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Mining investments: know where to hold ’em

As in real estate, mining is also about location, location, location.

Investors have to consider where a project is situated when looking at this type of investment, as geopolitical issues, messy regulatory processes and heavy taxation or royalty rules are all things than can affect a mine, say analysts. High risk and remote areas can be costly to operate in and some governments continue to demand enormous contributions from the mining sector. In recent years, some of the industry's heavy hitters have been forced to abandon their projects due to these factors.

It's expected that more mining companies are going to venture into riskier territory to explore new project prospects because areas in safer zones, such as the United States, Canada and Australia, are being rapidly depleted.

Investors must be aware of the risks in these regions because it could affect the projects and, as a consequence, the company share prices. It may also have an impact on how much a company's stocks are valued, as experts expect the value of these projects to be closely linked with their geographical location, so investors may pay a premium for a less risky locale.

Perhaps the most notable example is Barrick Gold Corp.'s Pascua-Lama mine located on the Argentinean-Chilean border. The company announced last October it would stop development of its mine indefinitely. To date, the project has cost the world's largest gold producer more than $5-billion (U.S.) and is expected to cost about $8.5-billion to complete. It was originally estimated to cost $3-billion. The announcement came after the company was fined more than $15-million by the Chilean government for alleged breaches in environmental controls. The company has said the cause was related to high costs and political disputes, as well as regulatory issues. It noted the lack of skilled labourers and a 50-per-cent increase in per-hour labour rates were also major factors.

Barrick Gold Corp.


Status: On-hold (indefinitely) due to high costs and disagreements with local government.
Owned by: Toronto-based Barrick Gold Corp.
Location: Frontera district on the Chile-Argentina border
Resources: Gold, silver, copper and other minerals)
Shares at press time: $22.36 (Cdn) on the TSX

Olympic Dam

Status: Expansion project was put on hold in August, 2012, due to high labour costs and depressed metal prices, but the project is now expected to return to profitability and expansion plans are progressing, according to reports this month.
Owned by: Melbourne, Australia-based BHP Billiton Ltd.
Location: South Australia, about 560km northwest of Adelaide
Resources: Copper, uranium, gold, silver
Shares at press time: $70.33 (U.S.) on the NYSE
Kinross Gold Corp.

Fruta del Norte

Status: Kinross announced last June that it would abandon its project due to continued disputes with the Ecuadorian government.
Owned by: Toronto-based Kinross Gold Corp.
Location: Equador, southeastern province of Zamora Chinchipe
Resources: gold and silver
Shares at press time: $5.66 (Cdn) on the TSX

Ring of Fire

Status: In November, Cliffs Natural Resources announced an indefinite halt to its Chromite Development Project in Northern Ontario’s Ring of Fire mining area. The company cited land rite issues, regulatory roadblocks and delays in negotiations with the Ontario government as a major cause. High costs of infrastructure were also cited.
Owned by: Cleveland, Ohio-based Cliffs Natural Resources Inc.
Location: Northern Ontario, 400 kilometres North East of Thunder Bay
Resources: chromite
Shares at press time: $22.21 (U.S.) on the NYSE
Daniel Rompre/Osisko

Canadian Malartic

Status: The project saw a rocky start as it went into production in 2011, but consistently increasing results in 2012 and 2013 show the property to be successful and recognized as Canada’s largest open pit gold mine. Goldcorp has recently made a hostile bid for Osisko, noting the success of this asset.
Owners: Montreal-based Osisko Mining Corp.
Location: Northwestern Quebec, in the Abitibi Gold Belt, south of the town of Malartic
Resources: Gold
Shares at press time: $6.95 (Cdn) on the TSX
New Gold

New Afton

Status: Began production at the copper/gold project ahead of schedule in July, 2012, and had increased its production since. The mine is expected to produce an average of 85,000 ounces of gold and 75 million pounds of copper a year over its estimated 12-year mine life.
Owned by: Vancouver-based New Gold
Location: British Columbia, 10 kilometres west of Kamloops
Resources: copper, gold
Shares at press time: $7.08 (Cdn) on the TSX
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