Strike looms over Yanacocha (April 28, 2006)

Roughly two weeks after a group of workers at Latin America’s biggest mine returned to work, miners at Peru’s Yanacocha gold mine are threatening to walk off the site again this time in two weeks time.

“We’ve broken off talks and we’ll hold a fresh, indefinite strike in two weeks,” the union’s leader Guillermo Nina told Reuters. “It will be a more forceful strike.”

The initial strike went from Apr. 15 until Apr.17. The company claimed 100 of 660 workers walked off, and that the mine was able to continue operations.

The strike was deemed “illegitimate” by Peru’s ministry of labour, because it lacked the necessary amount of signatures. A union official, however, claimed the number of striking workers totalled 1,000.

Denver-based Newmont Mining (NMC-T, NEM-N) controls Yanacocha with just over a 51% stake in the mine. Peru-based Buenaventura (BVN-N) holds roughly a 44% stake in the mine and the World Bank holds the remaining 5%.

The mine produced roughly 3.3 million oz. of gold last year and is expected to produce 2.6 million oz. this year, according to Buenaventura.

Management and workers had been in negotiations since workers returned from the prior strike. Workers are demanding better health, education and living standards.

At the time when the initial walk-off was announced there was speculation the news contributed to a spike in the gold price on Apr. 17.

“That’s a bit of a stretch,” says RBC Capital Markets analyst Stephen Walker. “It’s a relatively small component to the over all supply picture for gold.”

Both Walker and HSBC analyst Victor Flores say today’s news didn’t play a part in gold’s gains on the day. The spot price for New York gold was up 3% or US$17.70 to US$651.50 on Apr. 28.

With the up-tick in the gold price and strong first quarter results for Buenaventura, the companies made gains on the market.

In New York on Apr. 28 Buenaventura’s shares were up roughly 9.7% or 3 to US$30.24 on roughly 1.4 million shares.

The company beat forecasts for the quarter by announcing a net income gain of 89% to roughly US$125 million, compared with the same period for 2005. The company credited the large spike in operating income to higher silver production and higher prices for silver, zinc and lead.

In Toronto on Apr. 28, Newmont’s shares were up 1.68% or roughly 1 to $64.85 on 211,000 shares traded. Still analysts say if negotiations breakdown further and the mine experiences a prolonged shutdown, the impact on both companies would be significant.

“It’s two weeks before the official date. A lot can happen in that time,” says Walker. He says the significance of an asset like Yanacocha to Newmont means it will likely meet union demands to ensure operations run smoothly.

A spokesperson for Newmont says that while another strike is “not admissible under the terms of the collective bargaining agreement,” the company is still negotiating with workers.

The collective bargaining agreement doesn’t expire until February of 2007, but poor water, medical and educational facilities in the areas around mining activity are said to be fueling the union’s demands.