Editorial: A world o’ hurt

Life is full of ebbs and flows, expansions and contractions, and the mining industry is part of that cyclical stream. Right now Canada’s intrepid mining industry and its breathtaking, optimism-fuelled expansion into most of the world’s mineral-rich countries are suffering staggering political setbacks across a range of locales, and for many different reasons.

First off, we should say that most mineral explorers and miners we deal with are not driven by political ideology — they just want to make a buck. And whether that buck is made in libertarian Nevada or communist Cuba doesn’t make a big difference to them.

Indeed, it’s not uncommon to find yourself over drinks listening to a wealthy Bay Street-type recollect about the time he met Fidel Castro, speaking in the same gushing tone that a rock fan would use to talk about meeting Mick Jagger.

More than anything, Western mineral explorers and miners crave consistent and predictable tax regimes and regulations from host countries, so that they can efficiently plan mine projects that may have multi-decade lifespans. If a government slaps a surprise tax on a miner after a mine is built, and it drops the project’s rate of return from 15% to 5% annually, the mine developer would have been better off putting the money raised for mine construction into a corporate bond and heading to the golf links.

Problems in Bolivia have taken centre stage, with Evo Morales’ government having expropriated South American Silver’s Malku Khota silver project on the heels of two other forced nationalizations in the country. It’s funny listening to these business people who agreeably go along with the forced expropriations of businesses in other sectors or areas of the country, but complain loudly when their business is taken over (think Gold Reserve management during Crystallex’s Las Cristinas saga). It calls to mind that Churchill quote: “An appeaser is one who feeds a crocodile, hoping it will eat him last.”

Argentina has been one of the genuine mineral exploration success stories of the past few years, but it’s causing heartbreak among global miners amid crushing and fickle tax and environmental-regulation changes at the provincial level, and punishing financial and monetary restrictions at the national level. (For those unfamiliar with the passions and vagaries of Argentinean politics, imagine all the crazy and tragic turns of Italian politics transplanted to South American soil.)

The bloom has come off the Colombian rose, too, as the country’s mineral claim system was frozen last year amid a change in government to one that’s perhaps less welcoming to foreign miners.

Mining powerhouse Peru has seen its share of anti-mining protests flare up, as local indigenous groups worry about mine development wrecking water sources and their communities’ agricultural future. Ecuador is also showing signs of becoming permanently uncomfortable with any large open-pit mines within the country’s limited, lush land base.

Local opposition to mining in Guatemala and Honduras is on the upswing, with all the attendant style of 1980s Central American revolutionary movements.

In Central Asia, Centerra hangs on as the Kyrgyzstani government takes greater and greater bites of its Kumtor mine, and the Mongolian scene is as perplexing as ever, with national sentiment swinging to and fro, for and against foreign miners.

In the South Pacific, the usually docile government of Papua New Guinea is feeling chuffed these days and seeking greater ownership stakes or taxes from mining ventures in the country.

Even “safe” jurisdictions like Chile and Australia surprised miners in recent years with substantial tax hikes on the largest miners, most of whom were foreign.

Can bankers’ reputations fall any lower? A couple of weeks after Barclays was exposed as having rigged the benchmark Libor lending rate in what is developing as one of the largest banking scandals of modern times, Britain’s HSBC is being threatened with fines of US$1 billion in the face of multi-year probes by the U.S. justice and treasury departments, and Manhattan’s district attorney.

In a newly released U.S. Senate report, U.S. authorities are alleging that HSBC may have inadvertently — through lax compliance and ignoring warnings — allowed its Mexican and U.S. subsidiaries to be used by Mexican money launderers to move billions of dollars from Mexico into the U.S., more than any other bank. HSBC has not publicly denied the allegations.

Earlier this year, Holland’s ING agreed to pay a US$619-million settlement to the U.S. government for helping Cuban and Iranian companies move billions of dollars through the U.S. banking system, contrary to U.S. law.