RESOURCES

Miners feel pinch from producing countries

From Argentina to Zambia, governments are demanding a bigger cut of industry revenues

ANDY HOFFMAN

MINING REPORTER

April 30, 2008

The same political decisions that have taken a toll on scores of mining companies trying to develop projects in risky jurisdictions will help keep metal prices strong, creating an added boon for miners already in production and adding insult to injury to those stymied by the political setbacks.

Aurelian Resources Inc., building what could be Ecuador's largest gold mine, suspended operations in the South American nation yesterday, laying off 80 per cent of its 450 employees after the country passed legislation halting all mining development for six months.

Ecuador's surprise "Mining Mandate" has devastated Toronto-based Aurelian's share price, which has lost more than half its value since the legislation was adopted on April 18.

"We profoundly regret the impact the Mining Mandate will have on our employees, both in Ecuador and in Canada," Patrick Anderson, Aurelian's president and chief executive officer, said in a statement. Aurelian hopes to resume operations once a new mining law is developed.

Ecuador is just the latest country to impose restrictions, impediments or unfavourable financial burdens on foreign mining firms hoping to extract resources amid a global commodities boom. From Argentina to Zambia, governments are demanding a bigger cut of industry revenues.

"All of these countries are seeing the massive profits that mining companies are making and they want their fair share," Canaccord Adams analyst Orest Wowkodaw said in an interview.

In many cases, government measures have delayed major mining projects, keeping copper and other metals in the ground instead of on the open market. For example, Vancouver's Ivanhoe Mines Ltd. has been trying for five years to secure an investment agreement with the government of Mongolia needed to tap the massive riches at its Oyu Tolgoi copper and gold project. Toronto's Crystallex International Corp. has been waiting nearly as long for a permit it needs to begin mining the Las Cristinas deposit in Venezuela.

Mr. Wowkodaw said the delays and uncertainty are choking new metal supply which will strengthen prices.

"It means that projects are going to take longer to come on and be more expensive. Exploration hasn't yielded a lot of results in terms of finding new deposits which means that long-term metal prices are going to have to stay higher," he said.

In Turkey yesterday, Inmet Mining Corp. suspended operations at its Cerratepe copper project, delaying the mine's startup beyond the previously expected 2009. A Turkish appeals court upheld an application by NGOs opposed to the mine and granted an injunction halting activity.

At Inmet's annual general meeting, CEO Richard Ross told shareholders he is now looking for acquisitions to increase the Toronto company's production.

In addition to legal challenges in Turkey, political uncertainty in Africa has kept millions of pounds of copper and cobalt in the ground.

The Democratic Republic of Congo is reviewing the mining licences of more than 50 foreign mining firms with claims to the war-torn country's valuable mineral deposits. The review has created further delays and challenges for several large mining projects.

In Zambia, once considered among the most mining-friendly nations in Africa, unexpected windfall and variable profit taxes introduced this month dealt a significant blow to companies such as Equinox Minerals Ltd. and First Quantum Minerals Ltd.

"While copper prices are now around $4.00 [U.S.] a pound, the new tax regime in Zambia will reduce/eliminate most of Equinox's leverage to the copper price," Greg Barnes, an analyst at TD Newcrest said in a note to clients yesterday.

Kerry Smith, an analyst at Haywood Securities, said the rising political risk will benefit miners already in production by delaying new or so-called 'greenfield' mining projects.

"It's bullish for pricing. What it tends to do is keep greenfields projects off the market ... if the governments keep increasing the tax burden and the costs keep going up, what it does is keep pushing out these greenfield projects," he said.

AURELIAN RESOURCES (AUR)

Close: $4.10, down 46¢

INMET MINING (IMN)

Close: $88.30, down $3.90

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