Miners encounter the hard rock of resource nationalism

Unfortunately, its state-owned rival Codelco agrees that the mine has great prospects – so great, in fact, it would like to wield its option to buy a 49pc stake in the unit which holds it. In a much more attractive deal, Anglo this month sold 24.5pc off to Japan’s Mitsubishi, which it said stopped Codelco getting hold of any more than 24.5pc. Cue much teeth-baring from both sides, with the dispute proving something of a cause celebre for Chilean politicians. One said the Mistubishi sale “threatens Codelco and the nation”.The charged political rhetoric has focused minds on resource nationalism, now the mining industry’s biggest worry.

The term, increasingly bandied about by industry watchers, simply describes moves by governments to take a bigger slice of the money to be made from their states’ resources.

Long a consideration, it is now miners’ number one headache, up from fourth place last year, an Ernst & Young study found.

The interplay between governments and resource companies will, of course, always be an issue for an industry which profits from a country’s natural riches.

In one sense, the attempts in Chile to exercise the option can be seen as the expression of an old issue, as the right dates back decades.

However, the commodity price boom of recent years has made miners a prime target for cash-strapped governments to raise revenues.

Industry insiders date the moment that the floodgates opened to when Australia last year proposed a surprise mining tax, a move seen as game-changing.

If Australia, previously seen as industry-friendly, could do this, anyone could. The same is said of the UK over its tax grab earlier this year on the North Sea oil industry.

Now it seems that barely a week goes by without news that another country has made a move towards higher taxes or royalties. More rarely, they invoke “use it or lose it” clauses or force companies to hand over stakes.

This month Zambia doubled some mineral mining royalties, while in South Africa the loud debate about nationalisation raged on.

Miners retort that commodity prices are volatile and the sector is cyclical in nature, but the sheer scale of their profits – some miners’ returns dwarf nations’ GDPs – is not helping their cause.

So what is to stop governments taking an ever-creeping share?

For all their talk of community engagement and social investment, the biggest leverage the companies wield is the threat to leave.

Mines are immobile, but companies can choose whether to expand or invest in certain sites, or focus elsewhere. “Capital leaves pretty quickly,” notes Greg Hawkins, chief executive of African Barrick Gold, the gold producer.

And there is a to-and-fro between the sides.

Mining giant Rio Tinto and its partner Ivanhoe Mines last month got Mongolia to back down over a bid to raise its stake in the massive Oyu Tolgoi copper and gold mine.

The problem remains, however, if more and more governments adopt these uncomfortable stances.

David Russell, an industry veteran and a director on Ernst & Young’s mining team, describes resource nationalism as a “contagion”.If you do pull out, China and, to a lesser extent India, are ready to say “We’ll take it”, he says.

There are few major projects going spare.

Others point out resource nationalism may be the phrase of the moment, but that it has to be seen as part of the wider backdrop of jostling between companies, states and citizens as they all grab for a bigger slice of the pie.

That view would align the 1,500 people who converged on Tanzania’s North Mara gold mine in May, armed with machetes and hammers in the hope of getting some gold ore, alongside many politicians. African Barrick Gold, the mine’s owner, is now busy building a new, 14km wall around the compound, incidentally.

Governments cannot be dealt with in quite the same way. Resource nationalism is something the industry will have to live with.

Gold hits high in value terms

Global gold demand in the third quarter of 2011 reached 1,053.9 tonnes, an increase of 6pc compared with the same period last year, according to data released by the World Gold Council.

This equates to $57.7bn (£36.5bn), an all-time high in value terms.

The main driver of the demand increase was investors seeking a safe haven from turbulent markets, as investment demand rose 33pc year-on-year to 468.1 tonnes.

“Increasing levels of inflation, the US credit rating downgrade, a worsening eurozone sovereign debt crisis and the lacklustre performance of many assets drove investors to increase holdings in gold in order to protect their wealth,” Marcus Grubb, managing director of investment at the World Gold Council said. “Given gold’s proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating.”

Europeans are certainly spooked by the current euro debt uncertainty. Investment demand in Europe reached a record quarterly value of €4.6bn (£3.9bn), or 118.1 tonnes. This is an increase of 135pc when compared with the third quarter of last year.

In China, demand for gold bars and coins increased by 24pc on a year-on-year basis to 60.2 tonnes.

The gold price has risen by 22pc so far this year. – Garry White

Silver recovers

Silver prices recovered slightly on Friday after tumbling for most of the week.

Silver and gold have been falling, despite eurozone worries and their traditional role as a safe haven.

The dollar has been strengthening as investors bet on an improving outlook in the world’s largest economy.

Silver prices have plunged by a third since their peak earlier this year, but are still up 4pc since January. This followed an 80pc rise last year. – Garry White

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