Mining companies often have the potential to really reward investors, but unfortunately they are also often faced with opposition and setbacks on two main fronts: The government of the country in which they are mining, and the mining unions to which their workers belong. Today, I will have a look at problems of this nature faced by Goldcorp (GG), BHP Billiton (BHP), Barrick Gold (ABX), AngloGold Ashanti (AU), and Rio Tinto (RIO) and see what impact, if any, these barriers are likely to have on the companies' stock prices.
Goldcorp is facing opposition to its success in Guatemala. The company owns a mine called Marlin mine, which produced 382,400 ounces of gold and generated $900 million in revenue last year in Guatemala. But this mine as well as any others in the country will be affected by new mining law changes that will soon be implemented. The changes to the law stem from the intention of the government to acquire as much as 40% of the stake in any new mining projects. This will stifle future investments and therefore future growth for mining companies functioning in this country. Goldcorp's 52 week range currently stands at $32.16 to $56.31 and the company is currently trading at just over $38.5. This news surely won't help Goldcorp escape the bottom end of its range. The stock is down 37% this year and the rest of 2012 doesn't seem too much brighter.
Mining companies frequently face strikes. BHP for example recently had to deal with a strike that affected it in Australia. The strike, run by the Maritime Union of Australia, caused a halt in tug boat operations, breaching a labor agreement with BHP. As a result, BHP is suing the company. Its stock price has declined by about 8.5% since the strike occurred. However, since the announcement was made that the company would sue the union, its stock price rose slightly. The company is still only trading at around $65 a share in comparison to a 52 week range of $59.87 to $95.89. BHP may have trouble matching the $15.5 billion it earned in gross profit last year.
Barrick Gold is experiencing a potential setback caused by the government in Argentina. The government has ruled that no mining can take place on the country's glaciers, something which made many investors worry recently due to the belief that this may affect a huge gold mining project set to go forward in the area. However, there is nothing to worry about as the company says this "will not derail development". There was a decline in Barrick Gold's stock price of almost 3% following the news, but the company is still trading well in terms of its 52 week range. I see this as a bump in the road and, considering the scope of the project in Argentina, I feel that Barrick Gold's stock will jump significantly very soon.
A tough political climate in Australia will hurt miners in the area, including AngloGold Ashanti, a company with a substantial interest in the country. In fact, AngloGold has gone so far as to describe the situation as "destructive". It could prevent as many as two out of five new projects from getting off the ground in the country, something that could have significant and long-term ramifications for companies like AngloGold. Investors may feel a little concerned about the situation, but despite the fact that AngloGold has expressed its concerns so volubly, the company's stock price is up by about 0.3% and it is trading at $34 a share. However, there will probably be a significant drop in the stock price when the negative consequences of the political climate actually kick in.
Rio Tinto's fortunes, on the other hand, are looking up as the company recently managed to come to an agreement with unionized workers at its Alma aluminum smelter in northern Quebec. This ends a situation which began 6 months ago when Rio Tinto locked out its workers. The new contract between the company and the workers has finally been settled. The situation has not been without its effects on Rio Tinto's stock price. In the last six months, the company's stock price has declined by 5%. At the moment, the stock is trading at only about $49 per share, which is low when you consider Rio Tinto's 52 week range of $40.50 to $73.39. This decline has mostly been due to the strife between the company and its workers. Now that that's worked out, Rio Tinto will look to try to get back up to the $70 mark it was at this time last year.
Mining companies will always have to face interference from either the government or the various unions that impact their functioning. The outcome of these situations depends on the specific abilities of each mining company to cope with the situation and get through it without too much of a fight and without incurring too many losses. In addition they should put methods in place for preventing a similar situation in the future. In terms of future growth, companies like Barrick Gold and Rio Tinto are among the best options to back.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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