Economic anarchy

At the start of the 20th century, anarchists sought to destabilize the Western World by hatching a myriad of diabolical plots to murder members of royal families and prominent politicians. William McKinley, the 25th president of the United States, and various other leaders were felled during this short-lived reign of terror. Among the royal victims were Austrian archduke Franz Ferdinand and his wife Sophie, whose assassinations precipitated the outbreak of the First World War.

While the world has not rid itself of terrorists, anarchy as a dubious means to an equally dubious end has few converts today. However, economic anarchy appears to be in full flower, particularly in Russia and some of its former republics, and in more than a few countries in Africa.

We have watched a parade of mining companies venture to these destinations in hopes of producing both profits for their shareholders and economic benefits for local peoples. It has been disheartening to watch most of them come back disillusioned and, in many cases, poorer themselves. For some of these nations, the window of opportunity has closed with a bang that had nothing to do with the sound of falling metal prices.

Mining markets were hot when the first mining companies ventured into Zaire — then under the control of Mobutu Sese Seko — in hopes of reviving the country’s geologically rich copper belt. The country was barely functioning at that time. Civil servants were not being paid, infrastructure was crumbling and revenues from state mines were diverted into Mobutu’s coffers. Yet aid from foreign governments continued to pour in, ostensibly to “help the poor.” More often than not, it was used to put down insurgencies and to keep up the pretense that there was still a Zairean state.

Laurent Kabila, a former revolutionary comrade of Che Guevara, took control and promised to make positive changes with the help of foreign investors. The few changes he made weren’t for the better. Che Guevara’s mocking assessment of Kabila’s mercenary character proved chillingly accurate. Most of the investors are disillusioned too, tired of the never-ending corruption, uncertainty and political unrest. Zaire is now the Democratic Republic of Congo, but it’s still struggling to stay afloat.

Kazakstan enjoyed a mining flurry too, with companies rushing to bid on a variety of mines that were either being privatized or going under. That boom went bust when companies came back with horror stories of how business is undone in the former republic. The soured deals led to scores of lawsuits, with claims aggregating into the billions of dollars. Some are before the courts; others are pending arbitration or just festering.

Russia is now rife with economic anarchy. Boris Yeltsin didn’t step down as the beleaguered nation’s leader because he wanted to write his memoirs. And even if he did, chances are they wouldn’t divulge how certain members of his family have amassed astonishing wealth.

In recent weeks, the mining world watched in anxiety as yet another Russian mine project became enshrouded in uncertainty. Pan American Silver, which had hoped to develop the Dukat mine in the Madagan region, was taken aback when a rival popped out of nowhere to become the winning bidder for the mine’s fixed assets, including the mill building.

Pan American is carrying on regardless, confident that those assets have little value without the mining licence. It is now examining the option of building a mill.

The purchase of the mill assets by the rival bidder, while no doubt frustrating for Pan American, appears to have been done lawfully. Pan American had a lower bid, which didn’t win. C’est la vie.

The potential problem in this situation is that the rival bidder has since boasted, in both Russian and foreign newspapers, that it intends, within a month, to “capture” Pan American’s mining licence. The reports quote the company’s chief executive as saying the bid to buy the old mill will be followed by a Russian takeover of the mine.

How, we ask, can a company “capture” something that belongs to someone else? We can understand a competitor hoping a bid might happen, and even hoping to win the bid once it happens, but that’s it. Anything beyond that smacks of a veiled threat to bring forces to bear that have nothing to do with the normal conduct of business.

Obviously, the rival party hopes Pan American will not be able to meet its contractual obligations to return the former producer to production. However, Pan American points out that its licence contains a clause allowing for delays, such as may occur if were to build a mill.

The eyes of the mining world are likely to be trained on Dukat in the coming months, just as they once were trained on projects derailed in Kazakstan and the DRC.

The only certainty now is that this project will not be forgotten if it is derailed by unfair means and predatory practices. It will be added to a long and growing list of projects that remain undeveloped in places where economic anarchy prevails.