Drug gangs clash with miners in Mexico

By Mica Rosenberg
Source: Reuters // Reuters

Mexican drug cartels greedy for new sources of revenue are targeting the country's rich mines, pushing up companies' security costs and prompting at least one project to be halted.

Vast mineral deposits have made Mexico the world's top silver producer and a major source of gold and copper, and the potential riches are too attractive to walk away from, according to companies expected to invest more than $4 billion in the sector this year.

But as international metals prices surge, gunmen are attacking workers to steal valuable ores and equipment at often remote mining sites that have fallen under the gaze of drug gangs extending their reach into new criminal rackets.

Canadian miner Torex Gold Resources Inc halted drilling at its exploration property in the western state of Guerrero last month after assailants stole trucks. Mexican authorities blamed a drug cartel for illegally extracting iron ore at another site and exporting it to China.

Shares in the company slid afterward and although an isolated incident, it raised alarm bells nearby, including a site owned by Canada's Newstrike Capital Inc , which is exploring gold prospects in Cuetzala del Progreso in Guerrero.

Inspecting the property with a group of major shareholders, Newstrike's chief executive Richard Whittall said the report was not the kind of publicity the company was hoping for.

"I had 10 e-mails asking 'are you affected?' It's a body blow but we'll figure it out. As one investor said to me 'the good news is, the gold's still there,'" Whittall said.

The effort may pay off handsomely. Gold hit a record $1,476 an ounce this week, triple what it was five years ago.

Mexico is still a big magnet for foreign investment and is far less risky than some other mining countries such as the Democratic Republic of Congo. A long history of mining since the Spanish conquest, its wealth of untapped deposits and favorable mining laws make it attractive for foreign miners.

RISKIER THAN COLOMBIA

Mining investment is expected to jump 7.3 percent this year to $4.4 billion, according to the national mining chamber.

Drug gangs are seeking a share of the boom.

Steel producers say they lost $240 million to thefts in 2010 and have seen the pace of robberies double so far this year, according to a Mexican industry association.

"They are robbing from companies' (iron ore) deposits or they are taking over the deposits completely," said Raul Gutierrez, head of the national steel chamber. "It makes it impossible to work there."

The wave of thefts has spilled out of an escalating drug war in Mexico, which pits an increasingly stretched military against brutal gangs warring over smuggling routes to the United States and other lucrative illicit businesses.

Deteriorating security is a mounting concern for investors, industry surveys show. More than 37,000 people, including many hitmen and police, have died across Mexico since President Felipe Calderon launched his army-led crackdown in late 2006.

The lawlessness led to a slip in Mexico's ranking in the Fraser Institute's annual study of the top global mining destinations. Some 39 percent of companies surveyed this year counted violence as a "strong deterrent" for investment, versus 33 percent in Colombia, where a U.S.-backed offensive has in recent years quelled a cocaine-funded guerrilla conflict.

Iron ore mines in Mexico's western state of Michoacan have been besieged by the powerful La Familia (The Family) drug cartel that operates in large swathes of the state, extorting businesses and illegally mining material for export.

A captured money launderer belonging to La Familia confessed to exporting 1.1 million tonnes of iron ore last year to China through three established companies in Mexico, netting $42 million, according to the attorney general's office.

For now, many miners are still determined to take a chance and only seven percent of those firms surveyed by the Fraser Institute said they would not invest because of the violence.

But companies are being forced to hire more guards or change the way they transport goods, with some shipping valuable metals by air instead of on dangerous highways.

"We spent 20 percent more on security last year," said Armando Ortega, vice president for Latin America at New Gold Inc , which owns the Cerro San Pedro gold mine in San Luis Potosi state. "There are miners that have suffered robberies of gold-silver dore bars or concentrates. The high prices make gold an attractive target for organized crime.