Barrick Gold dominates the gold field. Since opening their gold mining operations in 1983 the company has risen to become the largest producer of gold in the world with mines in all four of the world's major gold sectors. The three producing mines in South America made up 24% of 2006 production with the most productive being the Veladero site in Argentina, 8km southeast of Pascua Lama. We intend to visit this mine in January.
Pascua Lama, though not set to produce gold until 2010, already plays a major role in the net asset value of Barrick (roughly 20%). Because the value of and investment interest in publicly traded corporations like Barrick hinges in large part on future expectations, a massive gold deposit on Barrick land high in the Chilean Andes makes Barrick stock a favorable buy. Such a value, however, isn't determined solely by the knowledge of gold's presence under the glaciers, "icefields," and other high-alpine features; it also requires the ability to affordably obtain it. Barrick has the equipment necessary to develop and extract from the site but, just as importantly, they have the glad-handing public relations skills to surpass the social, political, and environmental obstacles of the Chilean and Argentine governments and the local communities most affected by the mines.
In this diplomatic sense, Barrick operate smoothly and efficiently, and they utilize big-time global players to muscle their way into the most advantageous positions for the cultural challenges faced by developing mines. While Barrick has been recognized as a conscientious global citizen, they're not exactly playing in the most responsible league of corporations. The mining world, like all resource extraction industries, must alternate hats between biggest, baddest bully on the block and suave, concerned, diplomat looking after the little guy. It's a tight-rope and success relies on the best manipulation as much as it does on the heaviest equipment or geologic knowledge.
Saturday, December 30, 2006
BARRICK and INDONESIA SCANDAL, mid-1990s
A great story of shady business in big mining...
In the mid-90s the small or "junior" exploration group Bre-X, founded by a desperate, bankrupt Canadian investor, laid claim to a large tract of Indonesian land called Busang. Bre-X studies initially took samples that indicated moderate amounts of gold in the subsurface. This sparked enough mild interest to prompt a business deal offer. (Junior exploration firms like Bre-X often rely on partnerships with established, hefty companies like Barrick who can come in and make the mine happen.) In 1993 Bre-X offered Barrick 14% of the small company for $500,000. Barrick refused this and the subsequent offer that upped the anty to a majority stake in Bre-X. No deal.
Bre-X continued exploring and soon discovered what they believed to be a massive deposit in a fault zone adjacent to their Busang property. Bre-X quickly got the permit to explore further and two years after the failed Barrick deal they were quoting 10 million ounces in the new area with analysts predicting up to 40 million ounces. Stock prices blew up and in May 1996 Bre-X returned to the bargaining table, this time offering a 25% share in the company for $2 billion.
** A note here to educate on the speculative nature of mining companies' worth: Bre-X's meteoric rise in stock value had nothing to do with a tangible output into the marketplace; rather it was pure magic money, the result of Wall Street's snowball-effect enthusiasm (aka the optimistic predictions of 27-year-old analysts in 44th floor Manhattan cubes). **
Suddenly the Busang prospective mine was big-time and the alpha dogs came back to the kill ready to throw down. Barrick swooped in quick, but not for Bre-X. Instead, they took the political approach, smelling weakness in the somewhat corrupt, nepotistically insular Indonesian government. Barrick put to work its recently established advisory panel whose member list read like the NBA All-Star team.
Soon former President George HW Bush had sent Indonesian President Suharto a letter describing Barrick's capabilities and intentions with regards to Busang. Immediately prior to this, former Canadian Prime Minister Brian Mulroney (currently listed on Barrick's board) sent a similar letter to Indonesia's Minister of Mines and Energy. Although Barrick already had an office with an operating staff in Jakarta, they hired a son of an Indonesian minister to head the firm in Indonesia.
These are all obvious, legal, and standard strong-arm practices employed in any country, and especially fruitful in a nation susceptible to such manipulation. Ultimately, the Barrick - Bre-X agreement insisted upon by the Indonesian government never happened and, as other parties got involved and public sentiment shifted in favor of Bre-X, Barrick fell out of the picture.
The story gets juicier, though without Barrick's involvement. Another major mining firm, Freeport, signed an agreement with Bre-X and conducted their own tests in Busang prior to breaking ground on production. Turns out the Bre-X samples, now since destroyed, had been laced with outside gold; Freeport's studies indicated only trace amounts. On his way to discuss the divergent samples, a top dog with Bre-X disappeared out of a helipcopter. First reports said he fell out, though the case closed with suicide as the culprit since the man was suffering from hepatitis B and a suicide note apparently backed this up. Needless to say, Bre-X imploded and the founder ended up bankrupt yet again.
In the mid-90s the small or "junior" exploration group Bre-X, founded by a desperate, bankrupt Canadian investor, laid claim to a large tract of Indonesian land called Busang. Bre-X studies initially took samples that indicated moderate amounts of gold in the subsurface. This sparked enough mild interest to prompt a business deal offer. (Junior exploration firms like Bre-X often rely on partnerships with established, hefty companies like Barrick who can come in and make the mine happen.) In 1993 Bre-X offered Barrick 14% of the small company for $500,000. Barrick refused this and the subsequent offer that upped the anty to a majority stake in Bre-X. No deal.
Bre-X continued exploring and soon discovered what they believed to be a massive deposit in a fault zone adjacent to their Busang property. Bre-X quickly got the permit to explore further and two years after the failed Barrick deal they were quoting 10 million ounces in the new area with analysts predicting up to 40 million ounces. Stock prices blew up and in May 1996 Bre-X returned to the bargaining table, this time offering a 25% share in the company for $2 billion.
** A note here to educate on the speculative nature of mining companies' worth: Bre-X's meteoric rise in stock value had nothing to do with a tangible output into the marketplace; rather it was pure magic money, the result of Wall Street's snowball-effect enthusiasm (aka the optimistic predictions of 27-year-old analysts in 44th floor Manhattan cubes). **
Suddenly the Busang prospective mine was big-time and the alpha dogs came back to the kill ready to throw down. Barrick swooped in quick, but not for Bre-X. Instead, they took the political approach, smelling weakness in the somewhat corrupt, nepotistically insular Indonesian government. Barrick put to work its recently established advisory panel whose member list read like the NBA All-Star team.
Soon former President George HW Bush had sent Indonesian President Suharto a letter describing Barrick's capabilities and intentions with regards to Busang. Immediately prior to this, former Canadian Prime Minister Brian Mulroney (currently listed on Barrick's board) sent a similar letter to Indonesia's Minister of Mines and Energy. Although Barrick already had an office with an operating staff in Jakarta, they hired a son of an Indonesian minister to head the firm in Indonesia.
These are all obvious, legal, and standard strong-arm practices employed in any country, and especially fruitful in a nation susceptible to such manipulation. Ultimately, the Barrick - Bre-X agreement insisted upon by the Indonesian government never happened and, as other parties got involved and public sentiment shifted in favor of Bre-X, Barrick fell out of the picture.
The story gets juicier, though without Barrick's involvement. Another major mining firm, Freeport, signed an agreement with Bre-X and conducted their own tests in Busang prior to breaking ground on production. Turns out the Bre-X samples, now since destroyed, had been laced with outside gold; Freeport's studies indicated only trace amounts. On his way to discuss the divergent samples, a top dog with Bre-X disappeared out of a helipcopter. First reports said he fell out, though the case closed with suicide as the culprit since the man was suffering from hepatitis B and a suicide note apparently backed this up. Needless to say, Bre-X imploded and the founder ended up bankrupt yet again.
Bottom Line
Alot of money floats around these imaginary mines. Its all so speculative. And for many reasons: Is the gold really there? If so, can we get to it? Then will the market still be favorable? Can we curb our input into the market so as to not flood it and thus dilute the value? With the gold still buried and production still years off, a safe investor environment free of challenges to the delicately woven social, political, and environmental fabric means everything. If the mine gets bad press and/or the public (consumers) begins to question the true expenses behind gold trading, then ideally investor confidence will sour.
This is a lofty goal for our photo-documentary - to raise awareness and thus reduce the appeal of a major commodity/luxury item. We don't necessarily have anything against Barrick as long as they haven't been lining the pockets of key players in the affected indigenous communities regarding the mines' impacts. As long as there's a demand for gold jewelry and companies and banks will invest in gold, there will be massive companies with the equipment, money, political power, and public relations deception teams to tear apart mountains, move glaciers, destroy watersheds, and corrupt local communities. Maybe by seeing what is lost - the pristine landscape at Pascua Lama versus the destroyed one at Veladero - some people will become more aware of their luxury item's origin and the unseen costs of getting it from the source to the display case.
This is a lofty goal for our photo-documentary - to raise awareness and thus reduce the appeal of a major commodity/luxury item. We don't necessarily have anything against Barrick as long as they haven't been lining the pockets of key players in the affected indigenous communities regarding the mines' impacts. As long as there's a demand for gold jewelry and companies and banks will invest in gold, there will be massive companies with the equipment, money, political power, and public relations deception teams to tear apart mountains, move glaciers, destroy watersheds, and corrupt local communities. Maybe by seeing what is lost - the pristine landscape at Pascua Lama versus the destroyed one at Veladero - some people will become more aware of their luxury item's origin and the unseen costs of getting it from the source to the display case.
Tuesday, December 26, 2006
The Project...
It all began in Birmingham, AL with a standard chain email pleading for signatures to stop another global instance of injustice and consumer greed. Standard behavior: delete immediately or sign, send and continue Web shopping. But this one stopped me for a second. It involved four things I love: Latin America, indigenous cultures, mountains, and rivers. Plus, our group was looking for the next adventure to the source of an everyday consumer item.
FINDING THE SOURCE
A few months before looking into The Gold Link situation, we were in Ecuador's Amazon Basin photographing a large-scale oil drilling operation deep in the rain forest and on the sovereign property of an indigenous reserve. The photographs compared two neighboring Quichua communities - the Samona-Yuturi Reserve that had remained pristine and free of oil involvement, and the Eden-Yuturi Reserve directly adjacent, a community that had allowed California's Occidental Oil Corporation to establish a major extraction and processing facility within its borders. (Link to Amazon Oil)
Standing in an air-conditioned room as sterile as a hospital OR and being surrounded by banks of multi-million dollar technology didn't feel so strange for Nick, Michael, and me; we grew up in big southern cities with industry like this in our backyards. The weird part was outside, behind the thick walls muting the roaring engines processing the recently extracted crude oil. Where the Oxy facility's mowed grass and flower-bordered walkways ended, there began one of the world's most remote and uncharted jungles with badass men hunting monkeys, tapirs, and the occasional pesky puma. This contrast illuminated the distance, both physical and cultural, between the oil's destination (our world) and its source (this Amazon world).
We decided to continue going to the source of popular consumer items. While oil at present is essentially an unavoidable part of our everyday lives, the demand for gold is more voluntary. Though a portion of the gold supply is held and traded by large Central Banks to hedge inflation – a structural economic tool – the majority of mined gold goes to the production of gold jewelry. So we set out to trace the gold in 50 Cents’ mouth to one of its sources high in the Andes Mountains.
STRIKING GOLD IN CHILE-ARGENTINA
The original email scrutinized Canada's Barrick Gold Company, the world's largest producer of gold and owner of dozens of silver and copper mines throughout the world. At the proposed Pascua Lama site, Barrick intends to move parts of three glaciers/icefields in Chile's Region III Andes in order to access a gold deposit. They already have an active open-pit mine (Veladero) just across the border in the Argentine Andes and they hope to open the Pascua Lama site in 2010.
While bulldozing entire mountains to access mineral deposits is nothing new and continues to disgust us here at The Source Loop, chopping up a glacier* above a pristine watershed that supports dozens of indigenous, agrarian communities so that Paris Hilton can rock out in new bling or a father in India can shower his beloved daughter in more gold jewelry than his neighbor seems excessive. (see DEMAND for gold below in ECON 101: GOLD) We began looking into the situation and it became clear that a comparison between an untouched site (Pascua Lama, Chile) and a developed mine (Veladero, Argentina), both under Barrick ownership, was possible in this relatively unknown region of Chile north of Santiago.
*NOTE ON GLACIER: Barrick's "studies" have shown that the mine will not affect glaciers, rather the anticipated gold deposits lie under "icefields." This technical distinction is, in our minds, an attempt to soften the blow with geological rhetoric: "icefield" sounds much more mundane and disposable than "glacier;" the public sentimentally associates the latter with national parks and global water supplies worthy of protection. Either way - glacier or icefield - the frozen water eventually melts and supplies the watersheds below.
INDIGENOUS COLLABORATION
The Gold Link project really started rolling when we learned that the Black River First Nation group from Canada, along with others at the time, had signed an International Accord with the Diaguita tribe who inhabit the valleys below the proposed Pascua Lama mine. This cross-hemispheric indigenous collaboration intrigued us. After getting in touch with a few of the First Nations people involved, we were invited to join them on a tour of the Veladero site and be introduced into a few of the Diaguita communities. This is exactly what we needed in order to gain access for photos of the operational mine in Argentina and the Diaguita tribe attempting to negotiate a fair agreement with Barrick at the controversial Pascua Lama site.
OUR PLAN
We will spend a month in Chile living in the Diaguita communities, touring the Veladero site (hopefully) with representatives from the Black River First Nation, and exploring the glaciers and high-alpine terrain that might be affected by the Pascua Lama mine. We leave January 2 and will be updating this blog with photos and stories as often as possible. We hope to share our experience and create a (cyber) loop from consumer to source. We're also using this as an educational tool for our Center Street Middle School Photo Club in Birmingham. These students are learning photography with simple film cameras. They will be helping with our post-production editing and organizing. Rock on, Camille, Jeremy, Brenda, Sam, Boston, Kourtney, Chasteny, Jayana, Ericka, Prothaniel, and Mrs. McMillon!
FINDING THE SOURCE
A few months before looking into The Gold Link situation, we were in Ecuador's Amazon Basin photographing a large-scale oil drilling operation deep in the rain forest and on the sovereign property of an indigenous reserve. The photographs compared two neighboring Quichua communities - the Samona-Yuturi Reserve that had remained pristine and free of oil involvement, and the Eden-Yuturi Reserve directly adjacent, a community that had allowed California's Occidental Oil Corporation to establish a major extraction and processing facility within its borders. (Link to Amazon Oil)
Standing in an air-conditioned room as sterile as a hospital OR and being surrounded by banks of multi-million dollar technology didn't feel so strange for Nick, Michael, and me; we grew up in big southern cities with industry like this in our backyards. The weird part was outside, behind the thick walls muting the roaring engines processing the recently extracted crude oil. Where the Oxy facility's mowed grass and flower-bordered walkways ended, there began one of the world's most remote and uncharted jungles with badass men hunting monkeys, tapirs, and the occasional pesky puma. This contrast illuminated the distance, both physical and cultural, between the oil's destination (our world) and its source (this Amazon world).
We decided to continue going to the source of popular consumer items. While oil at present is essentially an unavoidable part of our everyday lives, the demand for gold is more voluntary. Though a portion of the gold supply is held and traded by large Central Banks to hedge inflation – a structural economic tool – the majority of mined gold goes to the production of gold jewelry. So we set out to trace the gold in 50 Cents’ mouth to one of its sources high in the Andes Mountains.
STRIKING GOLD IN CHILE-ARGENTINA
The original email scrutinized Canada's Barrick Gold Company, the world's largest producer of gold and owner of dozens of silver and copper mines throughout the world. At the proposed Pascua Lama site, Barrick intends to move parts of three glaciers/icefields in Chile's Region III Andes in order to access a gold deposit. They already have an active open-pit mine (Veladero) just across the border in the Argentine Andes and they hope to open the Pascua Lama site in 2010.
While bulldozing entire mountains to access mineral deposits is nothing new and continues to disgust us here at The Source Loop, chopping up a glacier* above a pristine watershed that supports dozens of indigenous, agrarian communities so that Paris Hilton can rock out in new bling or a father in India can shower his beloved daughter in more gold jewelry than his neighbor seems excessive. (see DEMAND for gold below in ECON 101: GOLD) We began looking into the situation and it became clear that a comparison between an untouched site (Pascua Lama, Chile) and a developed mine (Veladero, Argentina), both under Barrick ownership, was possible in this relatively unknown region of Chile north of Santiago.
*NOTE ON GLACIER: Barrick's "studies" have shown that the mine will not affect glaciers, rather the anticipated gold deposits lie under "icefields." This technical distinction is, in our minds, an attempt to soften the blow with geological rhetoric: "icefield" sounds much more mundane and disposable than "glacier;" the public sentimentally associates the latter with national parks and global water supplies worthy of protection. Either way - glacier or icefield - the frozen water eventually melts and supplies the watersheds below.
INDIGENOUS COLLABORATION
The Gold Link project really started rolling when we learned that the Black River First Nation group from Canada, along with others at the time, had signed an International Accord with the Diaguita tribe who inhabit the valleys below the proposed Pascua Lama mine. This cross-hemispheric indigenous collaboration intrigued us. After getting in touch with a few of the First Nations people involved, we were invited to join them on a tour of the Veladero site and be introduced into a few of the Diaguita communities. This is exactly what we needed in order to gain access for photos of the operational mine in Argentina and the Diaguita tribe attempting to negotiate a fair agreement with Barrick at the controversial Pascua Lama site.
OUR PLAN
We will spend a month in Chile living in the Diaguita communities, touring the Veladero site (hopefully) with representatives from the Black River First Nation, and exploring the glaciers and high-alpine terrain that might be affected by the Pascua Lama mine. We leave January 2 and will be updating this blog with photos and stories as often as possible. We hope to share our experience and create a (cyber) loop from consumer to source. We're also using this as an educational tool for our Center Street Middle School Photo Club in Birmingham. These students are learning photography with simple film cameras. They will be helping with our post-production editing and organizing. Rock on, Camille, Jeremy, Brenda, Sam, Boston, Kourtney, Chasteny, Jayana, Ericka, Prothaniel, and Mrs. McMillon!
ECON 101: GOLD
SUPPLY
The gold supply depends on new mined gold, recycled "scrap" gold, and the fluctuating investment/divestment currents of Central Banks. Up until 1973 gold was still being used as currency in parts of the world. This is no longer the case. Rather, Central Banks hold gold as part of their currency reserves, with some countries clutching it more tightly than others. For example, of the United States' currency reserves, 60.4% or 8,134 tons are in gold. China and Japan's gold reserves, however, hover around 1%. Though gold makes up only a quarter of Switzerland's reserves, they are famous for rarely selling.
Gold follows a supply/demand mechanism just like any other traded product. If Central Banks are selling a lot of gold, the market supply increases - as it did in the 1990s and early 2000s - and gold prices fall. Then the banks agree to reduce or stop sales and prices rise. In the meantime, banks are lending and borrowing and collecting... all that abstract stuff money-pushers do that makes the world go 'round and motivates us for another dirtbag adventure.
This movement of gold via buying/selling from reserves, coupled with production from "scrap" metals makes up only 1/3 of the annual supply. The remaining 2/3 comes from New Mined Gold, such as the Barrick operation in Argentina (Veladero site) and the potential site in Chile (Pascua Lama).
DEMAND
MY BIG FAT INDIAN WEDDING
The demand side is far more interesting. While the Central Banks utilize gold reserves as a hedge against inflation, the largest demand catagory for gold is jewelry. About one-third of this demand stems from the western markets' taste for gold as a luxury good whose value depends on the subjectivity of societal whimsy. However, the majority of the gold flows to the developing world and specifically India where 80-85% of the 600 tons/year goes to jewelry. The cultural appeal of gold for Indian weddings has proven impervious to market fluctuations; demand for jewelry fabrication has remained high regardless of the overall economy's success or recession. This "wedding buying" demand as economists call it is so reliable that it softens the ups and downs of overall gold prices.
I WANT CANDY
And the final, much smaller catagory demanding gold production is the industrial sector that values gold's unique electrical conductivity properties and potential as a chemical catalyst. And, of course, Mike Tyson and I enjoy the security of mouth gold for crunching down on raspberry hard candies.
The gold supply depends on new mined gold, recycled "scrap" gold, and the fluctuating investment/divestment currents of Central Banks. Up until 1973 gold was still being used as currency in parts of the world. This is no longer the case. Rather, Central Banks hold gold as part of their currency reserves, with some countries clutching it more tightly than others. For example, of the United States' currency reserves, 60.4% or 8,134 tons are in gold. China and Japan's gold reserves, however, hover around 1%. Though gold makes up only a quarter of Switzerland's reserves, they are famous for rarely selling.
Gold follows a supply/demand mechanism just like any other traded product. If Central Banks are selling a lot of gold, the market supply increases - as it did in the 1990s and early 2000s - and gold prices fall. Then the banks agree to reduce or stop sales and prices rise. In the meantime, banks are lending and borrowing and collecting... all that abstract stuff money-pushers do that makes the world go 'round and motivates us for another dirtbag adventure.
This movement of gold via buying/selling from reserves, coupled with production from "scrap" metals makes up only 1/3 of the annual supply. The remaining 2/3 comes from New Mined Gold, such as the Barrick operation in Argentina (Veladero site) and the potential site in Chile (Pascua Lama).
DEMAND
MY BIG FAT INDIAN WEDDING
The demand side is far more interesting. While the Central Banks utilize gold reserves as a hedge against inflation, the largest demand catagory for gold is jewelry. About one-third of this demand stems from the western markets' taste for gold as a luxury good whose value depends on the subjectivity of societal whimsy. However, the majority of the gold flows to the developing world and specifically India where 80-85% of the 600 tons/year goes to jewelry. The cultural appeal of gold for Indian weddings has proven impervious to market fluctuations; demand for jewelry fabrication has remained high regardless of the overall economy's success or recession. This "wedding buying" demand as economists call it is so reliable that it softens the ups and downs of overall gold prices.
I WANT CANDY
And the final, much smaller catagory demanding gold production is the industrial sector that values gold's unique electrical conductivity properties and potential as a chemical catalyst. And, of course, Mike Tyson and I enjoy the security of mouth gold for crunching down on raspberry hard candies.
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