Chris Mayer

“Would you invest in Brazil 15 years ago if you had the chance?” our Colombian host asked me one night, in an effort to frame the opportunity here.

“Of course, that would’ve been a home run,” I said.

“Welcome to Colombia.”

We were sitting in a comfortable restaurant in Medellin’s downtown area. Medellin is a pretty city that spills out across a river valley and creeps up the walls of the surrounding mountains. Medellin’s nickname is the City of Eternal Spring, thanks to its temperate weather. If you have an image of Medellin (and Colombia) as a violent place, a visit here would change your opinion. We could have been in any number of cities around the world. I never felt unsafe. (As with any city, there are good and bad areas.) The bars and restaurants were full at night. The skyline was lit with tall buildings. The sidewalks busy with people. It was not always so, as Medellin was once a notoriously dangerous city.

Security issues have been a huge problem in Colombia’s past, but it is much improved, and most of the remaining issues are deep in the jungles, near the porous borders with Venezuela or Ecuador. (In fact, while we were here, rebels snatched 23 Talisman workers doing seismic work near the Venezuelan border. Even these occurrences, however, are now rare.)

Today, Colombia is a young and growing emerging market that has a lot of catching up to do – and that is the core of the investment opportunity here.

For example, one day, we visited Cementos Argos, the largest cement company in Colombia, with a 51% market share. It is an asset-rich company. In addition to its cement operations, Argos owns a huge land bank of 5,000 hectares and a portfolio with stakes in three other listed Colombian companies worth $3.3 billion and 600 million tons of coal reserves.

We met with Ricardo Andres Sierra, the CFO, who told us in the bad old days, plants could work only from 6 a.m. to 6 p.m. And there were parts of the country where the company simply did not go. But today, the plants run 24/7. “We can go wherever we want,” he said.

Argos has a huge opportunity in Colombia. As is often the case when a boom arrives, the building of the infrastructure to support the boom comes later. Colombia is way behind in infrastructure. It needs miles and miles of roads. It needs bigger ports, expanded airports and railroads. This has been a recurring theme on our trip, something we heard everyone mention.

Sierra gave us an arresting statistic. He said Colombia consumes about 220 kilograms of cement per capita annually, compared to 500 kilograms for Vietnam. The point being that Colombia is well below the consumption rates of comparable developing economies. There is lots of room to grow.

We talked about new road projects, such as Ruta del Sol, which will connect Bogota, the capital in the Andes, with Santa Marta, a port city on the Caribbean Sea. We talked about the Cartagena Refinery expansion. Both are huge projects, “as big as the Panama Canal expansion,” Sierra said. There is also a tunnel project that will connect Bogota to the Pacific port at Buenaventura. There are projects for hydropower plants, bus systems, pipelines and much more.

“Infrastructure is the key to growth in Colombia, that’s for sure,” Sierra ventured.

This has also been one of the surprises of the trip. We had heard and read, of course, about the relative lack of good infrastructure in Colombia. But it is another thing to be down here and see it firsthand.

Traffic in Bogota, for example, is impossible – or nearly so. The roads are choked with small cars that go nowhere fast. It seems to take forever to go even short distances. One of our contacts here told us that Colombia has only 300 kilometers of two-lane two-way roads.

The government knows this, and there is a lot of money slotted for infrastructure development in the coming years. Argos is in a great position to profit from the build-out of Colombia’s infrastructure.

So infrastructure is one of the big investment themes we’ve found here.

Another is oil, which is not surprising, as oil makes up 40% of Colombia’s exports and is one of the headline-grabbing investment stories in Colombia. The years of violence in the country hampered exploration and development of Colombia’s oil assets. The easing of security issues has brought back the oil companies in a big way. Also, Hugo Chavez has chased out a lot of the talented oilmen from Venezuela. Many came to Colombia and used their expertise in heavy oil to tap Colombia’s rich Llanos Basin, in the east, which shares a similar geology with Venezuela’s prolific fields.

What may surprise you is just how quickly it’s all happened. Much of the acreage is already locked up. When new blocks come up for bid, they are heavily contested. We met with Charles Gamba, president and CEO of Canacol Energy. He told us there were 67 bidders on their latest block. This industry is developing very, very quickly.

In 2003, Colombia licensed only 4% of its available acreage. Today, that’s 60%. So there are several companies here that have stocked up an enviable portfolio of prospects to explore. And oil and gas will be an important driver of Colombia’s economy for years to come as it develops further.

In any case, there are, as in any market at any time, opportunities. And there are certainly opportunities here.

Stay tuned!

Regards,

Chris Mayer
for The Daily Reckoning

Chris Mayer

Chris Mayer is managing editor of the Capital and Crisis and Mayer's Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012, Chris released his newest book World Right Side Up: Investing Across Six Continents

  • JMR

    If I knew that there will be another decade of weak dollar policy in America, I would want to invest in American soup kitchens.

Recent Articles

Extra!
Missing Money: What Government Accounting Really Looks Like

Jeff Desjardins

Everyone knows how comically terrible government accounting is, but few people may realize just how bad it's gotten... This infographic shows how trillions of dollars of government money has gone missing money over the last several years. And what's worse... that no one seems to care where it went...


Sage Advice for Bored Investors

Chris Mayer

It's amazing what some people will do out of sheer boredom. Investors, for example, will often throw money around, simply because they have nothing better to do - as if making MORE moves automatically translates to MORE money. Today, Chris Mayer explains why this emotion is so dangerous and how staving it off can save you a ton of money...


The One Word Every IPO Investor Needs to Know

Jonas Elmerraji

When a big company IPOs, investors can hardly contain their excitement. In a flash of exuberance, they throw money at a company they've already decided is worth something... even if the market hasn't made up its mind yet. Today, Jonas Elmerraji explains how one simple word can change the fate of every IPO investor. Read on...


How to Escape Obamacare in One Bold Move

Chris Campbell

Think it's impossible to escape the throes of Obamacare? Think again. Today, Chris Campbell relays the story of one man was able to get out from under the (un)Affordable Care Act, and how you can do it too. Don't see another doctor, take another pill, or shop around for better medical insurance until you read his story...


Let the Alibaba IPO Show You Where the Market’s Headed

Greg Guenthner

For the last few days, the market has been buzzing with excitement over the Alibaba IPO. Well, the day is finally here. And while some investors line up with their lotto tickets, ready to snatch it up no matter what the price, Greg Guenthner suggests a slightly more restrained approach. Read on...