And Marmato is just the start. Pointing to a 17th-century Spanish map alongside a contemporary equivalent, de la Campa notes that vast swaths of Colombia are almost as sparsely populated and under-explored now as when the conquistadores arrived in the 16th century, instructed by King Ferdinand to “get gold humanely if possible, but at all costs, get gold.”
The impediment to that goal for much of the recent era has been armed opposition. But then came the military’s pushback. “That’s opened up many areas that were previously insecure,” he explains, jabbing at a modern map. He’s particularly excited about the Pacific coastal region. “This enormous territory is totally rich in resources and it is virgin territory. Over here, this area was all guerrilla territory; now it’s opening up for agriculture. But we need significant infrastructure and we need investment.” And that, says de la Campa, is why Colombia needs Scotiabank: “Our financial sector is extremely conservative and has been very reluctant to take risks. As for private equity players here, they’re still in kindergarten. There just hasn’t been a tradition for Colombian entrepreneurs to invest in project finance.”
Those local capital limitations have forced energy and mining developers in Colombia to look abroad for investment, especially to the Toronto Stock Exchange, as with Gran Colombia and Pacific Rubiales. The latter almost doubled crude oil production in 2010, and it posted total oil and gas sales of $3.4 billion and $554 million of profit in 2011. Other Canadian-based Colombian success stories listed on the TSX include Gran Tierra Energy, which more than tripled Colombian production in 2009, and Parex Resources, which invested in four Colombian oil blocks in 2010 in a deal partly underwritten by Scotia. As for Gran Colombia, which has a market capitalization of $205 million and took in $138 million in 2011, it is now Colombia’s largest underground gold and silver producer, with six mines in operation and plans to expand gold production fivefold by 2016 if the Marmato project is built.
One recent estimate fleshed out de la Campa’s declaration about infrastructure: Colombia urgently needs at least $20 billion in infrastructure investment—roads, railroads, pipelines and ports are all inadequate, and Bogota desperately needs a subway to move its population of nine million. “There’s a need for infrastructure investment right across the board as Colombia modernizes and moves past its security issues,” says John Stinebaugh, chief financial officer for Brookfield Infrastructure Partners, a descendant of Brascan, the Bronfman company whose name (a portmanteau of Brazil and Canada) denoted Canadian capitalism’s first major Latin foray. Last year, Brookfield completed a $400-million deal in partnership with several Colombian pension funds to buy Empresa de Energia de Boyacá (EBSA), an electrical distribution network privatized by the Colombian government. (Brookfield will not disclose whether the funds include one managed by the Pacheco family’s Mercantil Colpatria group.)
Compared with equivalent investments in Brazil and Chile, Stinebaugh says, assets like EBSA are selling at a discount due, in part, to continuing security worries. These may be overstated, he believes. “The country is still associated with the drug cartels, the guerrillas and very high crime, but it now offers very solid protections for foreign capital and, fiscally, it is being run very responsibly,” he asserts. Like de la Campa, Stinebaugh believes the prospects for major resource discoveries in under-explored areas are exciting. After assessing the risks, Brookfield opted to work with local co-investors and start with modest investments such as EBSA, which Brookfield hopes will open the door for more investments in electrical generation and transmission.
“The Canadian investment houses know how to measure risks,” de la Campa acknowledges. But locals are learning. For a recent deal that Pacific Rubiales participated in, “one of the Colombian banks put up the whole thing,” he explains. “Until recently, it wouldn’t have even occurred to us to ask them.” All of which, he summarizes, makes Scotia’s move on Colpatria, with its networks of contacts interlaced throughout the Colombian economy, seem especially shrewd. “I’ve never asked them for a loan,” he says with a smile, “but I do think they’ve made a brilliant decision.”
Juan Manuel Santos, Colombia’s president, could easily have left it to someone else to rubber-stamp Scotiabank’s Colpatria purchase. But on the morning when the deal was to be signed in Bogota last January, the President seemed more than happy to officiate. So Rick Waugh, Eduardo Pacheco and a small group of dignitaries and executives, having already gone though Waugh’s history lesson, were treated to an extended speech aimed straight over their heads toward a phalanx of television cameras stacked at the back of the gilt-drenched main reception room at the national palace.
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