Mining Companies Face Dangers From Criminal Gangs in Mexico

By Alistair MacDonald in Toronto and Dudley Althaus in Mexico City 

On Monday, McEwen Mining Inc.'s El Gallo mine in Mexico found itself sitting on 7,000 ounces of gold, after a refinery upgrade allowed an unusual buildup of the precious metal. On Tuesday, thieves armed with automatic rifles stole the whole batch.

Police and company officials now suspect inside knowledge helped the armed robbers in a crime that has attracted global headlines and highlighted worries about the safety of miners in Mexico, one of the world's largest mining centers.

Developing countries from Zambia to Chile have become increasingly more challenging for mining companies, amid increased tax demands, more effective community opposition and tightening environmental standards.

Criminal activity in Mexico, where exploration by foreign mining groups has been rising, could potentially further winnow down the increasingly slim number of countries deemed to be safe by the industry.

Mexico, the world's biggest silver producer and a major producer of gold, copper and lead, has increased its share of mining companies' global exploration dollars, from 4.6% in 2005 to 6.6% in 2014, according to data provider SNL Financial.

But insecurity for Mexican mining companies and their employees is also on the rise, said Manuel Reyes, president of a Mexican association of mining engineers.

Engineers, company executives and even rank and file miners have been extorted and kidnapped in recent months, almost certainly by criminal gangs, he said. "It's a daily danger," Mr. Reyes said. "It's organized crime besieging people."

The Mexican government has tasked a new 5,000-member gendarme branch of the federal police with protecting economically sensitive industries like mining and petroleum production.

The gendarmes, as well as troops regularly deployed to remote mining areas, have helped, Mr. Reyes said. But he said it hasn't been enough. "The rule of law we have right now is very lax," Mr. Reyes said. "The question is why don't the foreign companies complain openly?"

When McEwen's chief executive and founder, Rob McEwen arrived at the company's Toronto office on Tuesday morning he was greeted by three staff members with glum faces, he said.

Around 30 days of gold concentrate, the rocky mixture from which the gold will be refined, had built up or about $8.4 million's worth of the precious metal at today's prices. That was an amount larger than normal due to a changeover to a new furnace, Mr. McEwen said.

Typically there would be half that amount of concentrate and the grade of gold was particularly high, said a senior McEwen executive who declined to be identified by name.

Mr. McEwen said multiple assailants with automatic weapons had stopped employees on their way to work at the mine's refinery, tied them up and blindfolded them. Nobody was seriously injured during the robbery, he said. "Even though gold is trading at a low price, it is still something that people want," he said. The price of the metal, currently at $1,207 an ounce, has fallen about 35% since it hit a peak in September 2011.

Sinaloa state's Attorney General Marco Antonio Higuera told reporters that investigators were pursuing substantial leads in this latest case. The state's deputy governor, Gerardo Vargas, said the robbery was well-planned and with inside help.

The McEwen mine is located in the same coastal mountain range that is the cradle of Mexico's Sinaloa Cartel, one of the country's premier narcotics gangs. The area has been riven by violence following the arrest of its leader Joaquin "El Chapo" Guzman and others involved in the narcotics business.

The unnamed senior McEwen executive said his company is often aware of cartel activity in the area and will avoid drilling where the gangs appear to be operating at the time. He said the company has no relationship with the cartels.

And cartel violence and criminality has started to flow over for miners elsewhere in Mexico.

In 2013, an executive at steel and mining giant ArcelorMittal was shot in Lázaro Cárdenas, in a killing that former and current Mexican intelligence officials believe was the work of a local and powerful drug cartel.

In March, three employees of Goldcorp Inc. were found dead in Guerrero state, after they and another employee were kidnapped earlier that month, according to local press reports.

A spokeswoman for Goldcorp, the world's largest gold company by market capitalization, said the employees weren't at the mine or in Goldcorp-supplied transportation at the time of the incident. She declined to comment further.

In February, Toronto-based Torex Gold Resources Inc. said four of its workers were among 13 kidnapped near their mine in the state of Guerrero. Eleven of those kidnapped either being freed or found, the company said in a statement. Torex Gold didn't return calls seeking further comment.

Armed robberies are still comparatively rare in mining. Companies take precautions, such as shipping their minerals out in armed vehicles on random days. Mines also tend to be in isolated places making it hard to escape with heavy, conspicuous loads.

Seymour Schulich ran a mine in the Nevada desert in U.S. and didn't worry much about such robbery. "If you are going to rob me, you are going to have to drive 50 miles to get away," he said. "The roads are not good and you're going to have helicopters trailing you."

Write to Alistair MacDonald at [e-mail]

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