Thanks, we’ll take that [Resource Nationalism] – by Brenda Bouw (Globe and Mail – May 18, 2011)

 The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

States looking to tax or even nationalize assets are threatening global mining interests

As Glencore International prepared its public listing, the world’s largest commodities trader warned the market that the Bolivian government was trying to wrestle more control of its mines.

The Bolivian government, under socialist President Evo Morales, is overturning mining and investment laws to increase state control over its economy. The government wants to renegotiate contracts with companies such as Switzerland-based Glencore and give state mining company Comibol a controlling role in joint ventures, forcing companies to return concessions, according to Bloomberg News.

Bolivia, which has also seized oil and gas assets since the current government took power in 2006, is just the latest in a growing list of nations revising laws to squeeze more profits from resource extraction within their borders during times of spiking commodities prices. Many are taking a larger grab through increased taxes and royalties.

Some are using more extreme measures, like nationalization or expropriation of assets.

The trend is taking place in both developed and emerging nations.

Each country has a goal of finding new sources of income to pay down rising debt and costs from inflation. Governments are burdened with debt after spending billions on stimulus packages following the recent global recession, making resource nationalism a tantalizing option.

It’s made doubly appealing by the price of coal, copper, gold and silver, which have been trading at record highs, all driven by demand from rapidly industrializing nations such as China and India.

Resource nationalism is one of the most important issues facing the mining industry today, according to Chuck Jeannes, chief executive office of Goldcorp Inc., the world’s second-largest gold company with mines across North and South America.

Miners making record profits on surging prices for their metals and minerals are targets for cash-strapped governments.

“It’s not surprising and it’s something that certainly has our attention,” Mr. Jeannes said.

Even Canada, considered a country friendly to international investment, has joined the ranks of the resource nationalists. Last fall, the Canadian government decided to block BHP Billiton Ltd.’s $38.6-billion (U.S.) takeover of Potash Corp. of Saskatchewan Inc. The decision was made after the province of Saskatchewan, which earns taxes and royalties from potash produced in the province, argued the company’s fertilizer ingredient was too strategically important to the nation to be sold.

Other recent international examples include tax hikes imposed on mining profits earned by companies operating in countries such as Chile and Australia. The Namibian government also said recently it’s proposing to give all mining permits to a state-owned company.

“There seem to be more examples every day,” said Robert Mason, a partner in the business-law department at Gowlings in Toronto. “It’s scaring a lot of companies.”

He also notes that it’s those fears of expropriation and or higher taxes that are helping drive some commodity prices even higher.

Still, while companies such as Glencore warn of rising nationalism, they aren’t about to walk away from countries imposing tighter restrictions.

Glencore vowed to keep operating its zinc, lead and tin mines in Bolivia, as well as operations in other countries, despite what it called in its recent prospectus document, “greater-than-average risk of overt or effective expropriation or nationalization.” Glencore continued to operate in Bolivia even after having a smelter there nationalized in 2007.

Miners have little choice but to manage the risk if they want to keep growing their operations. and making more profit, which is what keeps shareholders happy. In fact, more miners are moving into riskier jurisdictions as they compete to secure what’s left of the world’s diminishing reserves and resources.

With years of historic examples to draw from, miners have come to accept there is a rise in resource nationalism when commodity prices increase.

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