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Mining Companies Assessment of Political Risk Comes Up Short

By just about any measure the gold mining industry’s investment record over the past decade has been pretty abysmal – at least for major producers who at long last seem to be realizing that growing gold production does not always equate to higher profits.

In fact, much of the meteoric rise in gold prices to over $1,900 per ounce was largely negated by escalating production costs and hedging practices that effectively capped the upside that companies would normally have bet on.

Many of the problems mining companies are currently facing in foreign jurisdictions involve a poor assessment of political risk which understandably has many facets to it.  Although there’s political risk in every country – including our own – at least companies here have some recourse through the courts which admittedly is time consuming and expensive.

Not so in many other countries including, it would seem, the European Union where Greece’s far-left Syriza government recently revoked a permit for the process plant at Eldorado Gold’s Skouries gold project.

Greece

The country’s new energy minister, Panagiotis Lafazanis, has gone so far as to state that his government was ”absolutely against” the Skouries mine which is currently in the construction phase. Publicly he has vowed to  “employ all possible legal means” to halt the project.

According to Canada’s Financial Post, Eldorado “spent $2.5-billion to acquire the neighbouring Skouries and Olympias projects in 2012, and has sunk roughly US$450-million into developing them so far. The company is planning to divest its Chinese assets so it can focus more fully on Europe.”

All this is happening in a country that has 323 billion Euros in debt ($US352.7 billion) – more than 175% of its GDP. Approximately 75% of that debt is owed to the European Union (EU) and the International Monetary Fund (IMF) which are understandably reluctant to offer Greece any more money.

Greece is essentially bankrupt, unemployment and poverty are at record levels, and its far left government has thus far refused to address policies and practices that got the country into this mess in the first place. German politicians are increasingly calling for a Greek exit from the Euro zone, recognizing that the nation’s debts will never get repaid. Clearly, the country faces a bleak and uncertain economic future.

In the meantime, Eldorado is continuing development work at the Skouries project, reminding the government of the major economic boost it would give to a country that has suffered through austerity and a severe recession. Nonetheless, violent confrontations continue to occur between pro and anti development factions, the latter claiming the Skouries mine will cause irreversible harm to the forested Halkidiki peninsula, one of Greece’s most popular tourist areas. Being a member of the EU, the Skouries gold project will of course fall within the purview of EU environmental regulators who are among the strictest in the world.

Euro member, Romania, seems equally as conflicted about resource development, with Gabrielle Resources facing heavy opposition to its proposal to develop the Roșia Montană Project in Transylvania. Mining in this area began over 2000 years ago during the Roman era and has continued virtually uninterrupted ever since. The region is heavily polluted from state-owned mining companies who have accounted for the majority of employment in the region. Remedial work proposed by Gabrielle Resources would help rehabilitate areas polluted by previous mining.

Gabrielle has been involved in Romania for over 15 years and claims to have spent over $1.5 billion on the project since first acquiring the gold mining concession. Should the project not be allowed to proceed, which at this point seems highly unlikely, the company has threatened to file a claim for $4 billion in damages and/or present its claims to international arbitration.

Eldorado also has a gold project in Romania called Certej that is currently the subject of a  feasibility study which should be completed in the next few months. It has already been flagged by Mining Watch Romania.

The common thread to all this anti-development hysteria are NGO’s and environmental organizations who tend to promote traditional ways of life and the preservation of what Martin Wolf of the Financial Times describes as “happy peasants” who will never see life change for the better. Few if any of the high profile personalities behind these organizations live in the regions concerned and they tend to promote agriculture and tourism as alternatives to industrial development. (Rosia Montană’s landscape, including its rivers, are heavily polluted and the ground is only suitable for growing potatoes. So much for tourism and agriculture).

Barrack Gold’s Pascua Lama project on the Argentine/Chilean border is another anti-mining flash point. Strong resistance by NGOs and farmers, who some believe are mainly concerned about losing their pool of cheap labour, has effectively halted the project.  No less than 27,000 people have applied for jobs at Pascua Lama.

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