Canadian Mining Companies at Odds with Many in Mexico

If many locals have their way, Canada's Mexican gold rush won't extend to the southern tip of Baja California. Planned for a site within the Sierra de la Laguna biosphere, the Paredones Amarillos gold mine is awaiting approval of a land use permit from federal authorities that could pave the way for the extraction an estimated 1.2 million ounces of gold over a period of 9.3 years.

But plans for the open pit mine proposed by Canadian-owned Vista Gold Corporation are sparking opposition from environmentalists and residents. Critics contend that metals and chemicals used in the mining process could contaminate precious groundwater supplies, scar a fragile ecosystem and threaten public health. Further, they fear critical sea turtle and whale habitats could be jeopardized from the construction of a desalination plant designed to pipe in water for mining operations from a coastal site at Las Playitas.

Ariel Ruiz, spokesman for a local citizens' movement gaining steam in Todos Santos and nearby communities, said opponents have gathered 3,000 signatures on a petition against a mine.

"What we are really talking about is that all the water we consume comes from the (Sierra de la Laguna)," Ruiz said. "People are opposed because it is a high price they might have to pay for this investment."

Boasting mixed stands of pine and oak, and recognized by the United Nations Education, Scientific and Cultural Organization as a world biosphere, the Sierra de la Laguna is the source of groundwater for a wide swath of Baja California Sur.

Vista Gold President Fred Earnest and project manager Carlos Calderon both dispute environmentalists' contentions that Paredones Amarillos would cause ecological harm. According to Calderon, Vista Gold will utilize environmentally sensitive, state-of-the-art mining technology and practices and uphold "the highest international standards" like the International Cyanide Management Code.

Projected to create nearly 400 construction and 300 mining jobs if it moves forward, the Paredones Amarillos mine will entail an investment of $170 million, according to Earnest. Also serving as Vista Gold's chief operating officer, Earnest pledged his company will establish a foundation to support health care and education in Baja California Sur.

"We want to be a responsible corporate citizen in Baja California Sur," Earnest said.

A decision on Vista Gold's land use permit application is expected sometime early next year.

The Paredones Amarillo controversy is among the latest ones to arise from the aggressive expansion of Canadian mining companies in Mexico. Already dominating foreign investment in the country's fast-growing mining sector, 200 Canadian companies are reportedly scouring 400 places in the Mexican Republic for possible new mines.

The surge in Canadian mining activities in Mexico and other parts of the world is being enthusiastically underwritten by the Harper administration. According to a compendium prepared by the Halifax Initiative, a coalition of non-governmental groups founded to press for reform of the World Bank and International Monetary Fund, numerous government programs help subsidize Canadian mining companies through direct loans and guarantees, insurance, foreign aid policies, and stock investments from public pension funds.

The central Mexican state of San Luis Potosi is another front in the mining vs. environment battle. A long-running fight between local landowners and a national network of environmental and human rights activists on one side, and the Vancouver-based New Gold Incorporated on the other, almost came to a head last month when Mexico's Secretariat for the Environment and Natural Resources (Semarnat) revoked an operating permit for the company's Cerro de San Pedro mine.

Reiterating charges that New Gold's operations were provoking public health problems from cyanide and mercury emissions, as well as causing damages to a historic church and other buildings, opponents applauded the decision. This month, however, a Mexican court threw out Semarnat's decision. Withdrawing the mining permit, the court stated, would adversely impact 500 direct and 1,500 indirect jobs linked to the mine. New Gold, the court ruled, "has always respected environmental rules that regulate the activity it pursues."

A citizen complaint about the mine was rejected earlier this year by the North American Commission for Environmental Cooperation. The Montreal-based commission is charged with investigating and issuing records of fact on environmental problems in the three member nations of the North American Free Trade Agreement [NAFTA].

In some places, violence has been directed against mining opponents. After months of reportedly suffering threats, jail and even physical assault, Mariano Abarca, a prominent anti-mining organizer for the Mexican Anti-Mining Network (REMA) in Chiapas, was shot to death November 27 in the town of Chicomuselo, where farmers have waged a struggle against a barite mine run by the Canadian-Mexican firm Blackfire Exploration Ltd.

Earlier this month, Chiapas state law enforcement officials arrested three men purportedly connected to Blackfire Exploration Mexico for Abarca's murder. Citing environmental violations, the Chiapas state government also ordered the Chicomuselo mine temporarily shut down.

Samuel Ruiz, the former bishop of San Cristobal de las Casas, spoke out against the murder of the environmental activist. In order to prevent more deaths like Abarca's, Ruiz appealed for an end to the "criminalization of defenders, as well as the stigmatization and repression of organized peaceful protest."

A growing international scandal surrounds the Abarca murder. According to Rick Arnold, coordinator of the non-government organization Common Frontiers-Canada, documents in the possession of REMA and its supporters show that Blackfire was funneling $1,000 monthly into an account controlled by Chicomuselo's mayor for the purpose of keeping company opponents "under control."

The activist's slaying is helping stoke a rising debate over the conduct of Canadian companies abroad and the Harper government's role in promoting resource extraction in the developing world.

Opposed by the Harper administration and the mining industry, a piece of legislation pending in the Canadian Parliament, Bill C-300, proposes to make public financial and political support for private mining companies contingent on meeting human rights, environmental and health standards. A second bill, C-345, would permit foreigners to sue Canadian companies in Canadian courts for human rights abuses committed abroad.

Ottawa is clearly concerned about the ramifications of the Abarca murder. Two high officials, Canadian Governor-General Michaelle Jean and Peter Kent, junior foreign minister for the Americas, visited Chiapas shortly after Abarca's slaying, but did not meet with REMA members, as was requested by the group.

On December 18, four Canadian organizations — Common Frontiers-Canada, Mining Watch Canada, United Steelworkers, and Council of Canadians — jointly announced they would pursue legal charges with the Royal Canadian Mounted Police against Blackfire for violating the 1998 Corruption of Foreign Public Officials Act.

There was no immediate comment from Blackfire, but an undated statement posted on the company's website lamented violence in Chicomuselo and expressed sympathy with family members of victims.

Gold Price News

The gold price has rallied 24% in 2009, but even more impressive is the 280% rise in the price of gold over the past decade - making gold, along with gold mining stocks, one of the best performing asset classes of the past decade. Gold is an emotional asset class and opinion is heavily divided as to its utility in asset allocation. However, the facts are clear - exposure to the gold price and gold mining stocks has served investors well over the past ten years. There is considerable debate heading into 2010 as to whether this strong performance can continue, particularly in light of the fact that the U.S. dollar has posted its best month since February and looks set to continue its ascent into the New Year.

In spite of the strong rise in the gold price over the past decade, the case for further gains looks to be compelling. Gold was mired in a twenty-year bear market and was the worst performing asset class the previous decade - amidst the technology mania of the 1990s. On an inflation-adjusted basis, the January 1980 high equates to a price today of roughly $2,300 per ounce. The fundamentals that led to the appreciation of both gold and gold mining stocks not only remain in place, but have strengthened. Money supply growth has been rampant this past decade and the $1.2 trillion increase in the Federal Reserve’s balance sheet since the onset of the credit crisis is money that was created out of thin air and pumped into the financial system. The world is still over-reserved in U.S. dollars despite efforts by nations across the globe to diversify away from America’s currency.

The balance sheet of the U.S. has deteriorated since 2000 as both private and public sector debt loads have increased as deficit spending at all levels was the norm. The plight of the state of California serves as a microcosm for the financial state of the U.S. As written in this weekend’s Barron’s by Randall Forsyth, according to CMA datavision - a unit that provides data on credit default swaps - California has a 20.8% chance of defaulting based upon its CDS prices. Private debt as a percentage of GDP stands at roughly 350% vs. a mere 65% sixty years ago. During the 1930s, this ratio never climbed above 250%. At both the public and private level, debt levels remain near record highs.

Last week Congress voted to raise the debt ceiling by $290 billion, thereby increasing the total amount of public debt the government is able to hold at $12.4 trillion. The $290 billion increase will only last a mere two months. Republicans are attempting to call down the profligate spending of the Obama administration and are looking to engage in a public discussion about the growing deficits and debt facing America. Democrats will likewise attempt to frame the persistent deficits as an outcrop of the Bush administration. In a show of bi-partisanship to tackle this issue, Senators Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.) have introduced a proposal to create a “fiscal task force” in order to bring restraint to the federal government. By implementing a series of both tax and spending initiatives, the senators are attempting to engage policy makers in a discussion of the deteriorating fiscal position of the U.S.

While a noble gesture on the senators’ part, the idea that fiscal restraint is coming to Washington during a time of 10% unemployment is sheer fantasy. With the 2010 mid-term elections already becoming a focal point in Washington, the chance of a second stimulus bill is far more likely than any meaningful attempt at deficit and debt reduction.

While the current counter-trend rally in the U.S. dollar could continue further, the longer-term fundamentals remain dismal. Furthermore, analysis of the value of a nation’s currency is always relative to an alternative currency. When the Dollar Index (DXY) rallies, it means that the U.S. dollar is appreciating versus the euro, yen, and pound - as these three currencies comprise 83.1% of the index. Strong arguments could be made that each of these currencies faces as severe, if not greater, headwinds as compared to the U.S. dollar. It is entirely possible that the DXY could move higher while the gold price in U.S. dollars also moves higher.

Gold has begun to reassert itself as an alternative currency and it is entirely possible that the high correlation in recent years between the U.S. dollar and the gold price will begin to wane. The gold price has appreciated greatly versus other foreign currencies in recent years, although the gains have been stronger in U.S. dollar terms. This pattern may change in 2010 as gold could outperform in euro terms as Europe faces the daunting challenge of accommodating a wide range of sovereign balance sheets within the context of a common currency. Weaker economies such as Greece, Portugal, and Italy are breaking mandated limits related to deficits and the stronger balance sheet countries such as Germany may begin to lose patience. The eventual disintegration of the euro may seem farfetched at this point, but one should not rule this possibility out.

Correlations in financial markets constantly change and if economic conditions deteriorate across the globe, gold may see sizable inflows and rise towards its 1980 inflation-adjusted high near $2,300 per ounce while the U.S. dollar outperforms its weaker European counterpart. Higher gold prices and a stronger dollar, a seemingly improbable combination, should not be ruled out as a possibility in 2010.

Indonesia eyes $3.57 bln investment in mining, geothermal

Indonesia hopes to raise 3.57-billion-U.S. dollars investment in mining and geothermal energy next year, representing an increase of more than 90 percent of realized one this year, the Jakarta Post quoted an senior official as saying on Monday.

"This year, the government predicted that investment in the sector would reach 2.33 billion dollars, but only 80 percent of the target has been achieved so far," said Witoro Soelarno, the Secretary to the Directorate General for Mineral, Coal and Geothermal Energy at the Energy and Mineral Resources Ministry.

Next year will be another important year for the country's mining industry as four long awaited implementation regulations to the new mining law are expected to be issued in January.

Witoro said that the implemented regulations, covering mining areas, coal and mineral businesses, mining supervision, reclamation and post-mining issues, are expected to provide legal certainty and boost investor's confidence in developing the country's mining and geothermal reserves.

However, Witoro added that major investment next year would still come from existing concessions rather than mew mining licenses issued under recent law.