tier, 200,000 ounces per year, monthly dividend paying company, which seems to be entirely off investors radar.
From the company’s website, “Gran Colombia produces gold from the Segovia Operations, an area of approximately 9,000 hectares in the Segovia-Remedios mining district of Antioquia. These high-grade mines have been in continuous operation for over 150 years and over that time have produced more than an estimated 6 million ounces of gold with 1.3 million ounces produced over the last 10 years since Gran Colombia acquired the project.”
So why is Gran Colombia not better understood by the Canadian market? I was fortunate enough to have a phone conversation with Executive Chairman Serafino Iacono. “The Company is ten years old but some of the mines we own are 300 years old,” said Iacono. “I bought the property from the government for 225 million dollars. At the time they were mining 60,000 ounces per year.”
It was quite a property. Twenty-seven separate mines over 3,500 hectares with the mineral rights held in “King’s right”. Underground there are over 500 kilometers in tunnels, which go down 1,000 meters. The grades were impressive, running 14 to 17 grams of gold per tonne and there were areas which were over 2 ounces per tonne.
However, the mines had been run by the government. “It took us a while to restructure,” said Iacono. “We wanted to increase production. But when gold dropped down to $1000 an ounce we got into a bit of trouble. But we survived.”
Iacono took over the Company in 2014. “I was running a large oil company at the time,” said Iacono. “When I took over, the company had a debt of 180 million dollars and high operating costs. Now we have a debt of 32.6 million, 90 million USD in the bank and a cash cost of about $700 an ounce. We took production from 80,000 ounces per year at Segovia to over 200,000.”
“There is real growth potential,” said Iacono. “We are starting to open up the mines on the property. The old Gran Col vein is yielding 1.5 ounces a tonne. As you go deep you get good grades.”
“We have sheer zones where you have intrusives and veins 1 to 1.5 meters wide,” said Iacono. “We are seeing polymetallic material: zinc, lead and silver. Often we see a 1:1 gold to silver ratio.”
“Since 2010 we have been setting aside the tailings,” said Iacono. “We knew we only recovered 60% of the silver with our current facility. We are building a new facility to deal with the tailings. We’ll float them and make a concentrate, 70% lead with gold and silver in the mix.”
Despite paying a 3% dividend, guidance suggestion 2021 production of 200 to 220 thousand ounces of gold, continued high grade zones and expansion of both the mines and the processing facilities Gran Colombia trades around $6.00 per share with only 62 million shares for a market cap of about $372 million.
“Six years ago, Gran Colombia was a story that needed a turnaround,” said Iacono. “We did that turnaround, but past investors still think the Company was what it was seven years ago.”
It is a perception which Iacono and his team at Gran Colombia are working hard to change. With this much gold being produced at its Segovia Operations, a vastly decreased debt, low cash costs, a dividend and a solid portfolio of investments in some junior miners, it is difficult to see why Gran Colombia is not trading higher, much higher.
Part of the reason may be lingering doubts about Colombia as a jurisdiction. However, as the Gran Colombia website points out, “Colombia is a country of opportunities with a growing economy, one of the lowest inflation rates in Latin America and free trade agreements with eight trading partners including the USA, European Union and more than 100 designated free-trade zones. Colombia’s government is very supportive of foreign investment and it has the best investor protection in Latin America, 15th worldwide, according to the World Bank (2019). Mining is a significant sector in the Colombian economy and one of the country’s largest export sectors.”
The other factor may have been the lack of “blue sky” exploration results. The market, particularly the Canadian junior market, likes action, drill results and for many investors, Gran Colombia was primarily a production story. Those investors may have simply missed press releases such as the December 21 Exploration update with a headline “Including Intercept of 162.7 g/t Au and 77.0 g/t Ag Over 0.51 meters” or the February 23 Exploration update with “96.68 g/t Au and 423.7 g/t Ag over 0.49 meters on the Lluvias Vein.”
In the December 21, 2020 release, Iacono commented, “Our Segovia Operations were recently acknowledged again as one of the top five highest-grade underground gold operations globally. Our 2020 drilling program in Segovia is continuing to provide us with outstanding results, providing further confirmation that the Segovia Operations are a world-class gold system. With the discovery of a third high-grade vein at depth in the El Silencio Mine, we remain confident that we will be able to expand mineral resources and add to the mine life for this operation.”
So, Gran Colombia may be under the market’s radar at the moment, but as it hits its production goals and adds ounces with the drill, it becomes an increasingly attractive way of participating in what we believe may be a major upleg in the gold cycle.