6 Mining Stocks Impacted By South American Violence

 |  Includes: AAUKF, BHP, GLCNF, RIO, VALE
by: IncomeHunter

Violence between rival factions of miners is disrupting operations at the Colquiri tin and zinc mine in Bolivia. Reuters reported that a brawl between miners injured at least 15 people at the mine, which is operated by Glencore International (OTCPK:GLCNF). The mine has reportedly been shut down for two weeks because members of "independent mining cooperatives" are trying to take control of it.

A group of local miners and some employees from Glencore's Sinchi Wayra unit started the violence on June 14 by trying to drive out the cooperative's miners. The dispute involves a deal that lets Sinchi Wayra, which is under contract to the Bolivian national mining company Comidol, share the mine with the independent cooperative.

The Bolivian government has tried to settle the dispute with negotiations. The dispute apparently involves efforts by Bolivia's leftist government to get control of resources. Such disputes have been growing because the nation's mining union has demanded the nationalization of mines. That, of course, would increase the union's power over the mining industry.

Such disputes could hurt the stock value of companies like Glencore that operate in Bolivia, which is a difficult country to operate in because the nation's leftist President, Evo Morales, is hostile to capitalism and foreign corporations. He has moved to restore the government monopoly over mining and inflamed disputes between Bolivians of European descent and Native Americans.

The situation is now so bad that at least one foreign mining company, Jindal Steel & Power (JINDALSTEEL.BO), is considering pulling out of Bolivia completely. The Indian company had signed a $2.1 billion deal to develop a giant iron mine near Brazil's border with India. The El Mutun iron mine would have been one of the world's largest, with nearly 40 billion tons of ore. Now Bolivian media is reporting that Jindal has sent the nation's government a letter that says it plans to pull out.

Jindal claims that Morales' government has not provided the natural gas it needs for the project. The government has reportedly seized $36 million that Jindal had deposited in a local bank. It's now demanding $27 million more from Jindal. Not surprisingly, Jindal Steel has decided to shut down the project and move out.

The big beneficiaries of this debacle will be iron miners like BHP Billiton (NYSE:BHP), which concentrate their operations in Australia. Vale (NYSE:VALE), which mines most of its iron in Brazil, could also benefit from the lack of a big new competitor.

It should be pointed out here that Jindal's decision to pull out could also be motivated by the lousy global economy. The company may think that there simply will be no market for all the iron ore from El Mutun. This debacle will definitely hurt Jindal's stock value because it demonstrates that the company is not capable of becoming a major global iron producer.

Brazil Stops Issuing New Mining Claims

Bolivia is not the only South American country where politics is having a dampening effect on mining. The Brazilian government has stopped issuing new mining claims because of an effort to overhaul mining regulation.

New claims for concessions' permission to mine have been frozen for at least six months, the president of a Brazilian mining industry group told Reuters. Unfortunately, the government agency that issues the claims did not make the news public until two weeks ago.

Current Brazilian law lets owners hold concessions for years without developing them. The government wants to overhaul the law in order to end speculation and speed up development of new mines. There's no word on what the new regulations would look like or when the government would start issuing mining concessions again.

The freeze on new concessions is only the latest example of a regulatory environment in Brazil that is making it difficult to mine in that country. Several companies, including Anglo American (OTCPK:AAUKF) and Vale, have had a hard time getting the go-ahead for mining operations from government officials.

The biggest loser here is Vale, which is having an increasing difficult time mining in its homeland. In particular, Vale has not been able to get new iron mining operations up and going.

It is obvious that mining companies, which have concentrated their exploration and development efforts outside of Brazil, will benefit from this. Obvious winners would be Rio Tinto (NYSE:RIO) and Billiton, which mine their iron in Australia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.