My recent piece gave examples of government interventions in industry and commerce that distort market outlook, disorder and depress economies and especially affect miners. This column examines an instance of NGO and inter-governmental interventions in the mining sector that highlight global wealth transfers and complicate investment and allocation strategies. This tendency to intervene and micro-manage is akin to skewed metrics and fiat-liquidity policies that harm everyone by precluding growth.
First I will survey governmental-NGO hostility against specific mining projects in Mongolia. Then I will consider impacts this autocratic tendency has on markets, the sector and allocation and trading decisions.
You probably don't know about the International Finance Corporation/Multilateral Investment Guarantee Agency or IFC-MIGA. You should. It shows how multi-national bankers use environmentalism to squash capital investment. In concert with the EBRD (European Bank for Reconstruction & Development), World Bank and U.S. Treasury Department, IFC-MIGA is leaning on Rio Tinto (NYSE:RIO) about the suitability of its investment projects in Mongolia. These power groups do not feel that Rio and Turquoise Hill Resources (NYSE:TRQ) are doing enough to turn Mongolia into the Garden of Eden. A glance at the websites of TRQ or Oyut Tolgoi which it owns 66-34% with the Government of Mongolia (GOM) shows an intense and detailed commitment to protect and improve that bleak and forbidding land. Click the citizenship tab and read the environmental statement above and the work on values and responsbility. To make this country prosper, RIO and its affiliates toe the line on "social justice" (an euphemism for top-down collectivism), "human rights," wildlife habitat, alternative energy and other "rights" never pushed in Eastern or Islamic states. But the fortunes RIO and TRQ are spending do not satisfy the CAO (Compliance Advisor Ombudsman) or IFC-MIGA. They find "gaps in the ESIA (Environmental and Social Impact Assessment)" regarding Rio's timeline for educating, training and enriching Mongolians and making Mongolia a marvel of fertility. Whenever you see cumbersome titles and alphabet soup agencies there is little accountability and punitive dictates of the corporate collective wielded by bankers funded by taxpayers.
These open-ended standards are impossible to meet and mask a power agenda by groups greater than Russia, China or any individual Western nation. The bar will be raised until RIO kisses the throne of those who manage the collectivizing world system. The managers of this system do not care about human health and safety. One could write for weeks about their pitiless, systemic indifference to life.
To understand where Mongolia is coming from geographically and environmentally, it is a nation the size of America's Eastern Time Zone. Its bleak land, climate and primitive culture supports less than 3 million people. Its harshness is such that in the winter of 2009-10, nearly a fourth of its livestock died. The climate, soil and water quality are so poor that until recent decades most of the people were semi-nomadic shepherds. It may be a sound human life but lags civilized standards by four millennia.
The coercive collective of bureaucrats linked to the U.S. Treasury that prints or electrically creates the juicy credits that boost markets states that RIO's purpose in Mongolia is "to generate substantial government revenues that can be harnessed for poverty reduction country-wide, and to improve the lives of Mongolians by creating broad opportunities for skills transfer and linkages to local small and medium-sized enterprises …" Maybe they should give the mines to UNESCO.
Investors and stakeholders in RIO, TRQ, South Gobi Resources (OTC:SGQRF) and Entrée Gold (EGI) through its recent streaming agreement with TRQ-OT [backed partly by Sandstorm Gold (NYSEMKT:SAND)] must realize that the production their investments enable is expected to reduce poverty (as defined by the enlightened collectivists of the West not by Mongolian shepherds) and "create broad opportunities for skill transfer" which also will be defined by the IFC-MIGA, EBRD, the Treasury and no doubt the State Department, which blocked the Keystone Pipeline because of "security concerns." So the progress of these fabulous mines whose copper, coal, silver, gold, cobalt and more could sustain enormous growth in many economies and correspondingly improve lives will be hindered by "the powers that wield the collective as an agent of violence" as Adorno and Horkheimer wrote decades ago. "The brutality of this collective and its concealed controlling power no more represents the true quality of people's lives than [fiat] value represents the value of commodities." All this professed compassion "points back to domination" and the totalitarian quality of enlightenment. Behind the claims of solicitude is power lust and the endless transfer of wealth from West to East, from societies that have worked for centuries to generate cultural structures that support development to those that in effect live on welfare. This is pouring money into sand. Despite the superb mine potential, pennies will be reaped while billions are squandered. Mongolia will remain a picturesque vacation site like the "Savage Reservation" in Brave New World.
The role of RIO-TRQ and their investors relative to Mongolia resembles America's task in Afghanistan: to bleed and pay to build hospitals, schools and roads for Afghanis while trying to fend off various jihadist groups, many of whom have been funded directly or indirectly by Western governments. It's an impoverishing, traumatizing and ugly no-win situation, part of an endless war of attrition that is the antithesis of justice. Economic growth is subject to the eugenics-agenda as comments about "too many workers" causing unemployment suggest. Such are the humanitarian and therapeutic interventions of those who rule the world by using governments to harness, drain and destroy nations to level a de-populated global playing field. No one elected them to superintend humanity but they are in power and dominate discourse and policy. They have Humpty Dumpty's arrogance and the markets they juice are as precarious as his perch.
These enlightened masters have their man in Tsakhia Elbegdorj the President of Mongolia. Tsakhia (his family name; Elbegdorj is the given name) is a democratic, shrewd and subtly managed version of President Nazarbayev of Kazakhstan. Tsakhia has been Prime Minister twice, Majority Leader and Deputy Speaker of GOM Parliament in which he served four terms. He prepared for his vocation as a "libertarian" champion of democracy by studying Marxism - Leninism and Journalism at a military-political institute in Ukraine early in the 1980s. He initially put his talents to work for the Mongolian Party paper advocating glasnost and perestroika ("re-structuring"). This put him on the cutting edge of the transition to what is now called "democracy" and led eventually to a full scholarship to the Kennedy School of Government at Harvard where he got an MPA (Masters in Public Administration). This is what he is empowered to do, master publics in Mongolia and tutor those around the world: and to tongue lash corporations on behalf of the corporate IFC. Like his opponent Mr. Enkhbayar, whom he jailed for corruption, he also hates corruption and denounces it often. He stoutly advocates for "environmentalism," global standards of "human rights," inclusion, adoption and the fight against cancer. "An international intellectual once called him Mongolia's Thomas Jefferson" reads his official hagiography linked above. Like other useful politicians, he jets around the world making speeches and receiving awards and medals from the National Endowment for Democracy and other prestigious groups. In 2011 for example, he was "Abolitionist of the Year" and has been positioned as the next Nelson Mandela or Ban Ki Moon. Perhaps he merely will manage the Mongolian reservation for the IFC-MIGA and assure that RIO and TRQ-OT prostrate themselves to the suggestions of the CAO regarding social improvements. These officials will forever find "gaps in critically important information" necessary to provide trans-national World Bank loans extracted by taxes or debt/inflation from the peoples of the West. The loan presently being withheld is for $4.5 billion. By being coy about endorsement, the NGO-Banks enforce their authority. Transfers of wealth and power, not wealth creation are the point. What could be a source of great global growth is becoming a sinkhole of coercion and extortion.
Just five days after TRQ-OT celebrated the first pour from its ore concentrator, Tsakhia made a speech demanding that RIO give him a bigger piece of pie and complaining that Mongolia must actually pay its 34% share of development costs. "The time has come for Mongolia to take matters into its own hands" thundered the libertarian who has shaken hands with many worthy and powerful people. It's not enough that OT LLC is run by a Mongolian but there should be a Mongolian on RIO's managerial board, Tsakhia said. TRQ has shown "irresponsible management," this is why "the company's expenses have increased." Tsakhia will appoint someone to fix this. Mongolia is on its way to being one of the world's major welfare recipients.
The mines of RIO and its majority owned affiliates and partners are magnificent but their growth does not govern this game. Oyut Tolgoi is set to produce more than 1.2 billion pounds of copper worth $4.6 billion at today's prices, 650,000 ounces of gold ($1.1 billion) and 3 million ounces of silver (just under $100 million) each year. Today's prices are sure to rise. But this wealth, like our own economy, is held hostage by centrally managed plans for redistribution and leveling down.
These events contain vital insights for RIO and its family of companies in Mongolia for investors in the mining sector and markets. Though Western miners are developing great properties all over the world, they should be seen as invest-and-trade plays. As I've written, every investment vehicle will go to cash at some point: even family heirlooms eventually will be sold. As for stocks or bullion, except perhaps for a low beta core holding, a "castle-keep" to last as long as you do, they exist for growth and profit. Take profit when it's good for you. Buy the ski-jump market but eye the exits. This is especially true for miners.
Unfortunately, the trans-national corporate-NGO matrix with its fig leaf, "the world community," grows its own power under various patronizing rationales. My previous piece noted that fiat regimes may have a basic bias against precious metal miners that produce the commodity that competes with their economy-collapsing debt-currencies. I noted how they have crushed the U.S. coal industry in the name of "green energy" only to feed China's coal dependency and thus pollution worldwide. But this touches miners generally. Commodities are genuine wealth and support abundance. But "the fakery of sorcerers" as Adorno termed the financial-NGO-media collective cultivates a culture of death, a petrifact of hi-tech feudalism that monopolizes power. Beneath its platitudes are arrogance, artifice and managed poverty. Thus, unnaturally inflated markets and disorder in all valuations are today's facts of life. NGO's like IFC always are linked to governments and their academic affiliates elaborate "the concept of zero-profit for firms."
Precious metals and miners are grossly undervalued with prices moving erratically off panic lows. Fundamentals, metrics and trends, debt, inflation, economic decline and moves to a multi-polar world reserve currency support much higher prices for bullion and steady business for the miners. I have detailed some like Gold Corp (NYSE:GG), Silver Wheaton (NYSE:SLW), First Majestic (NYSE:AG) and McEwen Mining (NYSE:MUX) that are very strong buys now and going forward. Just be mindful of the macro view and the malignant bias that will cause unnatural volatility and retard growth throughout the economy and especially in this sector. The surest expansion will be in the health - pharma, consumer staples and diversified resource plays like Sprott Natural Resources (OTCPK:SCPZF), Freeport McMoran (NYSE:FCX) or Sandstorm (SAND) and RIO if the officers of global compliance and autocracy get off its neck a bit. Until then, adjust your investment, allocation and holding time accordingly. As Orwell wrote, barring major change at the top, the image of the future "is a boot stamping on a human face forever." Prepare for that time which already is glimpsed in decrees of the coercive collective.