London Calling! February 17 2003

London Calling! February 17 2003

Digging Behind the Patagonia Play

The number of mining companies on London's Stock Exchange is still only at the half century mark - close to where it's been for a couple of years - though it includes the world's three most powerful: BHPBilliton, Rio Tinto and Anglo-American.

The City's Alternative Investment Market (AIM) has only a fifth of the number of miners stabled in the LSE, but the figure is growing. What's more important, the investment capital raised by these dubious foals also is set to rise. The obvious trigger for this is the impending war of aggression on the people of Iraq.

Bull and Bush

As bull-headedness has thickened on the battlefront, so has bullishness in the gold price; and not surprisingly, so has the gilt on the junior gingerbreads. For example, even though the World Bank's International Finance Corporation (IFC) last year sold its 300,000 shares in Bema Gold (a company we reported on last month), it made a healthy capital gain of US$ 321,000 - nearly four times what it paid for them.

Then there was Thistle Mining's coup as it added President Steyn gold mines to its existing portfolios in the Philippines and Kazakhzstan. According to Mineweb, it's this acquisition which is now prompting the entry of Canadian juniors into marginal gold deposits in South Africa [MinewWeb 5/2/03]; no doubt elsewhere too.

In Patagonia

But not all juniors are having it so easy. Earlier this month, opponents of a gold mining project in Argentinian Patagonia chalked up what the Buenos Aires Herald called "a small victory in their ongoing battle" against a gold project in Esquel. Notwithstanding the city's mayor and the governor of Chubut province backing the undertaking "despite its environmental and life quality implications for local residents", the council has passed ordinances banning the use and transport of cyanide within city limits. Moreover it revoked a city ordinance accepting national laws on mining investment, and called for a popular referendum on the mine to be held by March 23 at latest,

This was a 360 degree turn for councillors who had previously supported the mine; they now fear for future water supplies which feed the city and its surrounding farms. (Perhaps the change is not surprising in light of the campaign conceived last summer, to block Noranda's proposed Alumysa alumina refinery in southern Patagonia).

The community is up against El Desquite mining, owned 45% by Meridian Gold of Canada, itself based in the US. The company wants to strip-mine gold at the top of the southern end of Esquel range, a little over 6 km from the city, the airport and the La Hoya ski resort. Cyanide would allegedly be stored on top of the mountain range, as would the overburden. Locals fear that Lake Esquel will be used as a tailings dam, while aquifers and ground water would dry up or become polluted.

[For a fuller story see the posting on the MAC website]

"Green Interference" buzzes investors' screens

Immediate market response to this event has been a downgrade to "neutral 2" for Meridian by analysts, UBS Paine Webber of Toronto. They've cited likely delays to the project as a significant risk to Meridian's valuation.

Not to be outdone by local outrage, Meridian is biting back, claiming it was "intimidated" as (to quote the colloquially colourful Tim Wood of Mineweb) "activists....have filled the information vacuum and the market has been feeding on rumours and conjecture as a result".

Wood coins the derogatory phrase "Green Interference" in an attempt to downgrade the opposition's newfound mettle, while claiming that Meridian will try to bypass the Esquel city council since the councillors don't have any say in permitting the mine.

However "compliance with national and provincial laws has never been enough to resolve conflicts at the local level if other mining projects are anything to go by", Wood goes on.

He warns: "If Meridian seeks to be overly combative and bypass rather than engage the community, it will simply sow fertile ground for a larger anti-globalisation faction to gnaw on the project as an example of uncaring CanAm carpet baggers despoiling a picturesque spot and riding rough-shod over unempowered third worlders. Esquel suffers high level unemployment, but that has so far not translated into any meaningful support. That is clearly Meridian's greatest point of leverage to progress the project - ensuring that the town's unemployed fully understand the cost of not having a mine"

But Wood hasn't yet finished munching up his greens:

"Meanwhile the town's tourist potential is shaping up to be the real battle ground - each extra day of Internet propagated images of a virgin alpine idyll leave[s] Meridian facing a task equivalent to selling diamonds using amputees from Sierra Leone as runway models. What's next? Doubtless a flock of NGOs and community fixers offering to mediate between the company and the community it must make its home in."

Thanks, Mr Wood; your loquacity could earn you a guest fling at "London Calling". But why not give us the numbers? We wouldn't like to bet that Canada's IDRC, Oxfam, - or even WWF, that most assiduous interloper between communities and miners - will touch this controversy with a ten-metre theodolite.

A lesson from Honduras

It seems some observers may never get the point that communities usually don't revolt against an extractive project, simply out of expediency or because they're stirred up by outsiders. Many know full-well already what's in store for them; their experience of mining and its pretended benefits may ante-date the company's by decades. And protests can continue long after an initial prospector has given up trying to win them over.

Take the case of Minas de Oro in Honduas' Cayagua department: relatively small agriculturally-based settlements in a hilly region dependent on mountain streams, aquifers and the El Cajon lake. In 1992 Kennecott (wholly-owned by Rio Tinto) purchased the mining concession.

Rio Tinto allegedly also bought the compliance of the town's mayor and the servility of several national journalists. In response, Aconademo, a newly-established environment coalition, along with the majority of Minas de Oro's inhabitants, rose up in protest. Following concerted local, national and international campaigning (yes, that typical, topical, trio), Rio Tinto withdrew from Honduras.. The British-Australian giant sold on its prospect to Fischer Watt, but the Canadian junior couldn't hack it either. Nor could its successor, Carson Gold (one of the notorious Robert Friedland's clones) which passed exploration rights to Tombstone. Sure enough it also pulled out.

As the gold price soon plumbed the depths, and the millenium turned, so the project lay fallow.

Until last year that is, when Glamis Gold of Reno waded in, along with a Honduran partner, Entre Mares SA. Had the erstwhile opposition disappeared? Was Glamis' gambit any more convincing than its predecessors? Judge for yourself. In summer 2000, what the Honduran national paper, La Tribuna termed "una multitudinaria" - larger, it seems than ever before - massed to demand the "retiro de Entre Mares", the ejection of the companies.

After more than a decade of such domestically-organised response, to view the community's passionate rejection of mining as ill-informed or inappropriate is itself the height of ignorance. Nor has there been a "green interferer", let alone a "fixer", anywhere in sight.

The Family

It was a company called Brancote which "discovered" the Esquel deposit. Now, a clutch of corporate raiders, dubbed by Mineweb's Ken Goodings "the boys from Brancote", are putting together a strategy for a company which was formerly listed on AIM but demerged from Brancote, before being taken over by Meridian in 2000. HPD's going hack onto AIM (are you still with us?) at a current market value of around £19 million. Says Gooding, this is "way above the value usually given to companies involved in very early stage exploration". According to an HPD luminary however, "You can get a great deal of exploration for your money in Argentina."

The company is attempting to raise US$ 2.1 million to explore some twenty Patagonian sites. It's in partnership with the Argentinian family, Miguens-Bemberg, which also had a leading stake in Brancote, but its biggest shareholder is Matapos Holdings, described by HPD as "an offshore company owned by a rich investor who also had a major stake in Brancote." Two Invesco funds between them have 10.4 percent of HPD, while Aim Trust owns 4.7 percent. (Invesco is one of the world's biggest stakeholders in mining).

The Family "emerged from the Brancote deal with a small fortune." Between them, HPD and the Miguens-Bember's each own 50 percent of another company, Patagonia Gold, which has properties covering 2,000 sq. kms in the Rio Negro, Chubut and Santa Cruz province". But, says HPD, these prospects are "not too close to Esquel as we don't want to upset Meridian".

HPD initially broke onto our London City scene using OFEX, the "lightly regulated" (Gooding's careful euphemism") trading facility, organised by stockbroker J P Jenkins. AIM provides a more respectable haven, however, especially for HPD's international shareholders.

So there it is. "London Calling" doesn't apologise for going into all this perplexing detail about what might seem a minor play by a diminutive miner (or two). As Rob McEwen commented last week: "There's a new crop of juniors [the market would want] to invest in"

No Randgold cowboy! (But who's calling the shots at the World Bank?)

As chair and CEO of Canada's Randgold, McEwen should know. His company is one of the world's most successful gold extractors, ranking 17th in the global table and firmly backed by London-based HSBC, Europe's biggest bank. Nor does Randgold appear to have a place on any mining "greenies" hit-list over its Canadian operations. McEwen has also denied - despite recent rumours - that his company is interested in buying-up Gabriel Resources of Canada, though it certainly has the cash to make the deal.

No doubt McEwen is well aware of the dubious baggage Gabriel carries with it, and its recent convoluted history of pushing its Rosia Montana project, in the face of Romanian opposition and that of the World Bank.

The Bank's IFC withdrew its US$400 million investment from the Rosia Montana project late last year. We say "apparent" because, although a Bank spokesperson volunteered that "[T]he decision was in large part driven by concerns about the about the project's social and environmental impact", the IFC isn't buying - or selling - the same line. In a letter to Gabriel, Rashad Kaldany, director of the IFC's Oil, Gas, Mining and Chemicals Department actually praised the company for its efforts. According to the Financial Times, "IFC officials are worried the controversy could lead to companies losing confidence in it, bypassing the instituioon and not adhering to its strict environmental procedures"

It's a comment, some might feel, which smacks of the justification used recently by Rio Tinto's Shaun Stewart for his bosses getting stuck into mining South Africa during the apartheid era.

For good measure, Financial Times corrrespondent, Phelim McAleer, last November claimed that Gabriel had switched its plans from using a cyanide storage pond to building a cyanide destructionn unit instead. And that "the resettlement programme has almost full support in local villages, with many people welcoming the chance to move to larger towns or custom-made houses as part of a generous compensation package"

Whatever the truth around Rosia Montana, Randgold is well-advised to steer clear of a country where its citizens still have vivid and alarming memories of the Baie Mare "accident" in 2000.

Tailings, breaching from a dam owned by the Australian company Aurul, shot 100,000 cubic metres of cyanide-laced waters (30 ppm) into Romania's Lapus River and across the border into Hungary, rendering what the country's prime minister called its worst-ever environmental disaster.

[Sources: Mineweb 5/2/03; FT 10/2/03; Buenos Aires Herald, 9/2/2003; Minweb 7/2/2003; IFC Monthly Operations report, September 2002; Kenneth Gooding, Mineweb, 12/2/03; Tim Wood, Mineweb, 7/2/03; Mineweb 12/2/03; Metal Bulletin 8/2/93; Parting Company, Partizans, London, Spring 1995; La Tribuna (Honduras) 23/7/03; Mining Journal 19/2/2000]