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Chile: The pushback against the royalty hike begins (from IKN70)

 Got a gold tie, have you? Think you're clever, do you?

In Chile dumbass xenophobia is not confined to the proletariat masses, as what it tries to pass off as its executive also promote soft racism for its own political ends. Today's example of shameless purveyor of hatred is Miguel Angel Durán (Anglo American should be ashamed of themselves) and the situation was included in yesterday's IKN70 thusly (as we've been following the Chilean royalty law issue over there):

Chile: The pushback against the royalty hike begins

We mentioned above the revised royalty plan now heading to Chile’s congress for passage to law, so it’s worth mentioning here the tactic unveiled this week by the industry to stop this royalty proposal from becoming reality. And the tactic is, “remind Chile just how much they hate Peru”. This crass strategy comes from the mouth of Miguel Angel Durán, head of the Chamber of Mining and also (significantly) Executive President of Anglo American Chile. The thinly veiled attempt to appeal to historical friction and ill-feeling between the Andean neighbours took the guise of competitivity in the copper sector. In his op-ed published in Chilean biz magazine ‘Estrategia’ he wrote (8) that he was ‘worried’ about the growth rates shown by mining in Peru because its costs of production were lower than in Chile. He continued (translated):

 

“If one looks at the growth rate that copper mining (in Peru) has had in the last few years it has been greater than that of Chile; if one looks at the costs, they are lower.

 

“Projection made by international organizations reveal that producing a pound of copper is cheaper in Peru than in Chile, that exploration investment is lower in Chile than in other mining countries and that energy costs (for mining in Chile) are higher.”

 

So after waving the flag and appealing to base nationalistic traits, Durán comes to the point:

 

“The problem in modifying the royalty impacts the profits of companies operating today in Chile, but will undoubtedly affect future investments. Therefore for the investor who has to decide between countries that have higher taxes than others, or lower exploration costs or higher costs of production, the alternatives are clear.”

 

This is, of course, total balderdash. The same arguments are trotted out every time a government decides to raise burdens on mining and it makes little or no difference in the longer run, as anyone who can remember the debate in 2004 when Peru’s mining industry was up in arms about its own royalty hike can remember. As for Chile itself, Señor Durán in his discourse neatly avoids the low overall state burden placed on mining by the State, along with the early stage tax breaks offered by the country. Playing the reduced profits card is also a real stretch at a time when Chilean miners produce at U$1.30/lb to $1.70/lb and sell their product at $3.50/lb. Finally, when it comes to the building of new mines, we know that the miner goes to the project rather than vice-versa.

Bottom line: If this is all the top executives can manage by way of an argument against the new, time-limited and watered down royalty proposal to raise money towards the post-quake rebuild, then the project will make passage and become law. Durán does a dissservice to his fellow miners with this shameless jingoism.

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Interactive Mind Map based on Mining Operations of Anglo American website.

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Jack Caldwell does Anglo at Pebble

I Think Mining, the blog run by Jack Caldwell, is linked on the site, it's on my RSS and is always a good read. Recommended is today's dispatch as Caldwell writes on the controversial Pebble Mine way up there in Frostyland. As usual, Caldwell brings insight and balance (and links for further reading).

Here's the link to his post.

Kinross (KGC), Andean Minerals (ADM.v) and gold in them Chilean hills

This is where

Yesterday's news that Kinross (KGC) was paying $250m (plus a royalty that RBC says is worth $30m) for the Lobo/El Marte goldmine in the hills of Chile got people talking about Andean Minerals (ADM.v) again. That's because ADM's Volcan property sits right next door to the land already owned by KGC up there and the main reason for holding ADM all this time has been the thought that KGC would buy them out (or some other miner, but KGC has always been the favourite).

I beg to differ.

Kinross is paying Teck and Anglo $250m for their interests in Lobo / El Marte and it's 5m+ ounces of inferred resource gold. Well that's fair enough. Personally I think KGC could have got the deal done cheaper, but CEO Tye Burt might well be taking into account the goodwill of doing a deal with two big miners; it never hurts to win brownie points with the big boys. All in all, it's probably a fair price considering the current market and all that jazz. So what about ADM at volcan?

Right now ADM.v is trading in the $0.50 to $0.60 range. With 85m shares out, I'm pretty sure Kinross could have snagged ADM for a buck a share (and that's being generous to ADM). So why did KGC pay $250m for one plot of land and not a maximum of $85m for another plot of land that's very close to the sold property and apparently contains roughly the same amount of gold?

The ADM.v five day chart (click to enlarge)

I think it has a lot to do with a point I made in this post on September 18th about the quality of the gold resource. I said back then that the gold is low grading and a lot of it is at depth (even ripped a cross section from one of the ADM presentations to illustrate). Since then I've had conversations with pro geologists who confirmed my suspicions. According to smarter people than Otto, the strip rate would be too high to make such low grades interesting.

At the time I thought ADM at a buck or so was a speculative flip play, but also cast doubts on the property ever becoming a mine. Since then of course we've had another very large leg down in this selloff and world financial sentiment is even worse. There's no flipping of marginal projects going on, not while other more promising projects have been beaten to death and are can be bought at extremely low prices. So ADM isn't on my shopping list. It doesn't look like it's on Tye Burt's either. So Otto sez avoid ADM.v. Don't buy it, don't short it, just avoid it. There are better junior golds out there imho. DYODD, dude.