Prices aren’t the only thing pressuring miners. While spot prices for gold trending under $1,300 mean a number of mines are operating at a loss, nationalization pressures, labor demands and the unilateral changing of contracts by host countries are posing a greater near-term danger to precious metals supplies. Here are just a few examples:
In Ecuador, Kinross has announced it is abandoning a gold mine it has sunk $720 million into, after negotiations with the Ecuadoran government collapsed. The government was wanting a 70% windfall profits tax, and refused to let Kinross find a buyer for the mine.
In the Philippines, the Chamber of Mines is asking the Army to provide protection for gold mines that are being attacked and damaged by communist guerrillas, who are attempting (and succeeding, against smaller companies) to extort protection money. The Philippine government has declared intentions of rewriting mining contracts to collect 8% – 10% of gross revenue rather than profits, and institute a 3% windfall profits tax.
In South Africa, the Amcu labor union is demanding a 150% pay increase for entry level workers in gold and platinum mines, and a doubling of the “living out allowance”, a sort of per diem for those workers not living in company housing. Rival union NUM has demanded “only” a 60% pay increase for entry-level workers. This is despite mining companies giving raises above the rate of inflation for nearly ten years, and precious metals being in a bear market. South African mines are far more dependent on manual labor than mines in other countries, and labor costs account for more than half of operating expenses there.
In Mongolia, the government, which is already slated to receive 71% of the profits from the giant Oyu Tolgoi copper and gold mine, is blocking operator Rio Tinto’s first exports. The government is demanding at all revenues from the mine be kept in Mongolian banks. This is just the latest trouble for the mine, which has cost Rio Tinto $6.6 billion to develop. Earlier this year, riots blocked access and cut electricity to the mine, over calls to completely nationalize it.
In Zimbabwe, platinum miners have been force to sign over majority control to the government, with 51% of proceeds going to national, provincial and local governments, amid calls for complete nationalization of the mines. The government recently seized thousands of acres of undeveloped platinum deposits from Zimplats, with the intention of reselling it to another company that will develop it immediately.
These are just examples of the pressures mining companies are under, while they attempt to increase productivity and cut losses. The resolution of these problems will either lead to greater operating costs, or reduced supply.