Hereditary sloth instructs me

Political risk in Guerrero Mexico as an example of wider mining risk themes

Here’s one of the sections from IKN256, out last Sunday

Guerrero Mexico and a
more general point about community risk
On many occasions, these pages have been used to call
“danger” on the political and community risk levels for Guerrero State, Mexico.
The precarious nature of risk there was brought home to the mining world last
week, when Goldcorp (GG)) announced (11) that its Los Filos mine had been
blocked by locals protesting against the company’s refusal to negotiate a
better deal with the landowners. This is one we did on the blog at the time
last week (12) and from that, this translated passage explained the community
position quickly and neatly:
Since 2007, the 176
Ejidatarios (members of the “Ejido” landowner group) receive 2.5 ounces of gold for
every hectare of the 1,200
of land that Goldcorp rents, although the rent
was agreed two years after the start of formal operations.

On Sunday March 30th, an assembly of the Ejido
Commission was called to discuss renegotiation terms for the contract with the
Canadian company, at which the corporate representative Francisco Ballesteros
Corrales was present.

Although the vote was not unanimous, the
assembly authorized representatives to seek an improved deal with an initial
offer of 6 ounces.

On Monday morning the offer was lowered to 4.5oz
with the intention to reach an deal, however the proposal was rejected by
company executives. Due to this, from 6am today the inhabitants of Carrizalillo
decided to block access to the large scale mine.
In other words, the locals want more from the company (the larger back story is that they’ve
apparently twigged on that the land they’ve rented is going to be useless
afterwards and GG’s pledges for community sponsorship have turned out to be
more talk than action, so getting more now is the only way they have of
levelling the playing field…according to the locals at least
), the
company doesn’t want to give more to the locals. As it happens, I don’t know
who’s in the right and in the wrong in this particular case, but I know for
certain a couple of things:
  • There’s
    no reason at all to believe the locals’ position and consider them the
    guardians of absolute truth.
  • There’s
    no reason at all to believe the mining company’s position and consider it
    the guardian of absolute truth.
A lot of these political and community disputes get wrapped
up in greater environmental concerns, but scratch the surface and most (not
all, but most) are driven by financial greed. That works on both sides. This
one looks a classic example to me so the NGO’s and the pro-mining members of
Congress can use this new one as their latest political football, but it will
all blow over when GG and the ejido owners reach a mutually acceptable deal
(and they will…eventually).
The larger issue, and one that underscores just how tough
Guerrero is for a mining company, is that there are always going to be
problems, grievances and annoyances between mining companies and locals.
Always, every mine in the whole world. Most are minor, some are legitimate
complaints that get addressed, others are legit and get ignored, others still
are outright scandals that need the big world media spotlights shined upon
them. Thing is, a mining company’s specific geographical location makes a big,
BIG difference to the political risk it entertains. Take for example Goldcorp’s
Marlin mine in Guatemala, which is hated by the locals around it but carries on
and produces regardless. That’s because it’s in a location and a country that
makes it difficult for locals to take direct action and block roads without
getting into trouble quickly. However, Guerrero is a tougher place altogether,
one of those “self governing” (that’s using as diplo a term as possible)
regions which the national government and its police/army hold little or no
sway. In Guerrero, if you piss off the locals they can stage a very effective
roadblock and keep it in place until you’re forced into a deal. At Marlin, or
San Luis Potosi Mexico, or Central Peru, or Middle Cauca Colombia or just about
all of Chile or plenty of other places, less so. Good community relations
starts with winning and earning the respect of locals, but it doesn’t stop
there. Keeping them onside is a constant task and if things go wrong, the
specific region’s characteristics play a big part, too.

I predict GG will give in to the local’s demands and
give them 4.5oz/hectare soon. Meanwhile, those of you long Torex, Cayden,
Newstrike and other juniors developing in Guerrero State, the events of last
week should give you pause for thought. The person who told you “Buy it because
it’s in Mexico and Mexico is miner-friendly” needs to buy an atlas and a
history book.

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